The apartment market is strengthening, according to a quarterly survey by the National Multi Housing Council, a group that represents apartment owners, developers, managers and financiers.
The council’s January 2006 Quarterly Survey of Apartment Market Conditions found that fully 70 percent of respondents reported improved demand for apartments, measured by lower vacancy rates, higher rents or both.
For the past four quarters, about 5 percent or less of respondents have noted looser conditions, the council reported, which “suggests that there are very few markets around the country that are seeing conditions worsening.”
The survey’s Market Tightness Index came was at 83, which is the second-highest figure ever, the council reported. The highest, a score of 87, was recorded in October 2005. This is the 10th consecutive quarter of improving demand. An index reading above 50 indicates that, on balance, apartment markets around the country are getting tighter; a reading below 50 indicates that market conditions are getting looser; and a reading of 50 indicates market conditions are unchanged, according to the council.
But sales may be headed for some cooling, the survey also revealed. “For the first time in 3 1/2 years, more survey respondents reported lower sales than higher sales,” the council reported. “While most respondents (63 percent) saw no change in apartment property sales over the past three months, 21 percent noted lower sales volume, up from 11 percent in October 2005. In addition, the percent of respondents reporting higher sales volume dropped from 42 percent to just 15 percent, the lowest figure in nearly four years. As a result, the Sales Volume Index slipped to 47, breaking a string of 10 consecutive quarters of increasing sales volume.”
NMHC’s chief economist, Mark Obrinsky, said, “After blowing past all records in 2005, sales of apartment properties may be headed for a bit of a breather. This may reflect the widely predicted cooling of the condo market in some parts of the country, hence some ebbing of the condo conversion demand. However, with the demand for apartment residences still climbing, there is good reason to expect apartment transactions to remain strong by historical standards.”
The survey suggested that the Gulf Coast storms are having some impact on apartment occupancies as more evacuees move from hotels into rental housing. The number of respondents reporting modest increases in occupancy because of Katrina rose from 33 percent to 42 percent, while the number reporting substantial occupancy gains fell from 16 percent in October to eight percent in January, NMHC reported. About 51 percent of respondents said there has been little impact from the storm.
On the financing side, lower mortgage rates in the two months prior to the survey led to improved debt finance conditions, and equity capital remains easily available.
The Debt Financing Index recovered considerably in January, rising 10 points from 38 to 48. With a score below 50, however, it still shows, on balance, slightly more respondents reporting that, considering interest rates and non-rate terms, now is a worse time to borrow than three months ago, NMHC reported.
Equity capital clearly remains widely available, with the Equity Financing Index remaining at 54. This is also the 10th straight quarter, and the 14th time in the past 15 quarters, that the Index has surpassed 50. About 61 percent of respondents regarded conditions as unchanged, 16 percent said equity was more available now than three months ago, and just nine percent said it was less available, according to the survey results.
The January 2006 Quarterly Survey was conducted Jan. 23-30. Eighty CEOs and other senior executives of apartment-related firms nationwide who serve on NMHC’s board of directors or advisory committee responded. Full survey results are available at www.nmhc.org/Content/ServeContent.cfm?ContentItemID=3756.
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