Just in the nick of time, the National Association of Homebuilders (NAHB) split its quarterly Multifamily Market Index (MMI) in two to better report the stark divergence in the higher-density housing sector.
NAHB's two new indexes, the Multifamily Rental Market Index (MRMI) and the Multifamily Condo Market Index (MCMI) are timely reflections of the boom in the apartment market and the doom that's hitting condos.
But it all adds up to multiple incentives for those still shopping the condo market.
The quarterly indexes are nationwide surveys of builders and property owners who are asked questions about current market conditions as well as their expectations for the next six months. The index is based on a scale from 0 to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses.
The latest MRMI saw demand for both luxury apartments and lower-priced apartments (Class A and Class C) reaching their highest levels on record in the second quarter of 2006, with luxury rentals reaching an index of 73.2, up from 62.5 a year ago.
The demand for moderately priced apartments (Class B) stood at 71.4 percent, up 6.6 points from a year ago. Lower-priced Class C rentals' index reached 68.0, up from 61.5 a year ago.
The growing landlords' market -- as opposed to a renters' market -- in the rental arena is attributed to higher interest rates and unaffordable home prices pushing more shelter seekers to rental properties. Falling apartment inventories and incomes that haven't kept pace with inflation are also boosting the landlords' market.
"Thousands of existing rental units had been converted to for-sale units to meet what seemed an insatiable appetite for condos. As a result, the supply of rental units is very tight at a time when the demand pendulum is swinging back to rentals" said NAHB chief economist David Seiders.
Meanwhile, a condo glut is forming a buyers' market in the higher-denisty, owner-occupied housing market due to over building, rental conversions and speculator flight.
The second home market, which helped boost condo sales during the last boom, also may have peaked.
As condo prices fall faster than single family homes, consumers still shopping for homes may see single-family homes as a better investment over the next market cycle.
From July 2005 to July 2006, existing single-family home sales dropped 11.4 percent, but prices managed to rise 1.5 percent to $231,200. Meanwhile condo sales dropped only 10.5 percent, but the median price was down 1.0 percent to $225,600, according to the National Association of Realtors.
"Investors and speculators had been a big factor driving sales and production at the height of the condo boom and they have been pulling out of the market," said Seiders.
Not surprising then, the NAHB's MCMI reveals the condo market index, gauging builder sentiment about condo production over the next six months, was down to 34 from 43 a year ago. The supply conditions index fell from 61.3 to 32 during the same period.
A new index, a traffic volume index, came in at 26.8, indicating that more respondents believed that traffic was lower than in the previous quarter. A new asking prices index came in at 46.3, indicating that prices are softening.
Again, a rating of 50 generally indicates that the number of positive responses is about the same as the number of negative responses.
A special set of questions found many condo developers offering a host of incentives, often several on a single property.
- Eight-two percent of condo developers said there was buyer resistance to current prices.
- About 25 percent reduced prices by an average 9 percent.
- Approximately 75 percent said they are using non-price incentives to boost sales and limit cancellations.
Among those offering non-price incentives:
- Sixty-six percent were including optional items at no cost.
- Sixty-six percent were paying closing costs or other fees.
- Thirty-three percent were absorbing financing points.
- Fifty percent were using real estate agents and brokers to help sell, up from 20 percent a year ago.
