MultiFamily Market Outlook - 10/17/2006 (Plain Text Version)

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In this issue:
Apartments Have Positive Impact on Property Appreciation Rates
What Looks Like Rising Starts May Not Be, Really
Real Rents on an Modestly Upward Track
Gross Domestic Product and Job Creation Slowing
Multifamily Stocks Continue Record-Breaking Performance

What Looks Like Rising Starts May Not Be, Really

Preliminary numbers released by the Census Bureau show starts in buildings with five or more apartments increasing by 8% in August to a (seasonally adjusted annual) rate of 265,000, but this is somewhat misleading. At the same time, the Bureau revised its July estimate for five-plus starts down by about 8%—from what was already a weak number. If the August rate of 265,000 holds up after revisions, it still will represent one of the lowest five-plus rates posted in the past five years, and a 17% drop on a year-over-year basis.

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

While many data indicate that housing markets in general are cooling off (inevitable after an extended period during which they were unsustainably hot), the main question for multifamily construction is to what extent weakness in condo production will be offset by strength in the production of market-rate rental units, and production of affordable units (which should be relatively stable, as it is sustained by the Low Income Housing Tax Credit program). Based on the recent signs of weakness, NAHB's short-term forecast has been adjusted downward. The forecast now calls for a five-plus starts rate of 270,000 in the second half of 2006, bottoming out at 265,000 in the second quarter of 2007 before gradually increasing and returning to a rate of 300,000 by the end of 2008.