MultiFamily Market Outlook - 11/25/2008 (Plain Text Version)

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In this issue:
Mixed Signals for Multifamily: Quarterly Economic Update
Starts Continue to Plunge; Projected Declines for 2009
Real Rents Recover and Tie Record High
Timely Fiscal Stimulus Is Needed to Keep Economy Afloat
MFSI Hits Historical Monthly Decline

MFSI Hits Historical Monthly Decline

During the month of October the MFSI declined by 808 points, its greatest one-month decline in history, and for the first time is now trading outside the narrow band of between 2,750 and 3,250 points, where it has been for about 18 months. With this stunning monthly fall, the MFS is down by slightly more than 14% year-to-date, the first time it has been in negtive territory year-to-date in almost one year.

The October decrease of about 26% brings the MFSI to a level last seen in early 2005—well over 40 months ago. Moreover, with this drop the MFSI finds itself 1,575 points, or 41% 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 17% and now finds itself down over 36% over the past 12 months, the first time it has been in negative territory for 10 straight months year-over-year in well over five years.

Because the S&P 500 with dividends declined by almost 17% while the MFSI declined by more than 26% during the month of October, the performance gap—or percentage difference—between the two indexes declined from 177% last month to 145%. Despite the very strong 33% rise in the S&P 500 since its cyclical low set in October 2002, the MFSI has risen by a substantially stronger 60% during the same 72-month time period.

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.

But 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 127% while the S&P 500 with dividends reinvested has declined by slightly more than 7%. During the month of October, the price-to-earnings ratio (P/E) of the MFSI eased and now stands at 8.62 while the dividend yield, defined as the total cash dividend payments divided by the current stock price, and which moves in the opposite dirrection, rose to 7.65%. The MFSI is an index of 19 publicly traded US headquartered firms, including 16 REITs, principally involved in multifamily ownership and management.