Multifamily confidence withers in Q2
According to the National Association of Home Builders (NAHB), confidence in the market for new multifamily housing was mixed in the second quarter of 2022.
Results of the Multifamily Market Survey (MMS) showed the Multifamily Production Index decreased 6 points to 42 compared to the previous quarter. The drop was largely caused by the for-sale condo market, the NAHB said.
Additionally, the Multifamily Occupancy Index (MOI) fell 8 points to 60.
The MPI measures builder and developer sentiment about current production conditions in the apartment and condo market on a scale of 0 to 100. The index and all of its components are scaled so that a 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 key elements of the multifamily housing market: construction of low-rent units-apartments that are supported by low-income tax credits or other government subsidy programs; market-rate rental units-apartments that are built to be rented at the price the market will hold; and for-sale units—condominiums.
Two of the three components saw decreases compared to the first quarter: The component measuring low-rent units fell four points to 45, and the component measuring for-sale units declined 11 points to 33.
“Overall, rental demand remains solid. Rising mortgage interest rates mean low vacancy in multifamily rental,” said 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.
The component measuring market rate apartments increased by three points to 52.
The MOI measures the multifamily housing industry's perception of occupancies in existing apartments. It is a weighted average of current occupancy indexes for class A, B, and C multifamily units, and can vary from 0 to 100, with a break-even point at 50, where higher numbers indicate increased occupancy. The MOI fell eight points to 60, but multifamily developers on balance are still reporting improving occupancy.
“With rising interest rates and high construction costs, multifamily developers need to be cautious given recession concerns,” said NAHB Chief Economist Robert Dietz. “However, the multifamily market is showing growth this year, with 5+ unit permits and starts up 18% on a year-to-date basis.”
For data tables on the MPI and MOI, visit nahb.org/mms.