MultiFamily Market Outlook - 03/01/2010 (Plain Text Version)

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In this issue:
Quarterly Update: Rentership Rate Rises, but Shadow Market Slows Absorption
Starts Show Three Consecutive Months of Improvement
Rents Lose More Ground
Market Conditions Supportive of Economic Growth — According to the FOMC
MFSI Stays Positive, Despite January Decline

MFSI Stays Positive, Despite January Decline

During the month of January, the MFSI declined by 139 points. With this monthly decrease, the MFSI now is up slightly less than 47% over the past 12 months and, for the first time in roughly two-and-a-half years, the year-over-year comparison has been positive for three straight months, ending the index's worst performance period ever.

The January decrease of a bit more than 5% returns the MFSI to a level last seen in mid 2005 — about four-and-a-half years ago. With this most recent decrease, the MFSI finds itself 1,414 points — or about 37% — off its all-time high, reached in January 2007. During the past month, the value of the S&P 500 with dividends reinvested decreased by slightly less than 4% and it now finds itself up slightly more than 33% over the past 12 months — the first time it has been in positive year-over-year territory for four months in a row in more than two years.

Because the MFSI decreased by a little more than 5% while the S&P 500 with dividends fell by a shade more than 4% — about one percentage point less than the MFSI — during the month of January, the performance gap (percentage difference) between the two indexes decreased from 134% last month to 130%, its second-highest reading in more than 13 months. Since its cyclical low set in October 2002, the S&P 500 with dividends has increased by 52%, while the MFSI has increased by a substantially better 81% during the same 88-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.

Additionally, the MFSI continues to dramatically outperform the S&P 500 over longer time periods including the past 10, 11 and 12 years. Since December 1998, the MFSI has risen by 143% while the S&P 500 with dividends reinvested has risen by a scant 6%. During the month of October, the price-to-earnings ratio (P/E) of the MFSI rose and now stands at 36.54, while the dividend yield, defined as the total cash dividend payments divided by the current stock price, and which moves in the opposite direction, declined to 5.02%. The MFSI is an index of 18 publicly traded US headquartered firms, including 16 REITs, principally involved in multifamily ownership and management.