Apartment Market Fundaments Still Robust

Apartment development is fairly strong, as reported this week by the Census Bureau, but apparently not strong enough to meet demand.

The U.S. apartment market has been so strong for so long in so many places that it naturally poses the question: when will the market weaken, as in lower occupancies with concurrent downward pressure on rents? So far a parade a data indicates that the answer to that question is, not yet. Apartment development is fairly strong, as reported this week by the Census Bureau, but apparently not strong enough to meet demand. In turn, demand is still being fueled by the fact that not as many people qualify for mortgages as they once did, and that (thus far) Millennials are forming households later, and when they do, many are obliged to be renters, or want to be.

The National Multifamily Housing Council released its latest Quarterly Survey of Apartment Conditions on Thursday. One question on the survey was, “How are apartment market conditions in the local markets that you watch? ‘Tight’ markets are defined as those with low vacancies and high rent increases. Conditions obviously vary greatly from place to place, but on balance, apartment market conditions in your markets today are…” A slim majority, 52 percent, answered that their market is about the same as it was three months before. A quarter of the respondents (26 percent) characterized the market as tighter than three months earlier, while fewer (22 percent) said that their market is looser than three months earlier.

Another survey question was, “What about sales of apartment properties in the local markets you watch? The sales volume (number of deals) currently is…” That question ellicited a similar breakdown in responses. The majority — 56 percent — said that the sales volume in October was about the same as it was three months before. But a sizable chunk of respondents think that sales volumes had increased in the last three months: 27 percent. Only 11 percent said that the volume was down.

The survey also asked about equity and debt financing for apartment deals. Regarding equity financing, a majority think that conditions are about the same as three months earlier. But regarding debt financing, most either said that now’s a better time to borrow than three months ago (45 percent) or that now’s about the same as three months ago (41 percent). A paultry 2 percent said that now’s a worse time to borrow — maybe partly as a result of interest rates not rising in September after all. The survey was conducted in mid-October, with 120 CEOs and other senior executives of apartment-related firms nationwide as respondents. The previous survey was in July and the one before that in April.