Economy Watch: Apartment Market Not Quite the Juggernaut of Recent Years
- Jul 22, 2016
The U.S. apartment market still has considerable strength, according to the latest National Multifamily Housing Council‘s quarterly survey on apartment market conditions, which was released on Thursday, but the surge of supply is finally catching up with persistent demand—for part of the market, that is.
For the third quarter in a row, the organization’s Market Tightness Index was unchanged at 43, showing that supply is a bit stronger than demand. Almost one-third of respondents (31 percent) reported looser conditions than three months ago. At the other end, 18 percent noted tighter conditions, while more than half (51 percent) reported no change.
The Sales Volume Index decreased by three points to 50, signifying unchanged sales volume. Answering a special question on apartment prices, 54 percent of respondents said that property prices are currently “frothy.” That means apartment property investors will likely be satisfied so long as current trends in net operating income (NOI) continue and cap rates don’t back up.
“Apartment markets remain strong, but the surge of new apartment construction is starting to shift the supply-demand balance, particularly in the market for upscale apartments,” said Mark Obrinsky, NMHC’s senior vice president of research and chief economist. “Given that most new supply is class A, we’re not seeing the same shift in class B and C apartments. In addition, some weakness in the Market Tightness Index may be just seasonality.”