Job Losses, Credit Market Conditions Challenge Apartment Sector

NosediveWASHINGTON, DC — The stunning job losses and economic deterioration recorded over the past four months have eroded demand for apartments, putting the sector€”like other real estate sectors and the economy itself€”in a clearly “down” phase of the cycle, according to the National Multi Housing Council’s (NMHC) latest Quarterly Survey of Apartment Market Conditions.

“Once again, apartment firms are facing tough market conditions not of their making,” noted Mark Obrinsky, NMHC’s Chief Economist. “Earlier in the decade the bubble-induced rise in homeownership eroded apartment demand; now the economic and financial collapse caused by the bursting of that bubble is taking a toll.”

“The long-term prospects for the sector are strong,” explained Obrinsky. “The number of people between 20-34 years of age is rising rapidly, and as they enter the rental market, demand will rise correspondingly. For now, though, that demographic advantage is being trumped by the worsening job market, which is leading more people to move back in with family or take on roommates to save on housing costs.”

“At the same time, the financial crisis is having a material impact on current or planned activities at most apartment firms,” said Obrinsky. “Nearly two-thirds of respondents (62 percent) said the credit crisis has had a material impact on current and planned activities. The lack of capital has slowed sales volume, made it difficult to refinance maturing debt and caused many firms to cancel new developments.”

Highlights of the Survey Results

The Market Tightness Index, which measures changes in occupancy rates and/or rents, declined sharply this quarter to 11 from 24. This is the third-lowest result on record, and the sixth straight quarter in which the index has been below 50. (For all of the survey indexes, a reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.) Fully 81 percent of respondents said markets were looser compared with only four percent who said markets were tighter. Fifteen percent reported unchanged market conditions from the prior quarter.

The Sales Volume Index increased slightly from 5 to 12. This was the 13th consecutive quarter the index has been under 50 (an indication of declining sales), and the sixth consecutive quarter in which more than 70 percent of respondents said that volumes were lower. This indicates an unprecedented scope of decline in apartment property transactions. Seventy-eight percent of respondents noted that sales volume was lower than three months earlier.

The Equity Financing Index rose somewhat to 12. For the third straight quarter, not a single respondent said equity financing was more available than three months earlier. Seventy-five percent of respondents deemed equity financing less available than three months earlier. This was the seventh consecutive quarter with an index reading below 50.

The Debt Financing Index rose to 26, the highest level in 18 months. Twelve percent of respondents said this was a better time to borrow, compared with 61 percent who thought it was worse. This was the seventh straight quarter with an index reading under 50.

Full survey results are posted at Note: The January 2009 Quarterly Survey was conducted January 5-12, 2009; 113 CEOs and other senior executives of apartment-related firms nationwide who serve on NMHC€„¢s Board of Directors or Advisory Committee responded.

See our feature Rents Decline for First Time in Five Years.

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