Recent hints of optimism in the housing industry appear to have spread to the multifamily sector, according to the first quarter of 2009 results of the Multifamily Rental Market Index (MRMI) and the Multifamily Condo Market Index (MCMI), released last week by the National Association of Home Builders (NAHB).

“Multifamily builders are beginning to see slight improvement in the current market for new rental and for-sale units, and anticipate even better times in the next six months,” said David Crowe, NAHB’s chief economist. “The components of the index measuring customer interest rose significantly; the index level of calls from prospective renters rose 14 points, to 50.9, and the index reflecting traffic in prospective condo buyers jumped 25 points.”

The indexes gauging current production conditions remain low, but two of them – low-rent units and for-sale units – increased from the fourth quarter 2008. The index for production of low-rent units increased nearly four points to 26.3. The for-sale sector, after two quarters of index levels in the single digits, now shows starts for condo developments at an index level of 14.5, down only slightly from last year’s first quarter.

NAHB’s Multifamily Market Indexes are derived from quarterly surveys of multifamily builders and developers, in which they rank their perceptions of the current conditions and expectations for the new future as “good,” “fair,” or “poor.” The responses are used to create a scale of 0 to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses.

The near future appears more promising to builders than any time since the first quarter of 2008. Builder expectations for starts of affordable rentals six months from now hit 38.1; market rate rentals were at 31.1, and for-sale units rose nearly 13 points to hit 25.4.

While rental vacancy rates remain high – dropping slightly from last quarter’s 8.7 percent to 8.5 percent – both numbers are lower than last year’s first quarter number – 10.3 percent. And the index numbers for calls from prospective renters was up to 50.9, after two quarters in the high 30s. Condo traffic index numbers shot up from the mid-teens in the last two quarters to 39.3, approximating the 40.2 level of the first quarter of 2008 – possibly in response to the $8,000 first-time buyer tax credit included in the stimulus package.

According to Crowe, “The stock of existing homes for rent and for sale is greater than the consumer demand right now, and is in direct competition with new supply. As that inventory is absorbed, and as new households form during the economic recovery, the demand for multifamily rentals will rise, and production will return to a more ‘normal’ level.”

Source: National Association of Home Builders, May 26, 2009