Condo Builders' Confidence Up

Washington, DC, March 5, 2007--Condo builders reported somewhat better market conditions in the fourth quarter of 2006 than in the previous quarter, according to the latest results of the National Association of Home Builders’ (NAHB) Multifamily Condo Market Index  (MCMI). The current-conditions index remained substantially lower than it was at the same time last year, but builders and developers are more optimistic about what they think the condo market will be doing six months out. Traffic of prospective buyers also rose slightly from the previous quarter.

“The condo market is coming back toward balance following the previous four quarters when the pendulum swung from red-hot to seriously cold,” said NAHB chief economist David Seiders. “What we are looking for--and likely to find in 2007--is a healthy and sustainable level of condo production that will fall short of the unsustainable levels registered during the earlier boom period, but that will meet current market demands.”

The component of the MCMI that tracks current condo market conditions showed an index value of 29.6, compared to a value of 47.1 during the fourth quarter of 2005; the index’s low point came during the third quarter of 2006, with a 19.7 value. The index gauging builder sentiment about condo market conditions over the next six months rose to a 49.1 value--the highest seen since the last quarter of 2005.

The MCMI is a quarterly, nationwide survey of multifamily builders and developers who are asked a series of questions about current market conditions as well as their expectations for the next six months. Survey answers are assigned numerical values on a 1 to 100 scale. A rating of 50 generally indicates that the number of positive responses is about the same as the number of negative responses.

The fourth quarter survey included a set of special questions concerning insurance costs for multifamily developers. More than 70 percent of the developers reported experiencing an increase in property insurance premiums during the past year. There were significant differences across regions regarding premium increases, varying from 38 percent of the developers in the Northeast to 43 percent in the Midwest, 78 percent in the West and 84 percent in the South.  Among the developers who reported property insurance premium increases, just over 50 percent reported a 1-to-24 percent increase, 18 percent said their increases were between 25 and 49 percent, 3 percent reported increases between 50 and 99 percent, and 8 percent said they received increases of 100 percent or more. Such increases can have a serious impact on affordability, especially in areas being rebuilt following the hurricane damage inflicted in 2005.