Thursday, April 20, 2017

NMHC: Apartment Market Tightness Index remained negative in April Survey

by Bill McBride on 4/20/2017 12:41:00 PM

From the National Multifamily Housing Council (NMHC): Apartment Markets Sluggish in the April NMHC Quarterly Survey

Despite moderate improvements over the first quarter of 2017, all four indexes of the National Multifamily Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions remained below the breakeven level of 50. The Market Tightness (41), Sales Volume (30), Equity Financing (42), and Debt Financing (41) all indicated continued softening conditions in apartment markets even as demand for apartment residences remains strong.

“Although all four indexes rose in April, they remain below the breakeven level of 50,” said Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist. “After years of lagging behind the increase in apartment demand, new supply is finally coming online in sufficient quantity to alter this supply-demand imbalance. In particular, class A supply in many urban core submarkets has led to increased concessions to fuel lease-up activity. Even so, occupancy rates remain close to historic highs.

“In the investment market, some of the weakness in property sales is seasonal, but respondents reported caution on the part of buyers as well as debt and equity capital sources – in particular in regard to construction lending. Increased uncertainty about the outlook for interest rates and cap rates also appears to be playing a role.”

The Market Tightness Index increased from 25 to 41, as one-fifth of respondents (20 percent) reported tighter conditions than three months ago, up from eight percent in January. Over one-third (38 percent) noted looser conditions. While this marks the sixth consecutive quarter of overall declining conditions, it does mark an uptick from the previous quarter.
emphasis added
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.

This is the sixth consecutive quarterly survey indicating looser conditions - it appears supply has caught up with demand - and I expect rent growth to continue to slow.