MultiFamily Market Outlook - 08/16/2007 (Plain Text Version)

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In this issue:
Quarterly Update: Improvement for Apartments, Not for Condos
Starts Data Goes Up...and Down
Real Rents Stop Falling
Multifamily Stocks Take a Hit

Real Rents Stop Falling

In June, the Real Rent Index halted the downward momentum that had been gathering since February. After surging to a record high of 109.5 at the beginning of the year, the index (which adjusts changes in residential rents for overall inflation) had previously declined three months in a row, landing at 108.6 in May.

In June, however, the overall CPI (the denominator of the Real Rent index) increased at a relatively modest seasonally adjusted annual rate of 2.3%. At the same time, the residential rent component of the CPI (the numerator) continued to rise at a rate of more than 3% a year. The combination caused the Real Rent Index to edge up one tenth of a point to 108.7.

Based on seasonally adjusted Consumer Price Indices; U.S. Department of Labor, Bureau of Labor Statistics. The annual rates indicate what the percentage change would be if the current monthly rate were sustained over a 12-month period.The real rent index is the CPI for rent of primary residence divided by the CPI for all items and scaled so that January 1995 is 100.

In nominal terms, rent increases have remained fairly steady, so the wild card has been the behavior of overall inflation. The recent pattern has been for a surge in the Real Rent Index to occur in the
months when overall inflation is below 3%.