Multi-Family Housing Still Contracting

Washington, DC, Aug. 18, 2009--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 from National Association of Home Builders Multifamily Market Index.

NAHB’s indexes for the second quarter 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.”

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.  

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.