MultiFamily Market Outlook - 12/23/2008 (Plain Text Version)

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In this issue:
2008 Multifamily Tax Policy Review
Multifamily Builders Report Metropolitan Starts at Virtual Standstill
Real Rents Increase, Indicate Weak Energy Prices
Massive Fiscal Stimulus Urgently Needed to Salvage Economy
October Marks Historic Decline for the MFSI

October Marks Historic Decline for the MFSI

During the month of November the MFSI declined by 335 points, one of the largest point declines ever. And this most recent decline follows fast on the heels of a greater than 800-point decline in October — the greatest one month decline in the history of the MFSI. With this large monthly fall the MFSI is now down by slightly less than 27% year-to-date, the first time it has been in negative territory year-to-date for two consecutive months in almost one year.

The November decrease of about 15% brings the MFSI to a level last seen in late 2004 — more than 50 months ago. Moreover, with this drop the MFSI finds itself 1,909 points, or almost 50%, off its all-time high reached in Janiaryy 2007. During the past month, the value of the S&P 500 with dividends reinvested fell by slightly more than 7% and now finds itself down more than 38% over the past 12 months, the first time it has been in negative territory for ten straight months year-over-year in well over five years.

Because the S&P 500 with dividends declined by about 7% while the MFSI declined by almost 15% during the month of November, the performance gap — or percentage difference — between the two indexes declined from 145% last month to 125%. Despite the very strong 23% rise in the S&P 500 since its cyclical low set in October 2002, the MFSI has risen by a substantially stronger 40% during the same 73-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.

^{1 For Initital article discussing the MFSI in detail see NAHB Multifamily Market Outlook, Jan. 2002.

2 Percent difference is defined as (MFSI minus S&P500 with dividends)/S&P 500 with dividends.}

Since December 1998, the MFSI has risen by a whopping 94% while the S&P 500 with dividends reinvested has declined by slightly less than 14%. During the month of November the price-to-earnings ratio (P/E) of the MFSI eased and now stands at 7.55 while the dividend yield, defined as the total cash dividend payments divided by the current stock price, and which moves in the opposite direction, rose to 9.88%. The MFSI is an index of 19 publicly traded US headquartered firms, including 16 REITs, principally involved in multifamily ownership and management.