Eye On Housing
In the fourth quarter of 2012, NAHB’s Multifamily Production Index (MPI) increased two points to 54, marking the fourth straight quarter the index has been over the key break-even point of 50. The MPI is an overall measure of builder and developer sentiment on current conditions in the apartment and condominium market.
The MPI is built from three components, capturing industry sentiment on production of low-rent, market-rate rental, and “for-sale” units (or condominiums). Each component lies on a scale of 0 to 100, where a number over 50 means more builders say conditions are improving than say they are getting worse. The MPI typically functions as a leading indicator, turning one to three quarters ahead of the official series on multifamily starts. After the latest downturn, for example, the zigzagging upward trend in the MPI began about three quarters before a similar pattern emerged in the starts series.
Although the MPI’s market-rate rental component dropped four points in the fourth quarter, it still remains well above the break-even point at 65. Moreover, the market-rate rental component has now been above 60 for six consecutive quarters—the longest sustained period above 60 since NAHB launched its multifamily survey in 2003.
Meanwhile, the MPI’s condo component reached its highest point since the fourth quarter of 2005, increasing two points to 46, while the low-rent component increased seven points to 53.
The MPI is one of two major sentiment indices produced from NAHB’s quarterly multifamily survey. The other is the Multifamily Vacancy Index (MVI), which recently has shown ongoing strength in demand for existing apartments and is one of the reasons NAHB expects multifamily production to remain fairly strong.
However, builders and developers are starting to encounter constraints to their ability to keep up with increased demand—particularly emerging shortages and rising costs of building materials, labor and land.
A complete history of the MPI and each of its components is available on NAHB’s web page for the multifamily market survey.
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