U.S. Apartment and Condominium Housing Index Posts Positive Gains in Q2

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The National Association of Home Builders' latest Multifamily Production Index (MPI), an economic indicator for the U.S. multifamily market, posted a gain of five points to a reading of 58 for the second quarter. It is the 10th straight quarter with a reading of 50 or above.

The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse. The MPI provides a composite measure of three key elements of the multifamily housing market: construction of market-rate rental units, low-rent units and "for-sale" units, or condominiums.

In the second quarter of 2014, the MPI component tracking builder and developer perceptions of market-rate rental properties had a significant increase of nine points to 68, which is the highest reading since the third quarter of 2012; low-rent units increased four points to 52; and for-sale units rose two points to 56.

"We have seen steady growth for the apartment market since 2011," said W. Dean Henry, chairman of NAHB's Multifamily Leadership Board and CEO of Legacy Partners Residential in Foster City, Calif. "There will continue to be strong demand for the foreseeable future, but the availability of construction labor is still proving to be a challenge."

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, was essentially unchanged, increasing one point to 38. With the MVI, lower numbers indicate fewer vacancies.

"The MVI, the vacancy index, has been holding steady at a healthy level of 37 to 38 since late 2013," said NAHB Chief Economist David Crowe. "Although this is slightly above the low vacancy numbers we saw in 2011 and 2012, those low numbers were the result of depressed production with few new apartments coming on line. Meanwhile, the strength of the MPI, the production index, in the second quarter is not surprising, given that we've seen employment improve, which allows younger consumers to form their own households."

The MPI and MVI have continued to perform well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.