INVESTMENT PROPERTY: Multifamily Still Doing Just Fine

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, the

NEW CONSTRUCTION: 2012 shaping up as a strong year for multifamily construction starts

This year could bring a turnaround in both single-family and multifamily housing construction starts, analysts at Capital Economics said.

 

Capital Economics made its assertion after the National Association of Home Builders reported homebuilder confidence in the single-family segment rose for the fifth consecutive month in February, marking a four-year high.

Analysts at Barclays Capital ($15.03 0%) see the news as positive for homebuilder performance and said it presents an "compelling opportunity at current valuations," in a note emailed to clients. "We believe this is an early read on a strong Spring selling season," remarked analyst Stephen Kim in regards to the results of the latest homebuilder survey.

In fact, the multifamily segment is braced for a positive year, Capital Economics said, with starts in the segment last year rising 56% to 177,000 units, three times higher than the sector's previous low.

Furthermore, demand in the segment is up with the rental vacancy rate for multifamily homes hitting 10.1% in the fourth quarter of 2011, a rate that is below the long-run trend level for the industry.

Capital Economics believes 850,000 households a year could join the rental sector over the course of the next few years, propping up demand for multifamily units.

"We think that growing investment demand will prompt homebuilders to increase significantly construction of multifamily units in 2012. But in a turnaround from last year’s performance, we also expect single-family starts to increase this year," Capital Economics said.

Capital Economics anticipates multifamily starts will increase by as much as 50%, or

MULTIFAMILY HOME LOANS: Loans for Multifamily Homes

THE rental market’s strength may be enticing some buyers to look at multifamily properties, but qualifying for a mortgage on rental units is often more difficult than on a single-family residence.

“It looks a lot easier than it is,” said Neil B. Garfinkel, a partner in charge of the real estate practice at Abrams Garfinkel Margolis Bergson, suggesting that anyone new to this subject work with a real estate professional experienced in rental properties.

But the extra effort may be worthwhile for some people looking for income, or at least help with covering monthly expenses.

A recent report by Frank E. Nothaft, the chief economist for Freddie Mac, noted that “the rental market has been a bright spot in the housing sector this year,” as more households postpone home-buying because of the uncertain economy. The overall rental vacancy rate in Manhattan is hovering around 1 percent, while rents are up for all kinds of apartments.

Mr. Garfinkel, who is also an owner of apartments in Brooklyn and the Bronx through aninvestment firm, says buyers of multifamily property will need to do their due diligence on all the active leases and any service contracts for the building, including the employment terms of the superintendent.

Some lenders are more comfortable lending for property with tenants in place, said John Manning, a