Slowdown ahead for overbuilt multifamily
Multifamily construction perked up in the spring after two sluggish quarters. But according to the May housing report, while multifamily starts were the highest in a year, multifamily permits were the lowest in a year. The multifamily construction market remains overbuilt with new starts expected to average steady to slightly down through the end of next year.
While national multifamily construction spending will decrease 8% during this period, as the recent surge of starts are completed, there will be several regional growth markets.
During the early spring, condo and co-op sales were boosted by the brief dip in mortgage rates and the absorption of vacant apartments improved with the beginning of sustained growth in employment.
The market tightness index for apartments jumped to 59 in the spring, according to the National Multi Housing Council, confirming that newly constructed units are being rented quicker and that rents, while still low, are now rising. The market has tightened most for luxury units and condos. Nonetheless, the rental vacancy rate rose 0.2% to 10.4% and is over 12% in the South and Midwest.
Job growth is slowing the market's decline. Seventy-five percent of the new jobs added in the U.S. year-to-date through April were in six regional clusters. The Pacific coast states, along with Arizona and Nevada, added 195,000 jobs and the Mid-Atlantic states and Connecticut added 120,000 jobs. The four other growth regions are Virginia and Maryland (95,000), Oklahoma and Texas (86,000), Florida (72,000), and North Carolina and South Carolina (61,000). These regions will continue to expand the fastest, but the gap will narrow as the economic recovery spreads to manufacturing industries.