MultiFamily Market Outlook - 05/28/2008 (Plain Text Version)

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In this issue:
Rental Households Reach All-Time High
Multifamily Starts Are Up, Modest Improvement in 2009
Real Rents Maintain Stability
Forecast: Economic Fragility Continues
Multifamily Stock Index On the Rise

Multifamily Stock Index On the Rise

During the month of April the MFSI rose by slightly more than 81 points. With this most recent increase, the MFSI is up by slightly less than 14.5% year-to-date. The April gain of 2.75% continues a see-saw pattern in which the MFSI moves up one month and then down the next, and is unable to put together any more than two straight monthly increases. With the most recent rise, the MFSI has risen in 7 of the past 12 months, and is in positive territory year-to-date for the fourth month in a row for just the first time in more than a year. With the latest rise, the MFSI finds itself at 816 points, or about 21% off its all-time high reached in January 2007.

During the past month, the value of the S&P 500 with dividends reinvested increased by slightly less that 5% and now finds itself down a bit less than 5% over the past 12 months, the first time it has been in negative territory for four straight months year-over-year in about five years. Because the S&P 500 with dividends increased by almost 5% while the MFSI increased by closer to 3% during the month of April, the performance gap — or percentage difference — between the two indexes narrowed from 136% last month to 131% in April — up sharply from the recent low of 92% set four months ago.

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

Despite the very strong 88% rise in the S&P 500 since its cyclical low set in October 2002, the MFSI has risen by a substantially stronger 113% during the same 66 month time period. In addition, the MFSI continues to dramatically outperform the S&P 500 over longer time periods including the past five, six, and seven years. Since December 1998, the MFSI has risen by a whopping 203% while the S&P 500 with dividends reinvested has gained a much smaller 31%. During the month of April the price-to-earnings ratio (P/E) of the MFSI increased and now stands at 15.89 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 6.32%. The MFSI is an index of 19 publicly traded US headquartered firms, including 16 REITs, principally involved in multifamily ownership and management.