Wednesday, July 25, 2018

NMHC: Apartment Market Tightness Index remained negative for Eleventh Consecutive Quarter

by Bill McBride on 7/25/2018 04:02:00 PM

From the National Multifamily Housing Council (NMHC): July Apartment Market Conditions Show Improvement

Apartment market conditions improved across three of the four indexes measured by the July National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. The Sales Volume (55), Equity Financing (56) and Debt Financing Indexes (55) all increased to above the breakeven level of 50, while the Market Tightness Index came in at 46.

“The apartment industry is showing small, but unmistakable signs of improvement,” said NMHC Chief Economist Mark Obrinsky, “The Market Tightness Index continues to show some weakening. However, the number of respondents who reported looser conditions fell to 29 percent, the lowest share since January of 2016.”

“Of greater concern is that the demand for construction labor has been growing faster than supply, driving up costs and delaying some projects. In fact, the majority of firms reported that the availability of construction labor has declined over the past year, even accounting for increased compensation,” said Obrinsky.
...
At 46, the Market Tightness Index was the only index to remain below 50, marking the eleventh consecutive quarter of overall declining conditions. One-fifth of respondents reported tighter market conditions than three months prior, compared to 29 percent who reported looser conditions. Half of respondents felt that conditions were no different from last 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 eleventh consecutive quarterly survey indicating looser conditions - it appears supply has caught up with demand - and I expect rent growth to continue to slow.