Apartment Absorption Shows Weakness

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In the fourth quarter of 2018, 56,950 apartment units were completed, an 18 percent decline from the fourth quarter of 2017 (69,640) (Figure 1). Apartment completions in the fourth quarter of 2018 were at their lowest point since the fourth quarter of 2013.

These data come from the US Census Bureau, in collaboration with the US Department of Housing and Urban Development, under the Survey of Market Absorption (SOMA). The SOMA contains data on completions of nonsubsidized, privately financed apartments in buildings with five or more units and their absorption rates (the share of apartments rented out in the first three months after completion). This data provides a view into supply and demand dynamics in the multifamily market.

The three-month absorption rate of apartments stood at 51 percent in the first quarter of 2019, slightly higher than the 48 percent of apartments that were absorbed from the fourth quarter of 2017. The apartment absorption rate has experienced a slight decline since 2015, after rising sharply between 2009 and 2012, and remaining relatively flat between 2012 and 2014. The median asking price of rent was $1,513 in the fourth quarter of 2018, down 11 percent from the fourth quarter of 2017 ($1,696).

In addition to apartments, the SOMA also contains condominium (and cooperative) data. In the fourth quarter of 2018, there were 5,370 condominium completions in buildings with 5 or more units (Figure 2). This is 23 percent higher than the amount completed in the fourth quarter of 2017 (4,364). Condominium completions have been trending upwards since 2015, although remain below historic norms. Condominium production, and hence completions, nosedived between 2009 and 2011 in the aftermath of the financial crisis, and was noticeably weak between 2012 and 2014.

Seventy-nine percent of condominiums completed in the fourth quarter of 2018 were sold in the first three months of 2019, the same absorption rate of condominium completions from the fourth quarter of 2017. Fourth quarter absorption rates of condominiums have generally been healthy, as they have been at or above 70 percent since 2012, except for the fourth quarter of 2016 when the rate dropped to a low of 36 percent. The median asking sales price of condominiums was $469,000 in the fourth quarter of 2018, inching up 3 percent from the median asking sales price of $467,200 in the fourth quarter of 2017.

In previous updates, completions of affordable housing units, such as low-income housing tax credit units, were reported out. However, going forward that data will only be released on an annual basis, as opposed to quarterly. A future blog post will cover annual data on affordable unit completions.



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