Apartment Markets Soften in the January NMHC Quarterly Survey


WASHINGTON, D.C. — Apartment markets continued to retreat in the January National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. All four indexes of Market Tightness (25), Sales Volume (25), Equity Financing (33) and Debt Financing (14) remained below the breakeven level of 50 for the second quarter in a row.


“Weaker conditions are evident across all sectors as the apartment industry adjusts to changing conditions,” said Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist. “Rising supply—particularly during a seasonally weak quarter—is causing rent growth to moderate in many markets. At the same time, the sharp rise in interest rates in recent months was a triple whammy for the industry. First, higher rates directly worsen debt financing conditions. Second, the associated rise in cap rates also put a crimp in sales of apartment properties. Third, higher cap rates following the long run-up in apartment prices caused greater caution among equity investors.”


“The underlying demand for apartment residences remains strong, however. While new apartments continue to come online at a good clip, absorptions of those apartments remain strong. As long as the job market continues its steady expansion, any local supply overshoots should be manageable,” said Obrinsky.


The Market Tightness Index dropped three points to 25 – the fifth consecutive quarter of declining conditions and the lowest in more than seven years. Over half (58 percent) reported looser conditions from three months ago, compared to only eight percent who reported tighter conditions.


The Sales Volume Index fell from 42 to 25, signifying lower overall sales volume for the second quarter in a row. Just five percent reported higher sales than three months prior, compared to 55 percent that reported lower sales.


The Equity Financing Index remained unchanged at 33. This marks the fifth consecutive quarter of declining conditions. Like the other indexes only a small fraction (six percent) indicated improved conditions compared to the previous three months. Conversely, four in ten reported less equinity financing available over the same period.


The Debt Financing Index declined 24 points to 14. Almost three quarters (74 percent) reported worse borrowing conditions compared to the three months prior. Just one percent reported improved conditions. This marks the lowest index level for the series since October 2008.


About the Survey:


The January 2017 Quarterly Survey of Apartment Market Conditions was conducted January 10-17, 2017; 148 CEOs and other senior executives of apartment-related firms nationwide responded.