U.S. Multifamily Housing Production Index Shows Continued Market Improvement in 2Q

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The multifamily housing market continued to show improvement in the second quarter of 2011, according to the National Association of Home Builders (NAHB) Multifamily Production Index (MPI).

This is the fourth consecutive improving quarter for this sector.

The MPI rose from 41.7 in the first quarter of the year to 44.4 in the second quarter. It is the highest quarterly reading since 2006, and continues the trend of generally improving conditions in the market for new multifamily housing that has emerged since the MPI dropped to a record low of 16.0 in the third quarter of 2008.

The index provides a composite measure of three key elements of the multifamily housing market: construction of low-rent units, construction of market-rate-rent units, and construction of "for sale" units. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse. In the second quarter of 2011, a majority of developers saw improvements in the production of low-rent and market-rate units.

"Multifamily rental construction is trending upward, and it is definitely the brightest sector in the broader housing market," said NAHB Chief Economist David Crowe. "However, the entire housing market continues to be very fragile and subject to many external pressures, including an ongoing shortage of financing for new projects."

Looking forward, developers' expectations about multifamily construction for the next six months improved in the second quarter in all three market components: low-rent, market-rate-rent and for-sale multifamily. However, Crowe cautioned that the current climate of overall economic uncertainty is making builders and consumers cautious and having a dampening effect on expectations.

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, increased slightly from 35.0 in the first quarter of 2011 to 36.1 in the second quarter. With the MVI, lower numbers indicate fewer vacancies. Crowe noted that recent small increases in the MVI follow an extended period of improvement, and over the past three quarters the MVI has been lower than at any time since the second quarter of 2007. Crowe also noted that multifamily developers and property owners expect vacancy rates to decline over the next six months.

"Even though multifamily is trending upward, production is still very low in a historic context and in the context of what we project is necessary to meet long-term demand," Crowe said.

He added that the Multifamily Production Index and the Multifamily Vacancy Index have emerged as leading indicators for the multifamily market, providing information about potential movement in Census Bureau tabulations in advance of their release.

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