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Demand for apartments is strong, but rising interest rates exerted negative pressure on the industrys ability to secure debt financing, according to the National Multi Housing Councils July Quarterly Survey of Apartment Market Conditions.

Only the Market Tightness Index (55) remained above the breakeven line of 50 this quarter. Sales Volume (46) and Equity Financing (49) dipped, with Debt Financing dropping sharply to 20.

Debt costs for apartment firms have been rising. In addition to the 90 basis point increase in interest rates from the April survey, spreads over Treasuries have also gone up, likely dampening transactions somewhat. Rates are still low by historical standards, however, and at current levels should not put too big a crimp in apartment activity going forward, said Mark Obrinsky, NMHCs Senior Vice President for Research and Chief Economist. Underlying demand trends remain strong, and we are approaching the cusp of a meaningful increase in supply that will hopefully be enough to meet the current need for apartment homes.

Key findings in the report include:

Construction costs are rising nationwide. More than two-thirds (68 percent) of respondents indicated that construction costs had increased by more than 5 percent since last year. Another 29 percent indicated construction costs had increased over a year ago, but by less than 5 percent. [Note: These figures exclude the 16 percent of respondents who answered dont know.]

Market Tightness Index edged up to 55 from 54. Just 14 percent noted looser conditions in the markets they were familiar with. This represents the 13th time in the last 14 quarters in which the index was over 50.

The Sales Volume Index dropped from 55 to 46. This was the second time in the last three quarters in which the Sales Volume Index was below 50, though just by a little. Over the last eight quarters, the index has averaged 52, suggesting a small pickup in volume over that time.

The Equity Financing Index dropped 7 points to 49. This was the first sub-50 reading in the last four years. Forty-nine percent viewed equity financing as unchanged. Twenty-one percent of respondents viewed equity financing as more available while 22 percent viewed equity financing as less available.

Debt Financing Index dropped sharply to 20 from 59. Two-thirds (67 percent) of respondents indicated that debt financing conditions had worsened since April, and 21 percent considered conditions unchanged. Only 8 percent of respondents thought debt financing conditions had improved ” the lowest figure since October 2008.

Full survey data are available at

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