NMHC Survey Shows Hopeful Signs for Apartment Markets

Conditions Suggest Industry May Be at the Bottom of this Downturn

WASHINGTON, DC -- After several quarters of increasing vacancy rates and negative rent growth, the apartment sector may no longer be getting worse, according to the National Multi Housing Council’s (NMHC) latest quarterly Survey of Apartment Market Conditions (July 2003).

“While it is still too early to say we have turned the corner,” says NMHC Vice President of Research and Chief Economist Mark Obrinsky, “this quarter’s survey results offer the first real glimmer of hope.” 

The NMHC survey includes four indexes: a Market Tightness Index, a Sales Volume Index, an Equity Financing Index and a Debt Financing Index.  For each index, a score above 50 indicates improving conditions.  In the July 2003 NMHC Survey of Apartment Market Conditions, three of the four indexes were hovering around 50, which suggests that the sector may be bouncing along the bottom of the current economic downturn.  

“Right now the key is job growth,” notes Obrinsky.  “If the economy strengthens over the rest of this year—as many forecasters are expecting—that would set the stage for a solid rebound in the apartment market.”

Apartment market conditions (i.e., vacancy rates, rent increases) showed some improvement.  While still below 50—indicating that apartment markets are generally getting looser—the July 2003 Market Tightness Index score of 45 is the highest in two-and-a-half years.    Sixteen percent of respondents said markets conditions, on balance, were tighter than three months ago, up from 10 percent in July.  One quarter of respondents noted that conditions are looser, while 57 percent saw conditions as unchanged.

Since few industry observers expect the industry to return to the historically unprecedented occupancy rates achieved prior to this recession, this quarter’s survey asked respondents to look beyond the current weakness and assess what the sustainable long-term occupancy rate is likely to be.  The majority (55 percent) see a 93-94 percent rate as sustainable.  One-quarter indicated their markets are likely to see occupancy rates of 95-96 percent, while only two percent thought their markets could sustain a long-term occupancy rate of higher than 96 percent.

Financing conditions showed the greatest improvement this quarter.  When asked about mortgage availability, 40 percent said now is a better time to borrow than three months ago. That is up significantly from 26 percent in April 2003.  The Debt Financing Index rose to 66, from 55 in April.  Debt financing conditions have been improving for five straight quarters. 
 
Despite improved lending conditions, however, underwriting standards remain conservative, which has resulted in fewer defaults despite the downturn.  Non-current loans at banks, for example, remain close to their lowest levels ever.

Equity financing was about unchanged this quarter.  Fifteen percent of respondents said equity was more available than three months ago, while 17 percent said conditions were worse.  As a result, the Equity Financing Index was little changed, at 49, compared with 51 in April and 52 in January. 

Apartment sales also remained at the high level of last quarter, as indicated by the Sales Volume Index reading of 51.  This confirms anecdotal reports that investors continue to view apartments favorably. 

Full survey results are posted at www.nmhc.org/Content/ServeContent.cfm?ContentItemID=2973.  NMHC’s quarterly survey was conducted via e-mail July 14-21 and was sent to CEOs and senior apartment firm executives who serve on NMHC’s Board of Directors and Advisory Committee.

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Based in Washington, DC, NMHC is a national association representing the interests of the larger and most prominent apartment firms in the U.S.  NMHC's members are the principal officers of firms engaged in all aspects of the apartment industry, including ownership, development, management and financing.  More than one-third of Americans rent their housing, and one in five Americans lives in an apartment.  For more information, contact NMHC at 202/974-2300, e-mail the Council at info@nmhc.org, or visit NMHC's web site at www.nmhc.org.

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