NMHC NEWS: Apartment Market Conditions Remain Positive According to New NMHC Quarterly Survey

Many Report Conditions Unchanged from Last Quarter 

WASHINGTON, DC – Conditions in the apartment market remain solidly positive on most facets, according to the National Multi Housing Council’s (NMHC) January 2007 Quarterly Survey of Apartment Market Conditions. 

“Conditions remain favorable for the apartment industry across the board,” said Mark Obrinsky, NMHC’s Chief Economist. “The survey does hint at a possible cloud on the horizon with more than one-fifth of respondents saying that market conditions were looser over the past three months. While it’s too early to say there’s a problem, the increase in the number of condos and single-family houses in the rental market may dampen the otherwise positive outlook for the apartment industry.”

“Over the long-term, however, fundamentals for the industry are extremely positive,” noted Obrinsky. “Thanks to the echo boomers – the children of the baby boomers – the population aged 20-34 (the prime renter group) will increase by 3.5 million.  Strong levels of immigration will also create new demand for rental housing.”

A look at four measures of market conditions follows; for all indexes, a reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.

The survey’s Market Tightness Index slipped slightly to 54. While this was the lowest level in three years, it is nonetheless the 14th consecutive quarter in which the index was above 50. In other words, demand for apartments (measured by lower vacancy rates, higher rents, or both) has been improving for 14 consecutive quarters and continues to do so. Nearly one-third (29 percent) of respondents reported tighter market conditions compared to three month ago. In most markets, however, conditions were generally unchanged, according to 49 percent of respondents. Just 21 percent reported seeing market conditions as looser.

The Sales Volume Index edged up a bit to 41. Still, this was the fifth straight sub-50 reading, indicating that there are more markets with lower sales volume of apartment properties than there are markets with higher sales volume. The further decline in the demand for apartment properties by condo converters continues to affect apartment sales volume. Excluding condo converters, apartment transactions actually strengthened over the last year. In fact, the volume of apartment property sales (excluding condos) in 2006 surpassed 2005’s record level of $59 billion, reaching $72 billion. 

The Debt Financing Index slipped a bit from last quarter to 56, but remained above 50 for the second consecutive quarter. The decline was likely the result of slightly higher interest rates over the last three  months. Only three percent of respondents thought that debt finance conditions had worsened—a figure that tied the record low for this question. One-sixth (16 percent) of respondents reported that borrowing conditions had improved compared with the previous three months, while 74 percent thought conditions were unchanged.

The Equity Financing Index was little changed at 56. This was the 14th straight over-50 reading, continuing testimony to the availability of equity capital for apartment investment. In fact, only two percent of respondents thought conditions had worsened, among the lowest figures ever recorded. Fully seventy-eight percent viewed conditions as unchanged.

Full survey results are posted at www.nmhc.org/Content/ServeContent.cfm?ContentItemID=4224.

The January 2007 Quarterly Survey was conducted January 22-29, 2007. Ninety CEOs and other senior executives of apartment-related firms nationwide who serve on NMHC’s Board of Directors or Advisory Committee responded.  The October 2006 quarterly survey was conducted October 23-30, 2006; 77 responded. The January 2006 quarterly survey was conducted January 23-30, 2006; 80 responded.

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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 owners, developers, managers and financiers.  Nearly one-third of Americans rent their housing, and almost 14 percent live in a rental 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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