WASHINGTON, D.C. — Apartment markets softened across all four indexes in the October 2016 National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. The Market Tightness (28), Sales Volume (42), Equity Financing (33) and Debt Financing (38) Indexes all landed below the breakeven level of 50 – showing weaker conditions from the previous quarter.
“The growing supply of new apartments, primarily in the Class A space, appears to have finally reached a level to slow the historically high rent growth. Additionally, debt and equity markets are more discerning in terms of what deals they are ready to take on, including the continued slowing of available construction loans,” said Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist. “Despite the softening due to the new development focus on Class A apartments, the overall fundamentals for apartments remain stable, indicated by the strong demand for Class B and C properties.”
The Market Tightness Index fell to 28, the lowest since July 2009 and the fourth quarter in a row showing declining conditions. Almost half of respondents (49 percent) reported looser conditions than three months ago. Likewise, only six percent noted tighter conditions. The remaining 45 percent reported no change at all.
The Sales Volume Index decreased from 50 to 42, signifying lower overall sales volume. Sixteen percent of respondents reported higher sales than three months prior, compared to 33 percent that reported lower sales volumes.
The Equity Financing Index dropped 11 points to 33. This marks the fourth quarter in a row below 50 and the lowest in more than seven years. Forty-two percent of respondents believed that financing was less available, compared to eight percent who regarded financing as more available.
The Debt Financing Index decreased from 62 to 38, indicating a sharp reversal from last quarter. One-third of respondents reported worse conditions for borrowing compared to the three months prior, while only nine percent reported better conditions. Over half (52 percent) reported no change whatsoever in the debt market.
The survey also asked about rent growth among different class buildings. Excluding the ten percent that marked “don’t know/ not applicable”, nearly nine of ten (84 percent) respondents reported rent growth for Class B and C apartments as much stronger (33 percent) or somewhat stronger (51 percent) rent growth compared to Class A units. Just five percent reported somewhat weaker rent growth among Class B and C apartments compared to Class A, and two percent thought that B and C apartments exhibited much weaker rent growth. The remaining nine percent reported that rent growth levels were about the same throughout all classes of apartments.
About the Survey:
The October 2016 Quarterly Survey of Apartment Market Conditions was conducted October 10-October 17, 2016; 147 CEOs and other senior executives of apartment-related firms nationwide responded.
View the survey here.
Staff Resource
Jim
