Thursday, May 05, 2011

NMHC Quarterly Apartment Survey: Market Conditions Tighten

by Bill McBride on 5/05/2011 11:29:00 AM

From the National Multi Housing Council (NMHC): Apartment Sector Sets Records In Market Tightness And Equity Availability, NMHC Market Conditions Survey Finds

The Market Tightness Index, which examines vacancies and rents, rose to a record 90 from 78 last quarter. ... Almost four in five respondents (79%) said markets were tighter (lower vacancies and/or higher rents) and—for the first time ever—not a single respondent thought conditions were looser.

“The apartment industry rebounded strongly in 2010 as demand for apartment residences outpaced the sluggish recovery in the job market nationally,” said NMHC Chief Economist Mark Obrinsky. “These results show the apartment industry continues to do well even though the nation’s overall rate of economic growth has slowed. This is driven largely by the increased appeal of renting generally but also by the large number of young people entering the housing market for the first time—and young people are much more likely to rent than buy.”
Apartment Tightness Index
Click on graph for larger image in graph gallery.

This graph shows the quarterly Apartment Tightness Index.

The index has indicated tighter market conditions for the last five quarters and increased to a record 90 in April. A reading above 50 suggests the vacancy rate is falling and / or rents are rising. This data is a survey of large apartment owners only.

This fits with the recent Reis data showing apartment vacancy rates fell in Q1 2011 to 6.2%, down from 6.6% in Q4 2010, and 8% in the Q1 2010.

Two key points I've made over and over are 1) with falling vacancy rates and rising rents, the number of multi-family starts will pick up sharply this year (but still be well below normal), and 2) this pickup will lead to a positive contribution to GDP and payroll jobs for construction in 2011, the first positive contribution for either since 2005. This survey reinforces both points.

A final note: This index helped me call the bottom for effective rents (and the top for vacancy rate) a year ago.