Apartment markets continue their upward trajectory, as fully 75 percent of the respondents to an industry survey reported tighter market conditions in the second quarter, measured by lower vacancy rates, higher rents or both.
As a result, the National Multi Housing Council’s July 2006 Quarterly Survey of Apartment Market Conditions Market Tightness Index increased slightly this quarter (May to July), to 85, now the second-highest index number on record. An index 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.
The Market Tightness Index has been 80 or above for five consecutive quarters, and above 50 for 12 consecutive quarters, signaling a significant improvement in demand for rental housing. In contrast, the Index was 45 in July 2003 and 39 in July 2002, during the peak of the recession.
Despite improving market conditions, sales activity continues to slow from the record-level of transactions conducted in 2005, according to a press statement. A mere 6 percent of all respondents reported higher sales volume this quarter than last, and 42 percent reported lower sales. The Sales Volume Index declined slightly from 35 to 32, the lowest since January 2002, and down from a high of 66 in July 2005.
Finally, despite steadily rising interest rates, the Debt Financing Index actually increased from 21 to 29 this quarter. The number of respondents saying that now is a worse time to borrow dropped from 69 percent last quarter to 16 percent this quarter. The vast majority — 71 percent — report that conditions are unchanged. This suggests that even though conditions for borrowing are not ideal, they are not getting worse.
“Improving rental demand in the face of rising interest rates and declining sales volume attests to the strong outlook for the apartment sector,” said Doug Bibby, NMHC’s president. “According to Harvard University’s 2006 State of the Nation’s Housing report, the number of renter households rose in 2005 for the first time in years. The report goes on to say that as echo boomers, same-age immigrants and second-generation Americans move into adulthood, demographic forces will favor rental housing over for-sale housing.”
The July 2006 quarterly survey was conducted July 24-31, 2006. Sixty-five CEOs and other senior executives of apartment-related firms nationwide who serve on NMHC’s Board of Directors or Advisory Committee responded.