Thursday, April 26, 2012

NMHC Apartment Survey: Market Conditions Tighten in Q1 2012

by Bill McBride on 4/26/2012 01:07:00 PM

From the National Multi Housing Council (NMHC): Market Conditions Improve For Apartment Industry

Optimism continues for the apartment industry, according to the latest results of the National Multi Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. The findings reflect a gradual recovery for the multifamily sector that faced a 50-year low in apartment starts in 2009.

The Q1 2012 survey’s four indexes measuring Market Tightness (74), Sales Volume (57), Equity Financing (62) and Debt Financing (65) remained above 50 for the eighth time in the past nine quarters. Any number above 50 indicates quarter-to-quarter growth.

"Market conditions improved across the board, even from the rather strong level of three months ago,” said NMHC Chief Economist Mark Obrinsky. “Demand for apartment residences – and apartment properties – continues to grow. We anticipate this increasing further in the coming years due in part to the large number of younger households moving into the housing market and a greater preference shown for renting.”
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The Market Tightness Index increased to 74 from 60. Nearly half (49 percent) reported tighter markets – reflecting lower vacancy rates and/or higher rents – compared to only one percent reporting looser markets.
Apartment Tightness Index
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tightening from the previous quarter. The index has indicated tighter market conditions for the last nine quarters and suggests falling vacancy rates and or rising rents.

This fits with the recent Reis data showing apartment vacancy rates fell in Q1 2012 to 4.9%, down from 5.2% in Q4 2011, and 9.0% at the end of 2009. This is the lowest vacancy rate in the Reis survey in over 10 years.

This survey indicates demand for apartments is still strong. And even though multifamily starts increased in 2011, completions of apartments were near record lows - so supply was constrained. There will be more completions in 2012, but it looks like another strong year for the apartment industry.

A final note: This index helped me call the bottom for effective rents (and the top for vacancy rate) early in 2010.

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