Multifamily Gets a Boost From Weakened Single-family Market

August 01, 2006 |

Multifamily construction is holding up better during the housing slowdown than single-family construction. Prospective homebuyers with marginal finances are being forced to stay in apartments as mortgage rates rise and credit standards tighten; manufactured housing suppliers have not yet been able to capture any of these disappointed would-be homebuyers.

Continued job growth in a still strong economy is creating additional housing demand, which will be met largely by apartments. Some condo projects in the planning stages—even some already under construction—were switched to apartments.

Multifamily construction starts are expected to decline marginally from the 345,000 annual pace in the spring quarter because there are enough vacant apartments and unoccupied condos to absorb most of the increased demand for multifamily homes. This decline will be gradual after the recent surge in starts.

Reed Construction Data reported that the value of multifamily starts was nearly 15% higher in the first half of 2006 than a year earlier, and in an interesting turnabout from the last few years, construction activity in the apartment market will actually be stronger than in the condo market. Very favorable financial conditions in the commercial real estate market will boast apartment construction in 2006-07. Prospective developers can expect steady-to-falling vacancy rates combined with inexpensive financing from lenders with surplus capital who are willing to trim their margins. Regarding the condo market, the huge number of investment condo units currently on the market will restrain condo construction well into 2007. It's realistic to expect that some projects will be delayed and others cancelled.

Overlay Init