Mortgage Market Meltdown Raises Apartment Demand, But Financial Crisis Crimps Sales and Capital Availability According to NMHC Quarterly Survey


    WASHINGTON – The ongoing financial market turmoil and its spillover into the broader economy are having a mixed effect on the apartment sector, according to the National Multi Housing Council’s (NMHC) latest Quarterly Survey. Although sales volume is down and equity is less available, apartment demand is being bolstered by the housing and mortgage market downturn while there are signs that debt financing conditions may be stabilizing.

    “The apartment industry is clearly benefiting from the downturn in the for-sale housing industry,” noted NMHCChief Economist Mark Obrinsky.  “While the ‘shadow’ rental market (unsold houses and condos that have left the for-sale market to enter the rental market) may attract some apartment renters (and potential renters), thus far, the lowest homeownership rate in five-and-a-half years seems to have increased demand for apartment residences.”

    Obrinsky added that, “Overall, the apartment industry remains healthy at this point due to continuing strong fundamentals, and the fact that apartment firms did not overbuild in the latest economic cycle.”

    Almost 80 percent of respondents indicated that tightening mortgage credit has reduced the outflow of renters into homeownership, a small rise from the 75 percent figure of October 2007.  More than one-third (35 percent), however, described the decrease as “big,” up from 22 percent in October and 18 percent last July.

    The Market Tightness Index, which measures changes in occupancy rates and/or rents, remained below 50 for the second time in 17 quarters, slipping to 33. (For all four 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.)  This may reflect seasonal weakness (leasing tends to occur in the summer and fall) in addition to readjustments in the housing market. Nearly half of respondents, however, indicated no change from the prior quarter.

    One unexpected result was the sharp improvement in the Debt Financing Index, which rose to 45 percent from 17 in the prior quarter, but still remains below 50.  Forty percent of respondents indicated borrowing conditions were worse, while a quarter said they were unchanged. These responses point to the tightened underwriting standards and the still-frozen Commercial Mortgage Backed Securities (CMBS) market.

    Even so, the share of respondents who thought borrowing conditions were worse was cut nearly in half from the prior quarter (when 76 percent noted worsening conditions), and nearly a third (29 percent) of all respondents indicated borrowing conditions were better this quarter, up from 20 percent from the previous quarter.The current economic challenges are having the largest impact on the volume of property sales.  For the ninth straight quarter, the Sales Volume Index was below 50, although it improved from the last quarter, rising from 12 in October to 18 in January.  Although an improvement from the previous quarter, this is nonetheless the second lowest figure in the history of the survey and is a testament to the uncertain environment stemming from the economic slowdown and the ongoing financial market crisis.

    The Equity Financing Index edged up slightly to 24, though this too is still the second lowest figure on record. Almost 40 percent of respondents said equity financing conditions had not changed from the prior quarter, although two percent (the same as last quarter) actually reported that equity financing was more available.

    Full survey results are

    posted at  Note: The January 2008 quarterly survey was conducted January 28–February 4, 2008; 102 CEOs and other senior executives of apartment-related firms nationwide who serve on NMHC’s Board of Directors or Advisory Committee responded. The October 2007 Quarterly Survey was conducted October 15-22, 2007; 90 responded. The January 2007 Quarterly Survey was conducted January 22-29, 2007; 90 responded.

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    Based in

    Washington, DC, NMHCis a national association representing the interests of the larger and most prominent apartment firms in the
    U.S.  NMHC’s members are the principal officers of firms engaged in all aspects of the apartment industry, including owners, developers, managers and financiers.  Nearly one-third of Americans rent their housing, and more than 14 percent live in a rental apartment.  For more information, contact NMHCat 202/974-2300, e-mail the Council at , or visit NMHC’s web site at

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