by Calculated Risk on 8/22/2006 12:23:00 PM

The National Association of Homebuilders (NAHB) reports: Builder's Confidence in Condo Market Dips Again.

Builder confidence in the condominium housing market weakened significantly in the second quarter of 2006, as sales continued to retreat from the record-high levels seen last year
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"Investors and speculators had been a big factor driving sales and production at the height of the condo boom and they have been pulling out of the market," said NAHB Chief Economist David Seiders, "What we are currently seeing is a level of condo production that is probably more sustainable in the long run, although builders are worried that affordability has also become a factor for buyers, now that the overall economy appears to be slowing."

The component of the MCMI that tracks current condo supply conditions fell to an index value of 32.0, compared to a value of 61.3 during the second quarter of last year. It was the third time since NAHB began tracking this data that the for-sale index has fallen below 50. A rating of 50 generally indicates that the number of positive responses is about the same as the number of negative responses.
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In a set of special questions for condo developers, 82 percent said they had noticed buyer resistance to current prices and, of these, more than one-fourth reported that they have reduced prices. The average price cut was 9 percent.

About three-fourths of the respondents said they are using non-price incentives to boost sales and limit cancellations. Two-thirds of those builders who reported using incentives are including optional items at no cost, a third are absorbing financing points, and two-thirds are paying closing costs or fees to bolster sales. Half the developers are using agents or brokers to help sell, up from about 20% a year ago.

But confidence in rental apartments is soaring.

"We are in the midst of a solid comeback on the rental apartment side of the multifamily housing market," said NAHB Chief Economist David Seiders, who noted that during the last three years, condos have made up a rising share of multifamily housing production.

"At the same time, thousands of existing rental units had been converted to for-sale units to meet what seemed an insatiable appetite for condos," said Seiders. "As a result, the supply of rental units is very tight at a time when the demand pendulum is swinging back to rentals," said Seiders.

This rental demand is somewhat local. Apartment vacancy rates, at 9.6% nationwide, are near all time highs according to the Census Bureau. And the Homeowner vacancy rate is at 2.2% - an all time high.