Apartment Market Conditions Worsen Further, But at Slower Pace

By Anuradha Kher, Online News EditorWashington, D.C.–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.“It still does not look like the apartments sector has reached its bottom,” Mark Obrinsky, NMHC’s Chief Economist, tells MHN. “With the economy still shedding jobs, one cannot predict when the bottom will be reached. Even if the recession is declared over some time during this year, based on previous downturns, we know that unemployment will keep rising for a period of time after that, [which is a negative for the apartment sector.]” “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,” he says. “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.”Findings from the survey: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. The Sales Volume Index rose from 12 to 30, the highest level in seven quarters. Over half of all respondents (52 percent) noted that sales volume was unchanged from three months earlier, while 43 percent indicated sales were lower. Though this was a far smaller figure than in the six previous quarters, this was the 14th consecutive quarter the index has been under 50 (an indication of declining sales). The Equity Financing Index increased from 12 to 29. Forty-seven percent of respondents thought equity financing conditions were unchanged, the highest such response in seven quarters. Roughly the same share (46 percent) considered equity financing conditions worse than three months earlier—also the best reading in almost two years. This was the eighth consecutive quarter with an index reading below 50.The Debt Financing Index rose from 26 to 41, with 14 percent of respondents reporting that now is a better time to borrow than three months earlier. That compares with 33 percent who think debt financing conditions have worsened. More than half (53 percent) said debt finance was unchanged. This was the eighth straight quarter with an index reading under 50.One-third (33 percent) said competition 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 slight majority, 52 percent, did report more competition from condos and single-family rentals than in previous years.“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.”