Wednesday, February 03, 2010

NMHC Quarterly Apartment Survey: Occupancy Continues to Decline, but Pace Slows

by Bill McBride on 2/03/2010 01:12:00 AM

Note from NMHC: "Market Tightness Index reading above 50 indicates that, on balance, apartment markets around the country are getting tighter; a reading below 50 indicates that market conditions are getting looser; and a reading of 50 indicates that market conditions are unchanged."

So the increase in the index to 38 implies lower occupancy rates and lower rents - "looser" apartment conditions - but at a slower pace of contraction than the previous quarter.

From the National Multi Housing Council (NMHC): Apartment Market Conditions Steady; Sales Volume and Equity Financing Improve, According to NMHC Quarterly Survey

The Market Tightness Index’s sub-50 reading of 38 indicates that vacancy and/or rent conditions deteriorated over the last quarter. Thirty percent of respondents said markets were looser, meaning higher vacancies and/or lower rents; only seven percent reported that markets were tighter.
...
“This quarter saw a continued uptick in sales volume and equity financing, which represent another step, albeit a small one, toward a more normal transactions market, after 2009 recorded the lowest number of transactions of the decade,” said NMHC Chief Economist Mark Obrinsky.

“The weakest performing index is the Market Tightness Index,” said Obrinsky, “underscoring the fact that full recovery of occupancy and rents will require job growth to return to the economy. When that happens, and as a large wave of Echo Boomers begins to enter a supply-constrained market, we should see above average rent growth.”
emphasis added
Apartment Tightness Index
Click on graph for larger image in new window.

This graph shows the quarterly Apartment Tightness Index.

A reading below 50 suggests vacancies are rising. Based on limited historical data, I think this index will lead reported apartment rents by 6 months to 1 year. Or stated another way, rents will probably fall for 6 months to 1 year after this index reaches 50. Right now I expect rents to continue to decline through most of 2010.

This data is for apartment buildings. The data released yesterday from the Census Bureau - showing a 10.7% rental vacancy rate - includes all rental units.