Builder and developer confidence in the multifamily market weakened in the first quarter of 2019, according to results from the National Association of Home Builders’ (NAHB) Multifamily Market Survey (MMS). The MMS consists of two indices: the Multifamily Production Index (MPI) and the Multifamily Vacancy Index (MVI).
The MPI, which measures builder and developer sentiment about current market conditions, dropped seven points to 40 in the first quarter, the lowest reading since the third quarter of 2010 (Figure 1). The MPI and all of its components sit on a scale of 0 to 100, with numbers below 50 indicating that more respondents report that conditions are getting worse than report conditions are improving.
The MPI is a weighted average of three components: low-rent units (tax credit or subsidized units), market-rate rental units, and for-sale units (condominiums). In the first quarter, all of the MPI components fell: the component measuring low-rents fell one point to 47, the one measuring market-rate rentals decreased seven points to 42, and the for-sale units component dropped 13 points to 31.
In the first quarter of 2019 the MVI, which measures the multifamily market industry’s perception of vacancies, rose three points to 48, with higher numbers indicating more vacancies (Figure 2). The MVI is a weighted average of class A, B, and C multifamily units. It sits on a scale ranging from 0 to 100, where a number under 50 indicates that more respondent believe vacancies are decreasing than increasing. The reading of 48 in the first quarter of 2019 is the highest since the first quarter of 2010.
The weakness in the MPI is consistent with the NAHB multifamily starts forecast for this year: multifamily production was strong last year and is expected to level off in 2019.
Historically, the MPI and MVI have performed 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. The MPI plateaued at 53 in the fourth quarter of 2017 and the first quarter of 2018, and has been trending downwards since then. Meanwhile, the Census series on multifamily starts hit a peak in the first quarter of 2018, and has been drifting down since the second quarter.
For data tables on the MPI and the MVI, visit nahb.org/mms.