Economy Watch: Apartment Sector Slows in 3Q
- Oct 21, 2016
Though the multifamily sector still has a lot of momentum in some of the hotter markets (Seattle, Denver or Nashville, for instance), nationwide the property type, so hot for so long, is at least taking a pause. According to NMHC’s October 2016 quarterly survey, apartment markets softened during the third quarter.
All four of the indexes that the NMHC publishes quarterly were down compared with the second quarter; Its Market Tightness, Sales Volume, Equity Financing and Debt Financing indexes all landed below the breakeven level of 50—showing weaker conditions from the previous quarter.
The Market Tightness Index fell to 28, the lowest since July 2009, and the fourth quarter in a row showing declining conditions. Almost half of respondents (49 percent) to the survey reported looser conditions than three months ago. The Sales Volume Index decreased from 50 to 42, signifying lower overall sales volume. Sixteen percent of respondents reported higher sales than three months prior, compared to 33 percent that reported lower sales volumes.
The Equity Financing Index dropped 11 points to 33, marking the the fourth quarter in a row below 50 and the lowest in more than seven years. The Debt Financing Index took a sharp dive from 62 to 38. One-third of respondents reported worse conditions for borrowing compared to the three months prior, while only 9 percent reported better conditions. Perhaps lenders are a bit nervous about the property type, especially the upper-end properties.
Mark Obrinsky, NMHC’s senior vice president of research and chief economist, posited that the growing supply of new apartments, especially Class A, has finally started to slow historically high rent growth. “Despite the softening due to the new development focus on Class A apartments, the overall fundamentals for apartments remain stable, indicated by the strong demand for Class B and C properties,” he noted.