With demand on the rise and supply still tight, builder confidence in current rental apartment market conditions jumped in the third quarter of 2006, and their expectations for the next six months are even higher, according to the latest results of the National Association of Home Builders’/Fannie Mae Multifamily Rental Market Index (MRMI).

“Good economic conditions — particularly growth in the job market — are driving demand in the rental apartment market,” said NAHB Chief Economist David Seiders. “But the rental market is also benefiting from a tight supply. For-sale condo units have accounted for a large share of multifamily housing starts over the last few years at the same time a sizeable number of apartment units were being converted to condos.”

The component of the MRMI that tracks current demand rose during the third quarter for all classes of apartments, with moderately priced (class B) apartments seeing the largest increase, reaching 66, up from 58.5 at the same time last year.

The scale is from 0 to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses.

The same demand index for luxury (class A) apartments stood at 67.3, up 7.3 points since the third quarter of last year. Class C apartments saw the smallest jump, with the index gaining 3 points to 61.5, up from 58.5 from the same time a year ago.

Developers also see supply now starting to inch up in the rental apartment market. The index tracking supply market conditions for the third quarter rose to 53.7 and 54.7, up from 48 and 47.8, a year ago, for moderately priced and market rate rentals, respectively.

When asked about their expectations for the rental market over the next six months, multifamily builders expressed continued optimism, with the MRMI reaching 70, 75, and 69.2 for class A (luxury), class B (moderately priced), and class C (lower rent) apartments, respectively. Those expectations are based on a strong volume of calls from prospective renters — the index tracking this component of demand was up to 61.5 in the third quarter of 2006, from 57.1 in the third quarter of 2005.

In addition, the index that gauges effective rents added 10 points from this time a year ago to stand at an index value of 70.4, although that number is down from last quarter’s record index value of 85.

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