U.S. Multifamily Market Shows Fifth Continued Quarterly Improvement

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Based on the National Association of Home Builders (NAHB) most recent Multifamily Production Index (MPI), a leading indicator for the multifamily market, shows a continued improvement for the fifth consecutive quarter for the U.S. apartment and condominium housing market.

The MPI, which tracks the sentiment of builders and developers about the conditions of the multifamily market on a scale of 0 to 100, increased from 44.4 in the second quarter to 47.3 in the third quarter--the highest reading since the fourth quarter of 2005.

The index provides a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and "for-sale" units, or condominiums. 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 third quarter of 2011, the MPI component tracking builder and developer perceptions of market-rate rental properties recorded an all-time high of 63.8, while low-rent units remained steady at 50.1. For-sale units rose to 31.9, the highest recording since the second quarter of 2006.

"Multifamily construction continues to be the bright spot in the overall housing market," said NAHB Chief Economist David Crowe. "While household formations have been below trend, those who are forming new households are becoming renters and this trend is likely to continue until consumers' confidence returns."

"Apartments and condominiums play an integral role in the overall housing market, now more than ever," said Stillman Knight, chairman of NAHB's Multifamily Council Board of Trustees and president and CEO of the Knight Company of Alexandria, Va. "The construction of these units not only brings jobs to local communities, but also provides an adequate stock of housing for areas with rapid population growth."

Looking forward to the next six months, builder and developer expectations improved in the third quarter for market-rate rental properties and for-sale properties, up to 67.2 and 37.3, respectively. Expectations for low-rent units decreased slightly, to 50.2.

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, decreased from 36.1 in the second quarter to 35.1 in the third quarter. With the MVI, lower numbers indicate fewer vacancies. The MVI has improved considerably since reaching a peak of 70.2 in the second quarter of 2009.

"NAHB's Multifamily Production Index and Multifamily Vacancy Index have emerged as leading indicators for the multifamily market," Crowe said. "For example, the MVI began to improve strongly in the third quarter of 2009, one quarter before a similar trend emerged in the Census Bureau's rental vacancy rate for buildings with at least five apartments. Although the Census shows a slight surge in rental vacancy rates in the latest quarter, our survey suggests that this will only be a temporary setback."

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