WASHINGTON, D.C. - Apartment markets continued to show mixed conditions in the July 2016 National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. For the third quarter in a row, the Market Tightness (43) and Equity Financing (44) Indexes remained below the breakeven level of 50. Conversely, the Debt Financing Index came in at 62 and the Sales Volume Index landed right at 50.
“Apartment markets remain strong, but the surge of new apartment construction is starting to shift the supply-demand balance, particularly in the market for upscale apartments,” said Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist. “Given that most new supply is class A, we’re not seeing the same shift in class B and C apartments. In addition, some weakness in the Market Tightness Index may be just seasonality.”
For the third quarter in a row, the Market Tightness Index, which was unchanged at 43, showed supply a bit stronger than demand. Almost one-third of respondents (31 percent) reported looser conditions than three months ago. At the other end, 18 percent noted tighter conditions, while over half (51 percent) reported no change.
The Equity Financing (down one point to 44) and Debt Financing Indexes (up 12 points to 62) continued their divergent trends. While this is the third quarter in a row of declining equity financing conditions, this marks the second quarter of sizable growth in debt financing after a marked decline in 2015. The sharp fall in Treasury yields following the “Brexit” vote in the United Kingdom is the main reason for the improvement in this index over last quarter.
The Sales Volume Index decreased by three points to 50, signifying unchanged sales volume. In the special question on apartment prices, apartment property prices are currently “frothy,” according to 54 percent of respondents, meaning that investors in apartment properties will likely be satisfied so long as current trends in net operating income (NOI) continue and cap rates don’t back up.
Of the remaining special question participants, 27 percent reported normal property prices, while 19 percent - the smallest, yet still sizeable subset - feel as if prices have entered into bubble territory. No respondents considered apartments undervalued at present. (Note: percentages exclude those who answered “Don’t know.”)
About the Survey:
The July 2016 Quarterly Survey of Apartment Market Conditions was conducted July 11-July 18, 2016; 119 CEOs and other senior executives of apartment-related firms nationwide responded.