Economy Watch: Multifamily Market Continues to Soften

Overall demand and the availability of equity capital remain strong, but many owners are pulling back on activity, according to NMHC's latest quarterly survey.

Source: NMHC Quarterly Survey of Apartment Market Conditions, January 2018
Source: NMHC Quarterly Survey of Apartment Market Conditions, January 2018

The U.S. apartment market is showing signs of softening, according to the latest National Multifamily Housing Council Quarterly Survey of Apartment Market Conditions. The Market Tightness, Sales Volume and Debt Financing Indexes were below the break-even level of 50, while the Equity Financing Index alone was above it. Also, the survey found that half of respondents expect “green financing” to increase in 2018.

The Market Tightness Index decreased one point to 36, marking the ninth consecutive quarter of declining conditions. Just 14 percent of survey respondents reported tighter conditions compared to the previous three months, compared to 42 percent of senior executives who reported looser conditions. The Sales Volume Index declined from 45 to 40. Nearly one in five (19 percent) reported higher sales volume, while 38 percent experienced declining sales volume over the previous quarter.

The Equity Financing Index increased from 46 to 58, reversing an eight-quarter decline of market conditions. Twenty-seven percent of respondents reported equity financing was more available over the previous three months, with just 11 percent reporting the opposite. The Debt Financing Index declined from 51 to 38, with over a third (36 percent) of respondents reporting worse conditions for debt compared to the three months prior. Eleven percent indicated that conditions were more favorable.

Half of respondents expect green financing to increase in 2018 (excluding the 29 percent of respondents who reported “don’t know”). Almost one-third (31 percent) expect volumes to be flat compared to 2017, while almost one-fifth (19 percent) expect more difficulty obtaining financing.

“The latest survey results underscored the prevailing view that we are late in the current cycle,” said NMHC Chief Economist Mark Obrinsky in a statement. Demand for apartments overall remains strong and equity capital still looks favorably on the apartment sector. However, many owners are satisfied with their holdings and more inclined to stand pat.”