Foong on Finance: How Bad Can it Get in 2009?

How bad can it get? What a question to ask just before we head into the peak of the holidays. Nevertheless, here are some forecasts for the apartment industry for the new year.

Among the industry experts we are in touch with, at worst there is the prediction that the vacancy rate next year may get as high as during the end of the recession of the late-1980s/early-1990s. Mark Obrinsky, chief economist of National Multi Housing Council (NMHC), says that the vacancy rate (for professionally managed apartments), now 6.2 percent, may head to at least the 7.9 percent level last seen in 1993, or even 8 percent, by year-end 2009.

On the other end, there are economists with an easier view. They say that vacancy rates in 2009, believe it or not, may not be much worse than towards the end of this year. Bernard Markstein, chief economist at the National Association of Home Builders (NAHB), predicts that the vacancy rate (the Census Bureau figure for two-plus unit buildings) which was 10.4 percent in the third quarter, will stabilize in the 10 to 10.5 percent range in 2009.

Similarly, George Ratiu, economist at National Association of Realtors (NAR), says multifamily vacancy rate for the third quarter of 2009 will be essentially unchanged from the third quarter of this year. Demand in the apartment sector, Ratiu tells MHN, “is healthy with rent growth being positive, if not stellar.”

However, rent growth, though positive, will continue to trend below the rate of inflation. According to Linwood Thompson, senior vice president and managing director of Marcus & Millichap’s National Multi Housing Group, asking rent growth will be 1.7 percent in 2009. However, effective rents on a national basis will essentially be flat–there will be concessions. And keep in mind that economists are saying the weak labor market will last into 2010.

See? Though times will be tough next year, not a Big Disaster according to these press-time outlooks. Please check out the upcoming January 2009 issue of the Multi Housing News magazine for full coverage of the industry and economic forecasts. And meanwhile, Merry Christmas for those who celebrate Christmas, and Happy New Year to all.