Data from the Survey of Market Absorption (SOMA), produced by the Census Bureau and the Department of Housing and Urban Development, reveal limited weakness in the multifamily sector for the first half of 2011. However, declining multifamily vacancy rates are a hopeful sign for future multifamily market expansion, which is consistent with improving responses reported in NAHB multifamily surveys.
The SOMA tracks completions and market absorption (either units rented or units sold after construction of the property is complete) for multifamily rental and for-sale housing in 5+unit properties. Data released in December report absorptions for the third quarter of 2011 for properties completing construction in the second quarter of 2011.
For unfurnished apartments, the SOMA data reveal some softness in the rental market for the first half of 2011. Rental apartments exhibited a fairly stable absorption rate of around 63% for most of 2010, but this rate declined to 56% in the first quarter of 2011 and 50% in the second quarter.
However, this decline in the absorption rate of newly constructed rental apartments occurred during a period in which the rental vacancy rate was also, counterintuitively, falling. From the middle of 2010 until the middle of 2011, the rental vacancy rate fell from 10.6% to 9.2%. This fact suggests that the absorption rate for new apartments, as well as multifamily completions, will soon rise to meet increasing rental demand. As noted earlier, this is consistent with improving measures of multifamily market confidence, according to NAHB surveys.
With respect to for-sale condominium and cooperative multifamily units, the story is also mixed. Completions are at record-lows, with 2nd quarter completions of for-sale multifamily units down more than 90% from levels reported five years ago. Nonetheless, for those units being placed in service, the absorption rate of 61% is at its highest level since the third quarter of 2007.
The owner-occupied vacancy rate for units in 5+ properties is also falling. Reaching a twenty-year high of 10.4% in the final quarter of 2010, the vacancy rate for owner-occupied multifamily units has since declined to 8.6% for the second quarter of 2011.
These data, NAHB survey results, and significant amounts of pent-up housing demand that will emerge as rental demand first, suggest that construction of multifamily units will continue to grow in 2012.