The multifamily housing sector continues to improve, fed by people renting homes and the improving for-sale market, the National Association of Home Builders reported Thursday.
The trade group says that its Multifamily Production Index came in at 54 out of 100, climbing three points from the prior quarter and marking its eighth consecutive quarterly improvement. The reading is the highest since the second quarter of 2005, back before the housing market took its huge dive.
The quarterly index examines confidence surrounding construction of rental and for-sale units. As with the group’s single-family index, any reading over 50 indicates that more respondents think conditions are improving, with increased construction and sales potential.
More Americans burned by the housing debacle are looking to rent, particularly in big cities where glitzy towers boasting amenities including resort-style pools and outdoor kitchens are springing up. And those who can afford to buy are racing to tap mortgage rates that continue hovering near record lows.
Indeed, the index component tracking full-price rental properties came in at 63, indicating those developers are quite comfortable moving forward with new projects. The reading has topped 60 for four consecutive quarters—the longest sustained period of strength since the index’s 2003 inception, the NAHB reports.
This “continues to give us the signal that the rental market is healthy,” says David Crowe, thegroup’s chief economist.
Condo units, meanwhile, saw the highest reading since the fourth quarter of 2005, coming in at 41. While that’s lower than the all-important 50, these developers are showing increased confidence as the housing market overall improves.
Affordable housing units recorded an all-time high of 61, indicating those developers think that market has a lot of potential because of government tax credits to offset building costs and a large need for lower-priced housing, Mr. Crowe says.
Overall, low vacancy levels are allowing landlords to raise rents, by the double-digits in some cases. National vacancy rates have fallen to levels not seen in years, while average rents are now at record levels in 74 of the 82 markets tracked by Reis Inc REIS +4.09%. and now top $1,000 a month on average in 27 of them. Big-money cities include Miami, Seattle, San Diego, Chicago and Baltimore.
While there are concerns that an improving housing market could weigh on the multifamily sector, Capital Economics expects 36% of households to be renting two years from now, up from 34.5% now and 30.8% in 2004. To be sure, “the fact that the average rent has become more expensive than the typical monthly mortgage cost, as well as the high share of the population who are still out of work, argue against runaway rental value growth,” the firm writes.