NAHB: Demand Buoys Apartment Builder’s Confidence

Washington, May 22, 2007--Strengthening demand and steady increases in occupancy levels in rental apartments with five or more units buoyed multifamily builder confidence in the first quarter of 2007, and the next six months are expected to be even better, according to the latest Multifamily Rental Market Index (MRMI), released today by the National Association of Home Builders (NAHB).

“We’ve seen the national vacancy rate for rental apartment communities drop more than two percent between the first quarter of 2006 and the first quarter of 2007,” said NAHB Chief Economist David Seiders. “Despite some competition from unsold condo units that have come onto the market as rentals in recent months, demand is still outpacing supply for rental apartments.”

The component of the MRMI that tracks demand held just about steady for all classes of apartments from this time a year ago. The index for Class A luxury apartments stood at 60.7 in the first quarter, just a bit lower than the 61.6 of a year ago. The index gauging demand for moderate apartments (Class B) dropped just slightly from 71.4 the same time a year ago to 67.3 in the first quarter. Lower-price apartments (Class C) gained a point, with the index inching up to 68.0 in the first quarter from 67.0 a year ago. The scale is from 0 to 100, and any number over 50 indicates that more multifamily builders view conditions as good than poor.

The quarterly survey also asks multifamily builders to rate the volume of traffic and calls from prospective renters to assess their expectations for the market over the next six months. In the first quarter of 2007, the components of the MRMI gauging builders’ expectations jumped for all classes of apartments, with the index for luxury apartments seeing the most significant gain--more than 12 points--to reach 73.2 in the first quarter. The indexes for Class B and Class C apartments stood at 71.2 and 68.0, respectively in the first quarter, up from 70.0 and 63.0 at the same time a year ago.

Meanwhile, the indexes tracking supply declined slightly in the first quarter of 2007 compared to the same period a year ago. Market-rate rentals shaved off just under a point to go from 54.6 a year ago to 53.5 in the first quarter. The index for affordable (federally subsidized) apartments stood at 53.5, compared with 54.6 a year ago.

The bump up in demand at a time when supply seems to be relatively constrained is also driving up rents. The responses of multifamily housing owners surveyed in the first quarter produced an index value of 78.0 on the component of the MRMI that tracks asking rent levels.