Apartment and condo builders are optimistic that the multifamily housing market will continue to strengthen over the next six months, according to the latest Multifamily Market Index released today by the National Association of Home Builders. 

Condos continued to lead the multifamily market in the third quarter of 2004, with the for-sale supply index up almost 4 points from this time last year, to 56.9 from 53.5. Builders participating in the MMI survey said they expect that number to stay above 50 for at least the next six months.

The MMI is based on a quarterly, nationwide survey of multifamily builders and property owners who are asked a series of questions about current market conditions, as well as their expectations for the next six months. Survey answers are assigned numerical values to calculate two separate indexes, one tracking demand and the other tracking supply. The scale is from 1 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.

All classes of rental apartments showed gains on the index gauging demand in the third quarter of 2004. The biggest increase in demand was reported for class C apartments – the lower-rent category –, which jumped 10 points from a year ago to its current index value of 53.8. Demand for luxury units rose 3.3 points from last year’s third quarter, while demand for average market-rate communities rose about 9 points. 

“This quarter’s MMI results confirm that the turnaround we saw beginning during the first part of this year has solidified,” said NAHB President Bobby Rayburn, a home and apartment builder from Jackson, Miss. “With the economy generating additional jobs, new households are forming, and that means that there’s a greater demand for rental housing.” 

The index tracking the number of rental apartments available for rent continued its downward trend, registering a 6-point drop from 63.7 at this time last year to 57.7 in the second quarter 2004. At the same time, the index tracking the volume of calls from prospective renters saw a healthy increase, rising nearly 15 points to 52.9, up from 38.2 in last year’s third quarter.

Condos are still the major story in the multifamily housing market, according to the current MMI. Even with the current supply index up from this time last year, survey respondents said they expect even higher production six months from now.

“Condos have great appeal to those who want the benefits of apartment living but who also want to buy a home during this time of low interest rates,” said NAHB Chief Economist David Seiders. “But, with interest rates starting to move back up, we are also starting to see stabilization in the rental apartment market.”

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