NAHB Reports Apartment Market Stalls, While Condo Market Shows Movement

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(News Source: National Association of Home Builders)

(WASHINGTON, DC) -- While some sectors of the housing industry are showing signs of rebounding, the apartment sector is on a slower trajectory for recovery according to data released today by the National Association of Home Builders (NAHB), in its Multifamily Market Index.

NAHB's Multifamily Market Indexes for the second quarter of 2009 continued a downward movement across all rental sectors.  The index value for market-rate apartment starts was at 16.7 - roughly the same level as the past three quarters and less than half the level shown last year at this time. The lower-rent apartment index fell to 21.3 - a dozen points lower than last year's second-quarter level. Lower-rent apartment starts expectations for the next six months showed some improvement by rising from 33.3 in the second quarter of 2008 to 38.2 in the second quarter of 2009.

The Condo index, which came in at a record low index value of 10 last year at this time, is now at about 15. The expectation index for condo starts six months into the future rose modestly to a level of 27.1, up from 21.0 in the second quarter of 2008.

"The continued contraction in multifamily starts is exacerbated by the 'shadow market' of empty foreclosed single-family homes and condos that are being rented at below-market rates by investor-owners," said David Crowe, NAHB's Chief Economist. "Lenders see the high apartment vacancy rates and vacant condo inventory, and step away from backing any new production."

Increased vacancies and slower absorptions confirm the builders' and developers' current market assessment. The current quarter's apartment vacancy rate, as reported in this survey, is 8.1 percent, 1.3 percentage points higher than last year at this time. During the second quarter, only 36 percent of new units were reported as being rented within 60 days, while last year's second quarter number was 54 percent. Demand for apartments fell as household formations and job creation numbers also dropped. The demand index for higher-end apartments fell by almost seven points from this time last year, to 27.1.

NAHB's Multifamily Market Indexes are derived from quarterly surveys of multifamily builders and developers in which they rank their perceptions of the current conditions and expectations for the new future as "good," "fair," or "poor."  The responses are used to create a scale of 0 to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses.

This survey also included a series of special questions concerning condo sales. While 41 percent of those surveyed reported no change in their firms' sales cancellation rate, as compared with last year's second quarter, 38 percent reported higher or substantially higher cancellation rates, with only 21 percent reporting lower cancellation rates. Nearly three quarters of the cancelled sales were to individual buyers and a smaller portion (19 percent) to individual investors. Fewer than one-in-ten cancelled sales were to a corporate or large investor buyer.

Just over half of builders report that they've dropped their condo prices and the average reduction is 17 percent. Other top marketing incentives include optional items at no cost, paying for closing costs or fees and absorbing financing points.

"The depressed current level and six-month expectations for multifamily construction is likely to result in supply shortages in rental apartments one to two years from now when the economy recovers," said Crowe.

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