Developer Confidence in Multifamily Housing rises, but Remains Low

Builders’ confidence in new multifamily housing ticked up during the second quarter of this year, according to a new report, though developers still see the sector as relatively weak.

The report comes from the National Association of Home Builders (NAHB), which regularly compiles a “Multifamily Production Index, or MPI, to gauge “developer sentiment about current conditions in the apartment and condo market.” The MPI uses a scale that runs between 0 and 100, and during the second quarter of this year it rose 10 points, to 37.

While that is certainly an improvement over the prior quarter, the NAHB noted in the report that it “is still below its break even point of 50.”

“The index and all of its components are scaled so that a number below 50 indicates that more respondents report conditions are getting worse than report conditions are improving,” the report further explains.

In other words, builder confidence is improving but continues to be low.

On the other hand, while confidence has dropped off during the coronavirus pandemic, it has not reached the depths to which it fell during the Great Recession.

A graph from the NAHB showing builder confidence between 2003 and the present. Credit: NAHB

The NAHB also measures vacancies and puts together a “Multifamily Vacancy Index,” or MVI, that similarly operates on a scale of 0 to 100. Higher numbers indicate more vacancies, and in the second quarter of this year the MVI rose three points, to 62 — meaning vacancies are up.

Both the MPI and the MVI are based on a quarterly survey of multifamily developers, and during the latest round the NAHB also asked respondents about tenants missing rent payments — a nod to the large numbers of people who haven’t been able to pay for their housing during the coronavirus pandemic. Overall, the NAHB found that 7.9 percent of tenants missed their last rent payment.

Though the NAHB’s findings indicate confidence is on an upward trajectory, both indices suggest that sentiments among those in the multifamily sector are ultimately not as buoyant as those in real estate sales — where bidding wars have proliferated and sales are skyrocketing.

Still, the NAHB framed the report as an overall positive assessment of the multifamily sector.

“The MPI and MVI readings this quarter reflect a multifamily housing market that is continuing its climb back to pre-pandemic levels,” the NAHB report states. “The recovery is further evidenced by July multifamily start numbers from the Census Bureau, which show a clear acceleration in starts activity from previous months.”

Email Jim Dalrymple II

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