Apartment demand weakened by financial crisis but holding up in Q2.


The ongoing turmoil in the financial markets showed evidence of affecting the apartment sector during the second quarter of 2008 as the financial crisis has hurt capital availability, according to the National Multi Housing Council (NMHC), Washington, D.C.

NMHC's August 2008 Quarterly Survey of Apartment Market Conditions noted that while overall apartment demand is holding up fairly well in the face of a sluggish economy, there was a small decline in market tightness.

Furthermore, said NMHC, sales volume was down and both equity and debt capital are less available.

The Market Tightness Index--which measures changes in occupancy rates and/or rents--decreased from 44 in the first quarter to 40 during the second quarter. An index reading higher than 50 indicates that, on balance, conditions are improving; a reading of less than 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged, explained NMHC.

Overall, the apartment industry remains in reasonable condition as a result of continuing fallout from the for-sale housing market and the fact that apartment firms did not overbuild during the latest economic cycle, according to NMHC Chief Economist Mark Obrinsky.

"Demand for apartment residences is holding up relatively well despite the weakening job market and sluggish economy. If employment continues to fall, however, we'll likely see apartment demand follow suit," said Obrinsky. "At the same time, the financial markets have still not returned to normal, with the CMBS market--and many banks--effectively sidelined."

More than twice as many respondents said markets were looser...

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