Optimism stays strong in multifamily sector

According to the Multifamily Rental Market Index released Nov. 28 by the National Association of Home Builders and Fannie Mae, demand is rising and apartment supply is still tight, causing builder confidence to jump in the third quarter. Builders’ expectations for the next six months are even higher, according to the index.

“Good economic conditions – particularly growth in the job market – are driving demand in the rental apartment market,” said NAHB Chief Economist David Seiders in a news release. “But the rental market also is benefiting from a tight supply. For-sale condo units have accounted for a large share of multifamily housing starts over the last few years at the same time a sizeable number of apartment units were being converted to condos.”

The index component that tracks demand rose during the third quarter for all classes of apartments, with moderately priced Class-B apartments seeing the largest increase, up from 58.5 one year ago to 66.

The same demand index for luxury Class-A apartments stood at 67.3, up 7.3 points since the third quarter of last year. Class-C apartments saw the smallest jump, with the index rising to 61.5, up from 58.5 from the same time a year ago.

Developers also see supply now starting to inch up in the rental apartment market. The index tracking supply market conditions for the third quarter rose from 53.7 and 54.7, up from 48 and 47.8 a year ago, for moderately priced and market rate rentals, respectively.

When asked about their expectations for the next six months, multifamily builders expressed continued optimism, with the index reaching 70, 75, and 69.2 for Class-A, Class-B and Class-C apartments, respectively. Those expectations are based on a strong volume of calls from prospective renters.