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NMHC: Apartment Market Conditions Continue to Worsen

By Anonymous

Note: Any reading below 50 indicates conditions are worsening; above 50 improving. So the increase in the index to 16 means the apartment conditions are worsening, but at a slower pace.

"Worse conditions" implies higher vacancy rates and lower rents - so it is good for renters.

From the National Multi Housing Council (NMHC): Apartment Market Still Suffering Downturn, Though Pace Is Decelerating, According To National Multi Housing Council Survey

Apartment market conditions continue to worsen, though the pace is decelerating, according to the National Multi Housing Council's (NMHC) latest Quarterly Survey of Apartment Market Conditions.

While all four market indexes remained below 50 (index numbers below 50 indicate conditions are worsening; numbers above 50 indicate conditions are improving), they all rose from three months ago. In particular, about half of respondents thought conditions were unchanged in the sales volume, equity finance, and debt finance markets.

?This global downturn has led to the most challenging economic conditions in at least five decades, and the apartment industry is suffering like other industries," noted Mark Obrinsky, NMHC's Chief Economist. "Capital remains difficult to obtain, and the sharp and continuing drop in employment, in particular, is sapping demand for apartments in markets throughout the country."

?Interestingly,? he continued, ?despite considerable media focus on the ?shadow rental? market, only a slim majority of respondents noted greater competition from condos and single-family rentals than in previous years.?

The Market Tightness Index, which measures changes in occupancy rates and/or rents, rose to 16 from 11 last quarter. Nevertheless, 73 percent of respondents said markets were looser (meaning higher vacancy and/or lower rents). While this was the seventh straight quarter in which the index has been below 50, the low reading may partially represent normal seasonal weakness.

Click on graph for larger image in new window.

This graph shows the quarterly Apartment Tightness Index.

It is common in a recession for apartment vacancies to rise, as households double up by moving in with a friend or family member. However an added factor in this recession is all the single family homes being offered as rentals. This is possible additional competition for apartments:

In a special fifth question to NMHC?s Quarterly Survey, one-third (33 percent) said such competition [from condos and single-family rentals] was unchanged. Another four percent thought there was less competition, and 11 percent don?t consider condos and single-family rentals to be significant competition for apartments in their markets. A slightly majority, 52 percent, did report more competition from condos and single-family rentals than in previous years.

Competition from condos and single-family rentals probably depends on location.

Full post as published by Calculated Risk on May 01, 2009 (boomark / email).