MultiFamily Market Outlook - 10/30/2008 (Plain Text Version)

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In this issue:
Renters Less Concerned About Appearances, Want to Be Close to Work and Friends
Decline in Five-Plus Permits Reveal Potential Weakness
Real Rents Gain Some Ground
Further Declines Projected Before Recovery, Official Recession on the Brink
MFSI Retains Stability, Will Likely Struggle to Reach Historic Highs

MFSI Retains Stability, Will Likely Struggle to Reach Historic Highs

During the month of September, the MFSI rose by 46 points and continues trading in a narrow band of between 2,750 and 3,250. With this mild increase, the MFSI is up by slightly more than 16% year-to-date. The September increase of about one-and-a-half percent continues a see-saw pattern where the MFSI moves up one month only to decline the following month. As if to accenntuate this, over the past 12 months the MFSI has risen six times and declined six times, and now finds itself essentially back where it started, yet is in positive territory year-to-date for the ninth month in a row.

While the MFSI may be permanently distancing itself from its poor performance of 2007, it also may be unable to challenge any of its historic highs for some time. With the latest rise, the MFSI finds itself 766 points, or 20%, off its all-time high reached in January 2007. During the past month, the value of the S&P 500 with dividends reinvested fell by slightly less than 9% and now finds itself down almost 22% over the past 12 months—the first time it has been in negative territory for nine straight months year-over-year in more than five years.

Because the S&P 500 with dividends declined while the MFSI rose during the month of September, the performance gap—or percentage difference—between the two indexes increased from 148% last month to 177%—close to its all-time high. Despite the very strong 60% rise in the S&P 500 since its cyclical low set in October 2002, the MFSI has risen by a substantially stronger 116% during the same 72-month time period.

¹ For 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.}

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 208% while the S&P 500 with dividends reinvested has gained a much smaller 12%. During the month of September the price-to-earnings ratio of the MFSI increased and now stands at 11.59 while the dividend yield, defined as the total cash dividend payments divided by the current stock price, and which moves in the opposite dirrection, fell to 5.72%. The MFSI is an index of 19 publicly traded US headquartered firms, including 16 REITs, principally involved in multifamily ownership and management.