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Confidence Dips in Multifamily Sector

NAHB’s multifamily survey found mixed results in the second quarter, as a drop in optimism for condo builds overshadowed an increase in outlooks for apartments.

WASHINGTON – Confidence in the new multifamily housing market fell in the second quarter, according the National Association of Home Builders’ (NAHB) Multifamily Market Survey (MMS).

The MMS produces two separate indices: The Multifamily Production Index (MPI) decreased six points to 42 compared to the previous quarter, dragged down largely by the for-sale condo sector. The Multifamily Occupancy Index (MOI) fell eight points to 60.

Multifamily Production Index

The MPI measures builder and developer sentiment about current production conditions in the apartment and condo market. The index and all of its components are scaled 0 to 100, so that any number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse.

The MPI is a weighted average of three elements: construction of low-rent units-apartments supported by low-income tax credits or other subsidies, market-rate rental units and for-sale units (condominiums).

Two of the three components decreased quarter-to-quarter: The component measuring low-rent units fell 4 points to 45, and the component measuring for-sale units declined 11 points to 33. But the component measuring market rate apartments increased by three points to 52.

Multifamily Occupancy Index

The MOI measures the multifamily housing industry’s perception of occupancies in existing apartments. I’s a weighted average of current occupancy indexes for class A B, and C multifamily units, and can also vary from 0 to 100.

The MOI fell eight points to 60, but multifamily developers on balance are still reporting improving occupancy.

“Overall, rental demand remains solid. Rising mortgage interest rates mean low vacancy in multifamily rental,” says Sean Kelly, executive vice president of LNWA in Wilmington, Del., and chairman of NAHB’s Multifamily Council. “Additionally, recent Treasury guidance related to American Rescue Plan funding creates clarity in the production pipeline for apartments supported by the Low Income Housing Tax Credit.”

“With rising interest rates and high construction costs, multifamily developers need to be cautious given recession concerns,” adds NAHB Chief Economist Robert Dietz. “However, the multifamily market is showing growth this year, with 5-plus unit permits and starts up 18% on a year-to-date basis.”

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