Builders Slightly Less Upbeat on Rental Market

The Multifamily Production Index (MPI) compiled by the National Association of Home Builders continued in positive territory for the fifth straight time in the first quarter of 2013. The Index which measures builders perceptions about the apartment and condominium markets, inched down two points to 52 compared to the fourth quarter of 2012.

The MPI is conducted in a manner similar to the the (NAHB)/Wells Fargo Housing Market Index (HMI). Builders and developers are asked, on a scale of 0 to 100, whether current conditions are getting better, getting worse, or about the same in each of three market segments; the low rent and market rent markets and the for sale (condominium) market. Any number over 50 indicates that more respondents report conditions are improving than report they are getting worse.

The component reflecting perceptions of market-rate rental properties dropped four points from the fourth quarter to 61 but has now been above 60 for seven consecutive quarters, the longest sustained period of strength since NAHB began to collect the data in 2003. Perceptions about low rent units rose two points to 55 while the rating of for sale units was down four points to 42.

The MPI has made a substantial improvement since hitting its low point of 16 in both the third and the fourth quarters of 2008. The level of 54 which it achieved in both the second and fourth quarters of 2012 were all time high marks for the composite index.

"The apartment sector overall has largely recovered since the downturn, so we have now reached a level of development that is close to equilibrium and can continue at this pace," said W. Dean Henry, chairman of NAHB's Multifamily Leadership Board. "With that said, there are still certain markets around the country that have room to grow."

NAHB's Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, rose seven points to 38 in the first quarter. With the MVI, lower numbers indicate fewer vacancies. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been at a fairly moderate level throughout 2011 and 2012.

NAHB said that both the MPI and the MVI have performed well as leading indicators, successfully providing information on likely U.S. Census figures for multifamily starts and vacancy rates one to three quarters in advance.

"The multifamily market has recovered substantially since the end of 2010, and is well on its way to reaching a sustainable level," said NAHB Chief Economist David Crowe. "However, there are still issues facing builders and developers that could have an impact on future production, such as a shortage of labor with basic construction skills and rising prices for some building materials."