The National Association of Home Builders (NAHB) reported that builder confidence in current multifamily market conditions dipped in the second quarter of 2007 amid concerns that an excess supply in the for-sale market is creating a shadow inventory of available rentals, according to the results of its Multifamily Rental Market Index (MRMI).
"Occupancy rates are still reasonably good for rental apartments, but the significant correction we are currently experiencing in the for-sale segment is having some spillover effect," said David Seiders, NAHB's Chief Economist. "It is probably good for the long-term health of the market that rental apartment developers are easing up their plans for new supply."
The MRMI indicated that rental demand slipped for all classes of apartments. For the second quarter of 2007, the component of the index that gauges market supply conditions moved down slightly.
Multifamily builders apparently remain optimistic about the next six months. All the components of the index that track builder expectations for rental demand remained positive. Survey respondents indicated that the volume of calls from prospective renters stayed strong.
Despite the continuing strength in rental demand, builders appear cautious about increasing supply. The MRMI found that builder expectations for supply over the next six months are lower than at the same time last year, with the index for market rate rentals dropping from 61.2 in the second quarter of 2006 to 55.6 in the second quarter of 2007. The same supply index for lower rent apartments dipped to 45.7, down from 54.4 at the same time a year ago.
Note: NAHB created the MMI, a quarterly nationwide survey of multifamily builders and property owners who are asked a series of questions about current market conditions as well as their expectations for the next six months, tracking builder confidence in both the for-sale condo market and the rental apartment market. To more accurately gauge both segments of the market, NAHB separated the indexes into two versions in 2006: The Multifamily Rental Market Index (MRMI) tracks multifamily rental conditions while the Multifamily Condo Market Index (MCMI) tracks market conditions for condos.
Source: NAHB