Builder Confidence in the Rental Apartment Market Dropped Sharply

The National Association of Home Builders (NAHB) released the Q1 results of their Multifamily Rental Market Index (MRMI), 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, and they are not very good.

“The economic downturn affects the rental market as well as home building,” said NAHB Chief Economist David Seiders. “Rental Vacancy Rates are rather high and the demand for rental apartments is being held back by various economic conditions—including a weakening job market and record-high prices of food and energy.” And without both strong demand and more ready access to capital, multifamily builder/developers will cut back production of new rental projects.

It's no secret that builders and owners felt and are feeling the crunch of the current economy. It's pretty simple actually; low demand (in this case resulting in higher vacancies) lessens the demand for more product, in this case the building of new apartments. A product took the biggest hit with a 20 point drop on the index while B product and C product fell 18.3 and 18.6 points respectively.

The bright spot? The number of calls from prospective renters has picked up at 4 points higher than last year. This is great news! The flip side to that however is it seems concessions is driving this traffic. Lower rents and asking prices were the norm. So, as laissez-faire economics has taught us to ask, would that 4 point increase happen in spite of or because of the concessions and lower asking rate? We're not sure we know the answer to that question, however, we will hopefully have some more insight over the coming months, including a very exciting interview that we hope will be happening later this week. Stay tuned!

Confidence In Rental Market Weakens (National Association of Home Builders)