Three Indexes Set Record Lows in NMHC Quarterly Survey that Shows Weakening of Apartment Market

By Anuradha Kher, Online News EditorWashington, D.C.–The apartment industry has performed better than other real estate sectors since the start of the global financial crisis, but the economic downturn is now threatening this sector as well, according to the National Multi Housing Council’s (NMHC) latest Quarterly Survey of Apartment Market Conditions.  With three of the four indexes setting record lows, the survey points to a trend in which apartments are now showing signs of weakening, as sales volumes are down and availability of debt and equity financing is becoming scarce.”Nine straight months of job losses have begun to cut into the demand for apartment residences,” says Mark Obrinsky, NMHC’s vice president of research and chief economist. “While favorable demographics and a lower homeownership rate will benefit the apartment industry over time, owners and managers will first have to work their way through the current economic downturn before the benefits of that increased demand are likely to show up. Until then, economic worry will cause some people to double up by moving in with a friend or returning to their parents’ house.”NMHC’s Market Tightness Index, which measures changes in occupancy rates and/or rents, dropped from 40 last quarter to 24. This was the fifth straight quarter in which the index has been below 50.  (For all of the survey indexes, a reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.)  In the previous four quarters, however, roughly half of the respondents viewed market conditions as unchanged; this quarter, less than one-third reported unchanged conditions, suggesting that the current situation is less stable.  “Unlike other commercial real estate sectors, such as offices and hotels, the apartment sector has benefited from continued debt capital availability through Fannie Mae and Freddie Mac,” says Obrinsky. “That capital source, however, is not sufficient to protect apartments from the current credit crisis.” NMHC’s indexes for sales volume as well as equity and debt financing have set record low levels, as other sources of capital have left the market. This has contributed to a record-low reading for property sales as well.The Sales Volume Index declined to 5, the lowest on record while the Equity Financing Index declined to 4, also the lowest on record and the sixth consecutive quarter with an under-50 reading. The Debt Financing Index declined by a third from the previous quarter to a record low of 4.In a special fifth question to NMHC’s Quarterly Survey about whether the credit crisis has affected current and/or planned activities, only one-sixth of respondents said that the crisis hadn’t affected their current activities yet—but even those respondents indicated that the crisis is affecting their future activities.