Apartment Market Conditions Start to Loosen Up

All four National Multi Housing Council indexes dipped below 50 in the third quarter for the first time since July 2009, showing the highflying apartment market is reversing direction.

NMHC’s indices indicate market conditions are not as favorable as they were in the previous quarter.

The Market Tightness Index, which is defined by rent changes and occupancy rates, fell to 46 from 55.

After four years of almost continuous improvement across all indicators, “apartment markets have taken a small step back,” says Mark Obrinsky, vice president of research and chief economist of the NMHC, who does not see these changes as too significant.

Roughly 67% of respondents saw no change in market tightness compared to three months ago.

Those who find the market is loosening still are a minority. However, compared to those who responded in July, an additional 14% finds that apartment markets are loosening. Only 13% sees tighter markets.

If the quarterly Apartment Tightness Index reads below 50, explains Obrinsky, the market is loosening.

In 3Q the quarter-to-quarter decrease was small, he says, but it indicates looser market conditions. “The market has reached the bottom for effective rents,” compared to its top vacancy rate early in 2010.

Findings suggest even with near-bottom vacancy rates apartment markets are still tight, “so rents will probably continue to increase.”