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Monday, July 30, 2012

NMHC Apartment Survey: Market Conditions Tighten in Q2 2012

by Calculated Risk on 7/30/2012 04:51:00 PM

From the National Multi Housing Council (NMHC): Apartment Market Hot Streak Continues

For the sixth quarter in a row, the apartment industry improved across all indexes in the National Multi Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions. The survey’s indexes measuring Market Tightness (76), Sales Volume (54), Equity Financing (58) and Debt Financing (77) all measured at 50 or higher, indicating growth from the previous quarter.

“The apartment sector’s strength continues unabated,” said NMHC Chief Economist Mark Obrinsky. “Even as new construction ramps up, higher demand for apartment residences still outstrips new supply with no letup in sight. Despite the need for new apartments, acquisition and construction finance remains constrained in all but the best properties in the top markets.”
Majority report increased market tightness. The Market Tightness Index edged up to 76 from 74. For the first time in a year, more than half (55 percent) of respondents said that markets were tighter. By contrast, only 2 percent reported the markets as loosening and 43 percent reported no change over the past three months.
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 ten quarters and suggests falling vacancy rates and or rising rents.

This fits with the recent Reis data showing apartment vacancy rates fell in Q2 2012 to 4.7%, down from 4.9% in Q1 2012, and down from 9.0% at the end of 2009. This was 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 have been increasing, completions lag starts by about a year - so the builders are still trying to catch up. There will be more completions in 2012 than in 2011, but it looks like another strong year for the apartment industry.

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 - and will probably be useful in indicating when the vacancy rate will stop falling.