The Multifamily Production Index (MPI), an indicator for the multifamily market released by the National Association of Home Builders (NAHB), posted a gain of five points to a reading of 58 for the second quarter. It is the 10th straight quarter with a reading of 50 or above.
The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse. The MPI provides a composite measure of three key elements of the multifamily housing market: construction of market-rate rental units, low-rent units and "for-sale" units, or condominiums.
In the second quarter of this year, the MPI component tracking builder and developer perceptions of market-rate rental properties had a significant increase of nine points to 68, which is the highest reading since the third quarter of 2012; low-rent units increased four points to 52; and for-sale units rose two points to 56.
"We have seen steady growth for the apartment market since 2011," said W. Dean Henry, chairman of NAHB's Multifamily Leadership Board and CEO of Legacy Partners Residential in Foster City, Calif. "There will continue to be strong demand for the foreseeable future, but the availability of construction labor is still proving to be a challenge."
The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, was essentially unchanged, increasing one point to 38. With the MVI, lower numbers indicate fewer vacancies.
"The MVI, the vacancy index, has been holding steady at a healthy level of 37 to 38 since late 2013," said David Crowe, NAHB chief economist "Although this is slightly above the low vacancy numbers we saw in 2011 and 2012, those low numbers were the result of depressed production with few new apartments coming on line. Meanwhile, the strength of the MPI, the production index, in the second quarter is not surprising, given that we've seen employment improve, which allows younger consumers to form their own households."
The MPI and MVI have continued to perform well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.
For more information, visit nahb.org/mms.
In other news, pending home sales rebounded in July and have now risen in four of the last five months, according to the National Association of Realtors (NAR). All major regions experienced healthy gains except for the Midwest, which saw a slight decline.
The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, climbed 3.3% to 105.9 in July from 102.5 in June, but is still 2.1% below July 2013 (108.2). The index is at its highest level since August 2013 (107.1) and is above 100—considered an average level of contract activity—for the third consecutive month.
Lawrence Yun, NAR chief economist, said favorable housing conditions are behind July’s higher contract activity. “Interest rates are lower than they were a year ago, price growth continues to moderate and total housing inventory is at its highest level since August 2012. The increase in the number of new and existing homes for sale is creating less competition and is giving prospective buyers more time to review their options before submitting an offer.”
He added, “More importantly, steady job additions to the economy are helping family finances and giving them added confidence to enter the market.”
The PHSI in the Northeast jumped 6.2% to 89.% in July, and is 8.3% above a year ago. In the Midwest the index marginally fell .4% to 104.6 in July, and is 6.4% below July 2013.
Pending home sales in the South increased 4.2% to an index of 119.0 in July, and is now 1% below a year ago. The index in the West rose 4% in July to 99.5, but remains 6% below July 2013.
Yun expects existing-homes sales to be down 2.1% this year to 4.98 million, compared to 5.09 million sales of existing homes in 2013. The national median existing-home price is projected to grow between 5% and 6% this year and 4% and 5% next year.
