The National Association of Home Builders’ (NAHB) Multifamily Production Index (MPI) dropped 10 points to 46 in the third quarter of 2017 (Figure 1). This quarter marks the lowest MPI reading since the second quarter of 2011.
The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse.
The MPI is a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and “for-sale” units, or condominiums. Market-rate rental units and for-sale units both fell by 17 points to 43 and 40, respectively, while low-rent units edged up one point to 54 in the third quarter.
NAHB also tracks the multifamily market’s perception of vacancies. In the third quarter, the Multifamily Vacancy Index (MVI) rose three points to 41, with lower numbers indicating fewer vacancies (Figure 2). After peaking at 70 in the second quarter of 2009, the MVI first improved dramatically, then edged back up, and has been fairly stable since 2013.
In some areas of the country, the market appears to be oversupplied with multifamily construction. And with 600,000 units currently in the pipeline, builders and developers are waiting to see how the market absorbs these units.
The MPI reading this quarter is in line with NAHBs’ multifamily forecast for a slightly lower rate of production in 2017 and 2018, following the very strong years of 2015 and 2016, when multifamily starts reached a 25-year high.
For data tables on the MPI and MVI, visit www.nahb.org/mms.