NMHC: January Apartment Market Conditions Show Improvement

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Apartment market conditions have generally improved, according to the National Multifamily Housing Council’s (NMHC’s) Quarterly Survey of Apartment Market Conditions for January. Three of the four indexes—Market Tightness, Sales Volume, and Equity Financing—came in above the breakeven level of 50 for the fourth quarter in a row, although many respondents found conditions unchanged. However, the Debt Financing Index remained below the breakeven level for the second consecutive quarter, indicating weaker conditions.

“We are continuing to witness strong demand for apartments across the entire U.S., but most notably in the Sun Belt, where most markets have seen double-digit rent growth that has more than made up for the pandemic slowdown,” said NMHC chief economist Mark Obrinsky. “And even as construction continues to rebound from the lows of 2020, absorptions have more than kept pace, such that apartment occupancy remains at record-highs.”

The Market Tightness Index fell to 69 from 82, indicating market conditions have become tighter. However, respondents were not all in agreement. Nearly half, 49%, reported tighter conditions than in the three months prior compared with 12% who reported looser conditions; 40% reported conditions were unchanged from the prior quarter.

The Sales Volume Index declined to 59 from 79, signaling increased apartment sales volume. As with the Market Tightness Index, respondents were not on the same page: 40% reported higher sales volume than in the three months prior, 23% reported lower sales volume, and 35% reported unchanged conditions.

The Equity Financing Index bumped to 67 from 65, with 35% of respondents reporting it to be more available than in the three months prior and 58% reporting unchanged conditions. Only 1% of respondents reported that equity financing was less available.

“Equity financing remains widely available, allowing for continued transactions in the apartment sales market, even as higher interest rates have made it more expensive to borrow,” added Obrinsky.

The Debt Financing Index dropped to 36 from 48, with almost half of the respondents, 48%, reporting unchanged conditions compared with the three months prior. Over one-third of respondents, 36%, reported that debt financing conditions were worse, and only 8% cited better conditions.

The NMHC stated that as rents have recovered in markets across the country from the weakness seen at the start of the pandemic, rent control measures are being seen in several jurisdictions. Respondents weighed in on whether these measures would cause them to reconsider their investment or development plans in these jurisdictions. Nearly one-third of respondents, 32%, reported that they do not operate in markets threatened by rent control measures but would not consider doing so because of the limitations. Just over a quarter of respondents, 26%, reported that they have cut back on investment in those jurisdictions, while an additional 15% said they have not yet made those cuts but are considering it. However, 23% of respondents said they do not plan to make any changes to their investment in those markets, and an additional 4% who do not operate in those markets said they would still consider doing so despite the threat.

The NMHC also asked respondents to list markets they are avoiding due to existing rent control measures or the threat of new policy adoption. Thirty-one respondents answered this question, with 55% indicating specific markets in California or the state as a whole; 29%, New York; 23%, Minneapolis/St. Paul; 19%, Seattle or Washington; and 16%, Portland or Oregon. Additional markets being avoiding included Boston, Chicago and Illinois, Connecticut, Denver, and Maryland.

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