WASHINGTON -- Demand for rental apartment homes continued to gain momentum in the fourth quarter of 2004, according to the latest Multifamily Market Index (MMI) by the National Association of Home Builders (NAHB). Meanwhile, the same survey showed no signs of the hot condo market cooling off.
The California Association of Realtors earlier this month reported the statewide market for multifamily housing has been every bit as impressive as has the market for single-family detached housing in recent years.
In San Diego County, a surging multifamily housing market is being fueled from two fronts: development of thousands of new condominiums in downtown San Diego and a growing trend of converting existing apartments to condominiums.
"The improving job market is driving a rebound in apartment rentals," said David Wilson, NAHB president and builder from Ketchum, Idaho. "At the same time, attractive interest rates and strong price appreciation rates continue to spur condo sales."
"These numbers indicate that a healthier multifamily housing market is emerging, one in which demand more clearly aligns with supply," said NAHB Chief Economist David Seiders. "The positive outlook for the economy in general, and for job growth in particular, means that the news for multifamily housing should continue to be good."
The MMI is based on a quarterly, nationwide survey of multifamily builders and property owners who are asked a series of questions about current market conditions as well as their expectations for the next six months. Survey answers are assigned numerical values to calculate two separate indexes, one tracking demand and the other tracking supply. The scale is from 1 to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses.
Continuing the previous quarter's trend, all classes of rental apartments showed gains on the index gauging demand in the fourth quarter of 2004. The biggest increase in demand was reported for Class B apartments -- the mid-range rent category -- which jumped 8 points from a year ago to its current index value of 50.8.
Demand for luxury units rose 5 points during the fourth quarter of 2004 over the previous year's fourth quarter, while demand for low-rent communities rose about 7 points during the same period. Survey respondents expect that rising trend to continue over the next six months.
The index tracking the number of apartments available for rent continued its downward trend, registering a 13.2-point drop from 69.6 in the final quarter of 2003 to 56.4 in the fourth quarter of 2004.
During that same period, the index tracking the volume of calls from prospective renters increased, rising nearly 4 points to 50, up from 45.9. The current average vacancy rate for rental apartments is 7.8 percent, down from 8.5 percent in the previous quarter.
On the supply side, market-rate apartments showed the biggest gain, with the supply index for that category up more than 4 points to 49.3 for fourth quarter 2004, from 34.7 during fourth quarter 2003.
Builders participating in the MMI survey said they expect even greater gains over the next six months. Condos continued to be the strongest category. Although the 57.1 index during fourth-quarter 2004 is down from the 59.5 reported a year earlier, any value above 50 reflects market strength.