Foong on Finance: Turning Point

The apartment sector had been holding out relatively well compared to other industries, but it too will succumb to the massive loss of jobs that is expected to accelerate as we go into 2009.

Through the third quarter, the national apartment vacancy rate according to the Census Bureau was 10.7 percent, only 0.3 percent higher compared to the same period a year ago and still below the level in 2003-04, reported the National Multi Housing Council (NMHC). And rents continued to rise through September, albeit at a slower rate and less than the rate of inflation.

The apartment fundamentals however, are expected to have deteriorated substantially since October and into November—which are yet to be reported on.

Some third quarter measures had already showed signs of that. NMHC’s third quarter Market Tightness Index, which measures changes in occupancy rates and rents, fell from 40 in the second quarter to 24. The survey showed that only less than one-third of respondents reported unchanged market conditions—compared to about half in the previous quarter who said conditions were unchanged.

And things are eviscerated on the financing end, portending deep trouble on future new projects spending. NMHC’s Equity Financing Index dropped to 4—out of 100—and the debt financing index fell to a record low of 4.

“We’re guarded about the outlook for 2009. We think it’s going to be tough. It looks like we’re in a recession and it could be a tough one,” Mark Obrinky, chief economist at NMHC, told MHN.

President-elect Barack Obama’s calls for an economic stimulus program to create jobs and his introduction of his economic team this week, as well as the government’s announcement of a $800 billion to aid the consumer credit industries, all appear reassuring. Down the line, we will address the question, ‘how bad can it get for apartment fundamentals?’ Meanwhile, have a Happy Thanksgiving.