Builder and developer confidence in the multifamily market weakened slightly in the fourth quarter, according to the National Association of Home Builders’ Multifamily Market Survey. The Multifamily Production Index (MPI) fell one point from the previous quarter to 47, with a number below 50 indicating that more builders report market conditions are getting worse than improving (Figure 1). Meanwhile, the Multifamily Vacancy Index (MVI) edged down two points to 45, indicating a slight improvement in apartment vacancies.
The MPI is a composite index consisting of three key components of the multifamily market: the production of low-rent units, market-rate rental units, and for-sale units (condominiums). All three components settled below 50 in the fourth quarter: low-rent units fell 11 points to 48, while the component measuring market rate rental units increased three points to 49 and the component measuring for-sale units rose five points to 44.
The MVI measures the multifamily housing industry’s perception of existing apartment vacancies (Figure 2). It is a weighted average of current occupancy indexes for class A, B, and C multifamily units, and can vary from 0 to 100, where any number under 50 indicates more property managers believe vacancies are decreasing than increasing. With a reading of 45, the MVI improved two points from the previous quarter.
The weaker MPI reading in the fourth quarter is in line with NAHB’s multifamily forecast, which projects a leveling off and slight dip in the production of multifamily units for 2019.