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

MFSI Hits Record High — Again

During the month of January, the MFSI jumped by an amazing 251 points — a rise of almost 10%. With this huge increase, the MFSI is at its highest reading of all time, shattering the old mark of 2,684 set last July, and is almost 32% higher than it was just 12 months ago. During the past month, the value of the S&P 500 increased by almost 3% and, as a result, it finds itself slightly more than 10% above where it was one year ago.

Because the MFSI rose by about four times as much as the S&P 500 with dividends during the month of January, the performance gap — or percentage difference — between the two indexes jumped from 130% in December to 145% in January, which is three percentage points higher than the previous all-time high of 142% set in July of 2005.

¹ For initial article discussing the MFSI in detail see NAHB Multifamily Market Outlook, January 2002.
² Percent difference is defined as (MFSI minus S&P 500 with dividends)/S&P 500 with dividends.

Despite the very strong 67% rise in the S&P 500 since its low in late 2002, the MFSI has risen a staggering 100% during the same 40-month time period. In addition, the MFSI continues to dramatically outperform the S&P 500 over longer time periods including the past four, five and six years. Since December 1998, the MFSI has risen by a whopping 184% while the S&P 500 with dividends reinvested has gained a meager 16%. During the month of January, the price-to-earnings ratio (P/E) of the MFSI rose slightly and now stands at 18.29, while the dividend yield — defined as the total cash dividend payments divided by the current stock price, and which moves in the opposite direction — eased to 4.34%. The MFSI is an index of 26 publicly traded US headquartered firms, including 22 REITs, principally involved in multifamily ownership and management.