Multifamily builders encouraged by rising occupancy

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The National Association of Home Builders’ Multifamily Market Indices (MMI) show that current and expected demand for rental apartments improved significantly in the second quarter of 2010 compared to the first quarter.

The current indexes for Class A, Class B and Class C apartments rose to 59.5, 57.6 and 56.6, respectively, increases of more than 15 points when compared to the first quarter and the highest level since 2007. Builders’ expectations for demand in the next six months increased to similar levels.

The MMI measures multifamily builder sentiment based on production and occupancy at the current time, as well as builders’ expectations for conditions over the next six months. An index number greater than 50 indicates that the number of builders who view conditions as getting stronger outnumber those who view conditions as becoming weaker.

The current production index for market-rate apartments, at 34.4, rose from the 30.1 reported a quarter earlier, but increased significantly when compared to the same period a year earlier (16.7). For lower-rent units, the current production index slipped from the first quarter to the second quarter (35.4 to 32.8), yet was an improvement over the 21.8 reported a year earlier.

The current production index for condominiums for sale sank to 14.5 from 21.5 the previous quarter, to about the same level it stood a year earlier (15.2). Builders’ expectations for starts six months from now are at similar, but slightly higher, levels for all three categories.

“Lenders have been unwilling to fund multifamily development, because the inventory of rental housing expanded from traditional multifamily communities to foreclosed and investor-owned single-family homes made available for rent as a means of creating a temporary cash flow until the homes can be sold,” said David Crowe, NAHB’s Chief Economist. “As the supply of additional units declines and pent-up household formations re-emerge when the labor markets improve, demand for traditional rental apartments will rise. It is possible that the supply of new units will not arrive in time to meet the emerging demand and some shortages will occur in some markets. Even in robust production years, it is only possible to increase the stock of rental units by a relatively small percentage through new construction.” Read More

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