Developer Confidence Slides in Fourth Quarter 2013

By Joshua Ayers, Senior Editor

The National Association of Home Builders found that developer confidence slipped in the fourth quarter of 2013, citing a four-point drop to 50 in its Multifamily Production Index (MPI).  There was, however,  a two-point drop to 38 in NAHB’s Multifamily Vacancy Index (MVI), with lower numbers indicating fewer vacancies. Both indices are based on a scale of 0 to 100, with the MPI measuring builder and developer sentiment about current conditions in the apartment and condo markets and the MVI measuring the multifamily industry’s perception of vacancies at Class A, B and C communities.

The MPI, which takes into account three factors — the number of low-rent starts, market rent starts and for-sale starts — dropped from a high of 61 in Q2 of 2013, its highest point since the recession, but despite the recent dip, the MPI has remained above 50 for eight straight quarters.  The strongest component of the MPI is the market-rent starts, which has remained above 60 since Q3 2011. That element finished at 60 after sliding from a 2013 high of 67 in Q2 2013 and post-recession highs of 69 in Q1 and Q3 of 2012. The other two elements, low-rent starts and for-sale starts fell to 47 and 46, respectively.

NAHB Multifamily Production Index (MPI) and Multifamily Starts

(in thousands)

*Multifamily Starts: U.S. Census Bureau, New Residential Construction (http://www.census.gov/const/www/newresconstindex.html).
The quarterly Multifamily Starts is the average of the three months of seasonally adjusted multifamily housing starts from that quarter.

“This quarter’s MPI results are in line with NAHB’s forecast that calls for increased production of new apartments in 2014, but at a slower pace than last year,” says NAHB Chief Economist David Crowe. “The results are also in line with recent downturns in other economic indicators, due to unusually severe weather in parts of the country that disrupted supply chains and affected confidence in several sectors of the economy.”

The MVI’s two-point drop in Q3 continues to reflect the low level of vacancy across the country.  The MVI reached its peak in Q2 of 2009 at 70 and reached its lowest point since then in Q1 and Q4 2012 at 31. The MVI has somewhat stabilized since 2011 and has averaged (mean) about a 36 from Q1 2012 through Q4 2013.

“Multifamily developers are still seeing demand for apartments as the MVI shows,” says W. Dean Henry, CEO of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB’s Multifamily Leadership Board. “However, the cost and availability of labor is putting pressure on the ability to bring new units online.”

Both indices have historically performed well as indicators of U.S. Census Bureau figures for multifamily starts and vacancy rates by providing information on potential movement in Census figures by up to one- to three quarters in advance.