MultiFamily Market Outlook - 09/28/2007 (Plain Text Version)

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In this issue:
New Vacancy Data Adds Local Information to the Mix
Starts Stronger than Expected
Rents Continue Rising Slowly in August
A Weak Economy, Getting Weaker Through Fourth Quarter
Multifamily Stocks Rebound Slightly

Starts Stronger than Expected

While starts in smaller structures were tumbling to near-record lows, starts in buildings with five or more apartments showed significant strength in August. The Census Bureau's preliminary construction statistics for the month show a (seasonally adjusted annual) five-plus starts rate of 311,000—up more than 16% from July and nearly 24% year-over-year. This is occurring in an environment where weakness in homeownership rates and certain segments of the mortgage market are likely depressing the production of condominiums. However, these same factors are likely having a stimulating effect on five-plus rental production.

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

A wild card in trying to predict the outcome of these conflicting trends is credit market "contagion." Some economists are worried about the extent to which confusion over which institutions hold subprime mortgage investments may ultimately spill over and infect credit availability and interest rates on other types of investment, including rental apartment construction. Meanwhile, the rate of five-plus permit issuance (which can be an indicator of future starts) remained relatively weak in August, coming in at a seasonally adjusted annual rate of 324,000. This is virtually the same as in July, but is down 12% from August a year ago, and down about 10% from the average rate sustained over the first six months of 2007.