NMHC: "Apartment Market Continues to Loosen"

Leading indicator for Rents and Apartment Vacancies suggests more weakness for Apartments

I’ll have much more on rents early next week.

From the NMHC: Apartment Market Continues to Loosen, Transactions Pull Back Further Amidst Economic Uncertainty

Apartment market conditions continued to weaken in the National Multifamily Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions for April 2023, as the Market Tightness (31), Sales Volume (26), Equity Financing (23), and Debt Financing (29) indexes all came in well below the breakeven level (50).

“Apartment operators reported an uptick in vacancies and concessions this quarter,” noted NMHC’s Vice President of Research Caitlin Sugrue Walter. “And while some of this softness can be attributed to seasonality, investors remain concerned about the coming wave of supply in some markets and the prospect of slower economic growth in 2023. Only 11% of Quarterly Survey respondents believe that the Fed will be able to achieve a soft landing this year in its effort to rein in inflation.

“The transaction market, meanwhile, remains at a virtual standstill, with current apartment owners unwilling to offer buyers the lower prices necessary to compensate for both this diminished economic outlook and the elevated cost of debt.”
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• The Market Tightness Index came in at 31 this quarter—below the breakeven level (50)—indicating looser market conditions for the third consecutive quarter. More than half of respondents (51%) reported markets to be looser than three months ago, while only 14% thought markets have become tighter. Meanwhile, around a third of respondents (34%) thought that market conditions were unchanged over the past three months.

This graph shows the quarterly Apartment Tightness Index.

The quarterly index increased to 31 in April from 14 in January. Any reading below 50 indicates looser conditions from the previous quarter.

This index has been an excellent leading indicator for rents and vacancy rates, and this suggests higher vacancy rates and a further slowdown, or even a year-over-year decline, in asking rents.