Thursday, January 14, 2016

NMHC: "Apartment Markets Recede in the January NMHC Quarterly Survey"

by Bill McBride on 1/14/2016 12:36:00 PM

From the National Multifamily Housing Council (NMHC): Apartment Markets Recede in the January NMHC Quarterly Survey

All four indexes in the January 2015 National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions fell below the breakeven level of 50, indicating a decline over the past quarter. The last time Market Tightness (47), Sales Volume (46), Equity Financing (46) and Debt Financing (37) all landed below 50 was in October 2013.

“After an incredible year for the apartment industry, some weakening has appeared reflecting seasonal patterns along with additional pullback in some markets,” said Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist.

2015 was one for the record books. Construction of new apartments rose to the highest level in almost 30 years, while the occupancy rate continued to climb and rent growth accelerated,” said Obrinsky. “All signs point to continued strong demand for apartment residences. With new supply finally approaching the level needed to meet new demand, we may well see some moderation in both occupancy and rent growth.”

Consumer demand for apartments declined slightly, with the Market Tightness Index coming in at 47 from 53 last quarter. This marks the first time in two years that the index showed a contraction from the previous quarter.
Apartment Tightness Index
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading below 50 indicates looser conditions from the previous quarter. This indicates market conditions were looser over the last quarter.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010.

There is a seasonal pattern for "tightness", and January is typically weaker for apartments - but it does appear supply is catching up with demand (the vacancy rate is also starting to increase slightly).