MultiFamily Market Outlook - 02/15/2006 (Plain Text Version)

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In this issue:
Rents Up, Vacancies Down as Rental Market Continues to Rebound
Starts Stronger Than Anticipated
Forecast: Another Interest Rate Hike Likely In March
Real Rents Climb Back Up
MFSI Hits Record High — Again

Starts Stronger Than Anticipated

Starts in buildings with five or more apartments increased to a (seasonally adjusted annual) rate of 322,000 in December, the highest the starts rate has been since April, and an 11% increase both over the previous month (November 2005) and the previous December (2004). The Census Bureau also revised its five-plus starts estimates for October and November upward substantially. As a result, the last three months of 2005 is shaping up as a stronger period for multifamily production than we would have thought only a month ago. As of now, the estimate stands at a total of just about 75,000 five-plus starts over the quarter. That's enough to bring the preliminary estimate for calendar year 2005 (the numbers are typically revised through March) to a total of 310,000.

Source: U.S. Census Bureau; NAHB Economics Group

If that holds up, it will represent the second-strongest year since the 1980s — although annual production has been quite stable in recent years, with annual five-plus starts staying within a band between 290,000 to 315,000 since 1998. That's remarkable, given some of the changes that hit the market over that period — including increasing home ownership, record vacancy rates that have only recently backed off, increases in the per capita dollar limits for both the LIHTC program and tax-exempt private activity bonds, and explosive growth in the condo share of new construction (see this month's lead feature).