SURGING OCCUPANCY RATES PUSH APT. BUILDERS' CONFIDENCE TO RECORD HIGH

NOTE: This article is for information purposes only and is not an endorsement or promotion of any company, methods, product or services. 06/02/06 (NAHB): Multifamily builder confidence in the rental apartment market soared to a new high in the first quarter of 2006, as rising occupancies and rental rates pointed to increased consumer demand, according to the results of the National Association of Home Builders/Fannie Mae Multifamily Housing Market Index (MMI), released today. The same survey also found that multifamily builders are less optimistic about the market for condos, which is in the midst of a cool down. NAHB has been collecting data for the MMI since the last quarter of 2002.

The component of the MMI that tracks current demand saw both moderately priced (Class B) and lower-rent apartments (Class C) reaching their highest levels ever in the first quarter of 2006, with moderately priced units topping the index at 71.4, up from 60.6 at the same time last year and about 30 points higher than the last quarter of 2002. Luxury rental apartments (Class A) gained 1.6 points to reach 61.6 in the first quarter of 2006, compared to 60.0 at the same time last year.

"The rental market is very good right now," noted Leonard Wood, an apartment and condo builder from Atlanta and chairman of NAHB's Multifamily Leadership Board. "Over the past three years, there have been thousands of rental units converted and sold as condos and, at the same time, few new rental apartments were being built. This leaves us with a supply-constrained market while demand is growing."

According to NAHB Chief Economist David Seiders, the slowdown in the condo sector is due to serious affordability problems as well as a pullout by the investors who drove the market to unsustainable heights last year. "The changing supply-demand balance in the condo segment means that this component of the multifamily sector is slowing to a more sustainable level," Seiders said.

The MMI component that gauges supply for market-rate rental apartments dropped to 54.6 during the first quarter of 2006, down from 57.2 at the same time last year. With supply tightening and demand on the rise, the component of the MMI that tracks rents reached a record high for the series, with an index of 73.1, up from 61.7 at the same time last year and almost 20 points higher than three years ago.

Meanwhile, the index tracking condo supply dipped sharply in the first quarter of 2006, down to 37.0 in the first quarter of 2006 from 66.9 at the same time last year. The index tracking builders' expectations for condo starts over the next six months also dropped, from 54.0 in the first quarter of 2005 to 46.0 in the first quarter of this year. The indexes tracking builder expectations for all classes of rental apartments all moved higher and all were at 50 or above.

The MMI is a quarterly, nationwide survey of multifamily builders and property owners who are asked a series of questions about current market conditions as well as their expectations for the next six months. Survey answers are assigned numerical values to calculate separate indexes tracking rental demand and the supply of rental and for-sale units. The scale is from 1 to 100. A rating of 50 generally indicates that the number of positive responses is about the same as the number of negative responses.