Confidence in the market for new multifamily housing weakened significantly in the first quarter of 2020, according to results from the National Association of Home Builders’ Multifamily Market Survey (MMS). The MMS consists of two indices: the Multifamily Production Index (MPI), which fell 22 points to 27 (Figure 1), and the Multifamily Vacancy Index (MVI), which rose 19 points to 59, with higher numbers indicating more vacancies (Figure 2). The MPI reading is the lowest since the fourth quarter of 2009 while the MVI reading is the highest since that same quarter. It is important to note that this survey was conducted during the first part of April after the coronavirus pandemic hit.
The MPI measures builder and developer sentiment about current conditions in the apartment and condo market on a scale of 0 to 100. The index and all of its components are scaled so that a number below 50 indicates that more respondents report conditions are getting worse than report conditions are improving.
The MPI is a weighted average of three key elements of the multifamily housing market: construction of low-rent units—apartments supported by low-income tax credits or other government subsidy programs; market-rate rental units; and for-sale units—condominiums. All three components posted decreases in the first quarter: the component measuring low-rent units fell 21 points to 32, the component measuring market rate rental units dropped 21 points to 29 and the component measuring for-sale units decreased 24 points to 22.
The MVI measures the multifamily housing industry’s perception of vacancies in existing apartments. 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 a number over 50 indicates more property managers believe vacancies are increasing than decreasing. The MVI rose 19 points to 59 in the first quarter.
In the first couple months of 2019 multifamily production was solid, but weakened significantly with the onset of the COVID-19 pandemic. Builders and developers now face many uncertainties as the crisis has impacted operations, collections, permitting, inspections, and financing. NAHB forecasts that multifamily construction will decline more than single-family construction in this recession.
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. Multifamily starts were strong in the first quarter of 2020 (average seasonally adjusted annual rate of 522,000 units), but declined significantly in April (seasonally adjusted annual rate of 241,000 units), which is more in line with the MPI reading.
For data tables on the MPI and MVI, visit www.nahb.org/mms.