Multifamily Sales Volume as Financing Becomes More Costly

The multifamily housing market experienced a particularly rough second quarter in 2022, according to the latest report from the National Multifamily Housing Council. According to the organization’s July 2022 Quarterly Survey of Apartment Market Conditions, apartment sales saw a major downturn, while both equity and debt financing became more costly. On the plus side, the report did note there was still strong demand for apartments in most markets, relative to the available supply.

The NMHC conducted its latest quarterly survey between July 11 and 18, garnering responses from 120 CEOs and other senior executives of apartment-related firms across the country. Mark Obrinsky, chief economist at NMHC, said in prepared remarks that this was the sixth consecutive quarter where the apartment market saw tightening conditions. The previous quarterly report was taken in April and also showed declines in sales volume, and debt and equity financing.

Sales Volume vs. Market Tightness. Data and chart courtesy of NMHC

SIGNIFICANT DROP IN EACH MARKET INDEX

Every single index of NMHC’s quarterly apartment market report showed a decline as compared to the April report. The Market Tightness Index came in at 51, which was the only indicator to come in above the breakeven level of 50. Considering the index was previously at 60, market conditions have become tighter overall, but with variations in certain markets. More than half of the respondents, 56 percent, reported that the apartment market conditions were unchanged from the last quarter.

The Sales Volume Index came in at 10 and saw the largest drop as compared to the 50 seen in April and the 79 seen in July 2021. The sales volume was far below the breakeven level with 83 percent of the respondents supporting this trend, reporting that there was lower sales volume in the last three months.

Following the dip last quarter, the Equity Financing Index came in at 18 in July. More than two-thirds of the respondents at 67 percent reported that equity financing has become less available in the three months.

Debt vs. Equity Financing. Chart and data courtesy of NMHC

Similarly, the Debt Financing Index dipped down to 3, with a near unanimous 95 percent of respondents reporting that it is a worse time to borrow now than compared to three months ago. This drop represents the second consecutive quarter where an overwhelming majority of respondents reported deteriorating borrowing conditions.

Obrinsky said in prepared remarks that the continued interest rate hikes from the Fed have translated into higher long-term rates and a higher cost with both debt and equity. He added in his prepared statement that the higher rates have cut into investor proceeds, while sellers are reluctant to lower their prices, making for the sharp drop in sales volume that we’re seeing.