NMHC: Apartment Conditions Moderate in October

Apartment market conditions have shown some rebound from the impact of the COVID-19 pandemic, according to the National Multifamily Housing Council (NMHC). In the Quarterly Survey of Apartment Market Conditions for October 2020, most of the indexes have come in above the breakeven level of 50—Sales Volume, Equity Financing, and Debt Financing. However, the index for Market Tightness increased but still showed signs of continued weakness.

“The ongoing COVID-19 pandemic continues to constrain economic activity, resulting in higher vacancies and lower rent growth for apartments overall,” said NMHC chief economist Mark Obrinsky. “Still, industry professionals are observing more favorable conditions in many suburban markets. And, while this round marks the fourth consecutive quarter of deteriorating conditions, there was considerably more variation in responses compared to last quarter—less than half (49%) thought that market conditions were looser.”

The Sales Volume Index saw a notable change, increasing from 18 to 72, with 60% of respondents reporting higher sales. According to the NMHC, this marks the first time in over two years that respondents have reported increasing sales volumes. Sixteen percent reported lower sales volume, and 19% said they didn’t see any changes from the previous quarter.

“One of the biggest changes we observed in recent months is that after largely sitting on the sidelines following the outbreak of COVID-19 in mid-March, buyers of apartment properties have returned to the market, bolstered by historically low interest rates and a greater availability of equity financing,” added Obrinsky.

The Market Tightness Index rose from 19 to 35, with nearly half of the respondents, 49%, reporting looser market conditions than the previous quarter. One-third of the respondents felt conditions were no different, and 18% cited tighter conditions.

The Equity Financing Index increased from 34 to 62—35% of the respondents reported that equity financing was more available than the previous quarter, 12% found it less available, and 42% said conditions remained unchanged.

The Debt Financing Index also increased from 60 to 73, with over half of the respondents, 51%, reporting better conditions than the previous quarter. Only 6% said conditions were worse.

The quarterly survey also examined how the pandemic is affecting renter preferences, with the results consistent with the recent narrative around residents wanting larger units in less dense areas. Respondents cited the highest demand for garden-style units with or more bedrooms, followed by garden-style studios and one-bedroom units, mid-rise units with two or more bedrooms, and mid-rise studio and one-bedroom units. High-rise units of any kind came in at the bottom of the list.

Nearly half of the respondents, 46%, said they expect these trends to continue for six to 12 months, while 31% only expect to see them last through the pandemic. However, 8% said they expect these trends to continue indefinitely.

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