Confidence In Rental Market Weakens Builder confidence in the rental apartment market dropped sharply in the first quarter of 2008, according to the latest results of the Multifamily Rental Market Index (MRMI) released today by the National Association of Home Builders (NAHB).   “The economic downturn affects the rental market as well as home building,” said NAHB Chief Economist David Seiders. “Rental Vacancy Rates are rather high and the demand for rental apartments is being held back by various economic conditions—including a weakening job market and record-high prices of food and energy.”  And without both strong demand and more ready access to capital, multifamily builder/developers will cut back production of new rental projects.   The MRMI is derived from a quarterly survey of multifamily builders and developers, in which their responses are rated on a scale of 0 to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses.   While oversupply is not as serious a problem for multifamily rentals as it is for condos, multifamily builders are cutting back on new production. The components of the index that track current supply conditions for low-rent (federally subsidized) and market-rent apartments stood at 31.7 and 34.4, respectively, in the first quarter of 2008, down from 46.6 and  53.5 the same time a year ago. Asked about their expectations for the next six months for market-rate apartments, respondents’ confidence remained steady at around 51, but dropped 12 points from the first quarter of 2007. Expectations for low-rent apartment starts followed that pattern, dropping about 15 points from Q1 2007 to 45.1 in the first quarter of this year.   The components of the index that gauge demand were lower for all classes of apartment in 2008’s first quarter. The component of the index tracking current conditions for Class A (luxury) units fell 20.1 points, from 60.7 in the first quarter of 2007 to 40.6 in the first quarter of 2008. The index for Class B slipped 18.3 points, from 67.3 to 49.0 during the same time period. The component tracking demand for lower-rent Class C apartments stood at 59.4 for the first quarter of 2008, compared with 68.0 at the same time a year ago, a drop of 18.6 points.   On the positive side, respondents reported that the number of calls from prospective renters has picked up – at 59.6, the index is four points higher than last year’s level at this time. Yet the index tracking rent levels, dropped with more owners reporting lower asking and effective rents.   Although not as optimistic as last year at this time, builders do expect conditions in the apartment market to improve. For the first quarter of 2008, the components of the index gauging expectations for demand over the next six months stayed at 50 or above for Class B and C units. There is less optimism about luxury units – the index dropped from last year’s 73.2 to 42.9.   EDITOR’S NOTE: NAHB created the MMI, a quarterly nationwide survey of multifamily builders and property owners who are asked a series of questions about current market conditions as well as their expectations for the next six months, tracking builder confidence in both the for-sale condo market and the rental apartment market. To more accurately gauge both segments of the market, NAHB separated the indexes into two versions in 2006: The Multifamily Rental Market Index (MRMI) tracks multifamily rental conditions while the Multifamily Condo Market Index (MCMI) tracks market conditions for condos. Interested in remodeling your home? Contact a Local Builder in your area to discuss your home design plan ideas today.