Multifamily Outlook Still Positive despite Index Dip in Fourth Quarter

The National Association of Home Builder’s Multifamily Production Index (MPI), which measures builder and developer confidence in the apartment and condominium markets, dropped four points to 52 in the fourth quarter of 2015 (Figure 1). Although the index declined, it is still above the break-even point of 50, and has been at or above the break-even point for 16 consecutive quarters. A reading above 50 indicates that more respondents report conditions are improving than report conditions are getting worse. Consequently, the fourth quarter result indicates that builders and developers on balance still have confidence that the multifamily market is improving.

The MPI is comprised of three sub-indexes pertaining to the multifamily market: construction of low rent apartments, market rate rental apartments; and “for-sale” units, or condominiums. All three sub-indexes declined in the fourth quarter: low-rent units and market-rate rental units both dropped five points to 50 and 59, respectively, while for-sale units dipped one point to 49. The MPI has performed well as a leading indicator of Census multifamily starts, which is also displayed in Figure 1.

Figure 1: NAHB Multifamily Production Index (MPI) and Multifamily Starts (in thousands)Figure 1

The Multifamily Vacancy Index (MVI), which measures respondent perception of multifamily vacancies, increased one point to 40 in the fourth quarter of 2015. An MVI below 50 indicates that more respondents perceived a reduction in vacancy rates than perceived vacancies were increasing. The MVI peaked at 70 in the second quarter of 2009 and subsequently improved through 2010 (Figure 2). Since 2011, the MVI has been fairly stable. Historically, the MVI has shown to be a leading indicator of Census multifamily vacancy rates, which is displayed in Figure 2 as well.

Figure 2: NAHB Multifamily Vacancy Index (MVI) and 5+ Rental Vacancy Rate

Figure 2

It is important to note that the decline in the MPI and the slight uptick in the MVI may be a reflection of the multifamily market slowly edging closer to its long-term equilibrium point post-recession.

For more information, including the full history and derivation of each of the components of the MPI and MVI, see the web page for NAHB’s quarterly Multifamily Market Survey.