by Calculated Risk on 10/28/2022 11:42:00 AM

From the National Multifamily Housing Council (NMHC): Apartment Market Softens, Sales Put on Hold Amidst Rising Rates and Economic Uncertainty

Rising interest rates caused by the Federal Reserve’s ongoing efforts to combat inflation continue to impact the multifamily business. However, it is worth noting that the overall apartment market has begun to revert to pre-pandemic trends as rent growth is decreasing.

Apartment market conditions weakened in the National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions for October 2022, as the Market Tightness (20), Sales Volume (6), Equity Financing (13), and Debt Financing (5) indices all came in well below the breakeven level (50).

“The Fed’s continued interest rate hikes have resulted in higher costs of both debt and equity and a higher degree of economic uncertainty," noted NMHC’s Chief Economist Mark Obrinsky. “This has caused the market for apartment transactions to come to a virtual standstill, as buyers seek a higher rate of return that sellers are unwilling to accommodate via lower prices.”

“The physical apartment market is also starting to normalize after six consecutive quarters of tightening conditions, with a majority of survey respondents reporting higher vacancy and lower rent growth compared to the three months prior.”
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• Market Tightness Index came in at 20 this quarter — well below the breakeven level (50) — indicating looser market conditions for the first time in six quarters. The majority of respondents (66%) reported markets to be looser than three months ago, while only 5% thought markets have become tighter. The remaining 29% of respondents thought that market conditions were unchanged over the past three months, a considerable decline from the 56% of respondents who said the same in July.
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It is important to remember that the index does not measure the magnitude of change but, rather, the degree to which respondents agree on the direction of change. For instance, an index value of 0 in market tightness would indicate that all respondents believe market conditions have become looser, but this does not tell us how much looser markets have become.

Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading below 50 indicates looser conditions from the previous quarter. 

The quarterly index plunged to 20 in October, from 51 in July.

This index has been an excellent leading indicator for rents and vacancy rates, and this suggests higher vacancy rates and slower rent growth.