Builders' Outlook on Multi-Family Rentals, Condos at 7-Year High

A measure of confidence among builders of rental apartments and condos is at its highest reading since the second quarter of 2005, an indication of the robust recovery of multi-family housing compared to the weaker market for single-family homes.
The Multifamily Production Index (MPI), released this week by the National Association of Home Builders (NAHB), improved for the eighth consecutive quarter with an index level of 54, the highest reading in seven years.
The MPI, which measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100, rose from 51 in the first quarter to 54 in the second quarter.
The MPI covers three key components of the multifamily housing market: construction of low-rent units, market-rate rental units and “for-sale” units or condominiums.
The index and its components are weighted so that any number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse.
In the second quarter of 2012, the MPI component that tracks market-rate rental properties recorded a level of 63 and has been over 60 for four consecutive quarters, the longest sustained period of strength since the inception of the index in 2003.
For-sale units had its highest reading since the fourth quarter of 2005, coming in at 41, while low-rent units recorded an all-time high of 61.
“The apartment and condo housing sector is continuing on a path of steady recovery as new construction has increased to try to keep up with current consumer demand,” said W. Dean Henry, CEO of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB’s Multifamily Leadership Board. “However, credit continues to be an issue for many developers around the country, making it difficult to keep pace with this demand.”
Multi-family housing production has already recovered considerably from its historic low of about 110,000 starts a year in 2009 and 2010 to the current annual rate of slightly over 200,000, including a series of condos in northern va and other states.

However, prior to the downturn multifamily starts remained about 300,000 per year for 12 consecutive years, so there is room for further improvement before apartment and condo production return to normal, sustainable levels, said NAHB Chief Economist David Crowe.

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