Multifamily Construction Improves

Multifamily Construction Improves WASHINGTON, DC - Like other sectors of the housing market, the multifamily sector showed signs of improvement in the third quarter of 2009, according to data released today by the National Association of Home Builders (NAHB), in its Multifamily Market Index.

NAHB's Multifamily Market Rental Indices for the third quarter of 2009 showed increases when compared to a year earlier: the index for current starts of low-rent apartments rose from 22.2 to 30.4, while the index for low-rent starts in the next six months rose from 20.3 to 41.3. The index for current starts of market-rent apartments also rose from 15.7 to 19.4, and from 19.1 to 32.7 for future starts.

The current condo index showed upward momentum as well, rising to 24 in the third quarter of 2009, from 8.1 a year earlier. The future index for condo starts gained more than 20 points to reach 30.4 in the third quarter of 2009. The index measuring traffic of prospective condo buyers rose to 41.3 from 13.8 a year ago, showing further evidence of improvement in the condo market.

All of NAHB's multifamily market indices are constructed so that a number below 50 indicates more multifamily builders reporting that market conditions have gotten weaker since the previous quarter than reporting that conditions have gotten stronger. All the multifamily supply indexes have been running below 50 since the third quarter of 2007. The current condo supply index has been below 50 since the last quarter of 2005. However, the large year-over-year increase in the index indicates that the market for condos is at least moving in the direction of stability.

"The move toward more stable condo markets in many areas is likely a response to increased market activity from the first-time home buyers who were eligible for the $8,000 credit and chose to purchase condos," said NAHB Chief Economist David Crowe. "The recent extension and expansion of the tax credit to include repeat buyers should improve the condo situation further."

While the multifamily market indices measuring current rental demand were little changed on a year-over-year basis, indices measuring expected demand for apartments in the next six months rose for all types of apartments. For lower-end apartments, the future index increased to 43.9 in the third quarter of 2009, compared to 28.2 a year earlier.

Asking rents and effective rents (net of concessions), however, do not yet show progress. In the third quarter of 2009, the index measuring asking rents dropped from 50.8 a year earlier to 41.7, while the index that measures effective rents declined from 38.5 to 26.6.

"Until we begin to see job growth instead of job losses," said Crowe, "we won't see the level of household formations necessary to push rental vacancy levels back down, and rents back up to levels that will more easily support professional management and maintenance."

NAHB's Multifamily Market Indexes are derived from a quarterly survey of multifamily builders and developers who rate current conditions and expectations for the future as "stronger," "about the same," or "weaker." The responses are used to create a scale of 0 to 100, with a rating of 50 indicating that the number of positive or "stronger" responses is the same as the number of negative or "weaker" responses.

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