In the third quarter of 2011, NAHB’s Multifamily Production Index (MPI) improved for the fifth consecutive quarter. The MPI, which is based on a quarterly survey of multifamily builders and developers, tracks sentiment about construction of new apartments on a scale of 0 to 100. The MPI increased from 44.4 in the second quarter to 47.3 in the third quarter—the highest reading since the fourth quarter of 2005.
The MPI is a composite measure of construction in three key elements of the multifamily housing market: low-rent apartments, market-rate rental apartments and “for-sale” units, or condominiums. 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. In the third quarter of 2011, the MPI component tracking builder and developer perceptions of market-rate rental properties recorded an all-time high of 63.8, while low-rent units remained steady at 50.1. For-sale units rose to 31.9, the highest recording since the second quarter of 2006.
The MPI has emerged as a leading indicator of multifamily activity, providing information about the likely movement of Census Bureau statistics on multifamily starts about one to three quarters in advance. Although both series have been subject to short-term fluctuations and temporary reversals, the MPI has generally trended upward since the second quarter of 2009, and the multifamily starts rate has generally trended upward since the fourth quarter of that year.
Derived from the same NAHB survey, the Multifamily Vacancy Index (MVI) measures property owners’ perception of vacancies in existing rental apartments. The MVI decreased from 36.1 in the second quarter to 35.1 in the third quarter. With the MVI, lower numbers indicate fewer vacancies. The MVI has improved considerably since reaching a peak of 70.2 in the second quarter of 2009.
The MVI has also served as a leading indicator of Census multifamily statistics. The MVI began to improve strongly in the third quarter of 2009, one quarter before a similar trend emerged in the Census Bureau’s rental vacancy rate for buildings with at least five apartments. Although the Census series shows a slight surge in rental vacancy rates in the latest quarter, the MVI suggests that this will be a temporary setback.
Overall, multifamily housing continues to be a bright spot in the broader U.S. housing market. While household formations have been below trend, those who are forming new households are becoming renters and this trend is likely to continue until consumers’ confidence returns.
For more information, including detailed tables on the components of the MPI and MVI, see http://www.nahb.org/reference_list.aspx?sectionID=238.