Economy Watch: Apartment Markets Slowing Down

All four indexes in the NMHC's quarterly survey released this month were below the break-even level of 50, indicating weaker conditions in the multifamily industry.
Mark Obrinsky, NMHC
Mark Obrinsky, NMHC

Apartment markets aren’t quite as hot as they used to be, according to the National Multifamily Housing Council’s quarterly survey released this month. All four of the survey’s indexes remained below the break-even level of 50 for the second quarter in a row: Market Tightness, Sales Volume, Equity Financing and Debt Financing.

The Market Tightness Index dropped three points to 25, which was the fifth consecutive quarter of declining conditions and the lowest in more than seven years, the NMHC noted. More than half (58 percent) of respondents reported looser conditions from three months ago, compared with only 8 percent who reported tighter conditions.

The Sales Volume Index fell sharply from 42 to 25, meaning lower overall sales volume for the second quarter in a row. Only 5 percent of respondents reported higher sales during the three months before the survey, compared with 55 percent that reported lower sales.

The Equity Financing Index remained unchanged at 33, marking the fifth consecutive quarter of the same or declining conditions. The Debt Financing Index declined 24 points to 14. Almost three-quarters of respondents (74 percent) reported worse borrowing conditions than in the three months before, while a scant 1 percent reported improved conditions.

“Weaker conditions are evident across all sectors as the apartment industry adjusts to changing conditions,” said NMHC Chief Economist Mark Obrinsky. “Rising supply—particularly during a seasonally weak quarter— is causing rent growth to moderate in many markets. The underlying demand for apartment residences remains strong, however. As long as the job market continues its steady expansion, any local supply overshoots should be manageable.”