Washington, DC, June 2--The multifamily sector of the housing market performed well in the first quarter of 2005 and is expected to continue to improve, according to the latest Multifamily Market Index (MMI), which was released today by the National Association of Home Builders (NAHB).
Compared to last year’s first quarter, multifamily starts were up in all sectors including for-sale, affordable rentals and market rate rentals. Occupancy levels also increased in every class of rental apartments as did calls from prospective renters, asking rents and effective rents.
In additional positive news for the multifamily market, rental vacancies nationwide dropped from 8.5 percent in the fourth quarter of 2004 to 7.8 percent in the first quarter of 2005.
"The appeal of urban areas where people can live, work, and play — while escaping the drudgery of a long commute — is really benefiting the multifamily housing market," said Ron Terwilliger, chairman and CEO of Trammell Crow Residential and chair of NAHB’s Multifamily Leadership Board. "Whether they choose to rent or to buy, these consumers are looking for a specific lifestyle, and that bodes very well for the future of multifamily housing."
The MMI is based on a quarterly, nationwide survey of multifamily builders and property owners who are asked questions about current market conditions as well as their expectations for the next six months. Survey answers are assigned numerical values to calculate two separate indexes, one tracking demand and the other tracking supply. The scale is from 1 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.
The index gauging multifamily demand showed impressive gains in the first quarter of 2005, with the index for Class B apartments – the mid-range rent category – rising more than 15 points over the first quarter of 2004 to 60.6. Demand for luxury units rose 13.5 points over the previous year’s first quarter, while demand for modestly-priced apartments rose 6.2 points. MMI survey respondents also indicated that they expect this positive trend to continue over the next six months.
The index tracking the number of apartments available for rent continued to drop, decreasing from 60.4 in the first quarter of 2004 to 45.8 in the first quarter of this year. During that same period, the index tracking the volume of calls from prospective renters increased, rising from
56.2 to 69.1.
On the supply side, market-rate apartment starts showed the biggest gain, with the supply index for that category rising more than 8 points to 57.2 in the first quarter of 2005. Builders participating in the MMI survey said they expect even greater gains over the next six months.
Condos continued to be the strongest category in terms of current supply, at 66.9, but respondents expected starts to fall slightly over the next six months. The supply index of 51.6 for the for-sale segment was still positive, and planned construction should boost that number in the future.
"The demographic factors – baby boomers who want second homes or smaller-scale, maintenance free living, and the echo boomers just entering the work force – both serve to support a rising demand for condos and apartments," said NAHB chief economist David Seiders. "With job growth back and the conversion of many rental apartment units into condos, we’re seeing both the rental and for-sale sides of the market come back toward a healthy balance of supply and demand," he said.
