Although condo market conditions were substantially weaker in the fourth quarter of 2006 than they were a year earlier, builders and developers expect better conditions six months from now, according to the latest results of the National Association of Home Builders’ Multifamily Condo Market Index (MCMI) released Friday.
“The condo market is coming back toward balance following the previous four quarters when the pendulum swung from red-hot to seriously cold,” said NAHB Chief Economist David Seiders in a statement. “What we are looking for — and likely to find in 2007 — is a healthy and sustainable level of condo production that will fall short of the unsustainable levels registered during the earlier boom period, but that will meet current market demands.”
The component of the MCMI that tracks current condo market conditions showed an index value of 29.6, compared with a value of 47.1 during the fourth quarter of 2005; the index’s low point came during the third quarter of 2006, with a 19.7 value. The index gauging builder sentiment about condo market conditions over the next six months rose to a 49.1 value — the highest seen since the last quarter of 2005 — as traffic of prospective buyers in the fourth quarter rose slightly from the third quarter.
The MCMI is a quarterly, nationwide survey of multifamily builders and developers 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 on a 1 to 100 scale, and a rating of 50 generally indicates that the number of positive responses is about the same as the number of negative responses.
The fourth-quarter survey included a set of special questions concerning insurance costs for multifamily developers. More than 70 percent of the developers reported experiencing an increase in property insurance premiums during the past year. There were significant differences across regions regarding premium increases, varying from 38 percent of the developers in the Northeast to 43 percent in the Midwest, 78 percent in the West and 84 percent in the South.
Among the developers who reported property insurance premium increases, just over 50 percent reported an increase of between 1 percent and 24 percent; 18 percent said their increases were between 25 percent and 49 percent; 3 percent reported increases between 50 percent and 99 percent; and 8 percent said they received increases of 100 percent or more. Such increases can have a serious impact on affordability, especially in areas being rebuilt following the hurricane damage inflicted in 2005.