NAHB Sees Small MF Construction Decline

Although apartment vacancy rates are at very high levels and absorption rates are low, the National Association of Home Builders is forecasting that multifamily construction will decline by only 4%-5% in 2004 and 2005.NAHB economist Paul Emrath admitted that the forecast is "optimistic," but he said it is predicated on strong job growth this year and rising mortgage rates that favor rental housing. "We have households waiting to be formed when the jobs are created," Mr. Emrath said. He expects a turnaround in the multifamily market in 2006. But right now multifamily vacancy rates (5 or more units) are at 11.5% -- the highest since 1988 -- and the three-month absorption rate has rebounded from record lows in 2002 to the upper 60% range. Nevertheless, investors are still buying new multifamily projects. "Some people have been building up inventory based on their belief in a turnaround," he told a meeting of the National Council of Affordable Housing Market Analysts.