Monday, January 19, 2009

Apartment Market Weakens Further

by Bill McBride on 1/19/2009 05:09:00 PM

From the National Multi Housing Council (NMHC): Job Losses, Credit Market Conditions Challenge The Apartment Sector, According to NMHC Survey

The stunning job losses and economic deterioration recorded over the past four months have eroded demand for apartments, putting the sector—like other real estate sectors and the economy itself—in a clearly "down" phase of the cycle, according to the National Multi Housing Council's (NMHC) latest Quarterly Survey of Apartment Market Conditions.
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"The long-term prospects for the sector are strong," explained [Mark Obrinsky, NMHC's Chief Economist]. "The number of people between 20-34 years of age is rising rapidly, and as they enter the rental market, demand will rise correspondingly. For now, though, that demographic advantage is being trumped by the worsening job market, which is leading more people to move back in with family or take on roommates to save on housing costs."

"At the same time, the financial crisis is having a material impact on current or planned activities at most apartment firms," said Obrinsky. "Nearly two-thirds of respondents (62 percent) said the credit crisis has had a material impact on current and planned activities. The lack of capital has slowed sales volume, made it difficult to refinance maturing debt and caused many firms to cancel new developments."

The Market Tightness Index, which measures changes in occupancy rates and/or rents, declined sharply this quarter to 11 from 24. This is the third-lowest result on record, and the sixth straight quarter in which the index has been below 50.
Apartment Tightness Index
Click on graph for larger image in new window.

This graph shows the quarterly Apartment Tightness Index.

As NMHC chief economist Obrinsky noted, it is common in a recession for apartment vacancies to rise, as households double up by moving in with a friend or family member. However an added factor in this recession is all the single family homes being offered as rentals. This is additional competition for apartments and might also be impacting demand for apartments.