The Multifamily Production Index (MPI), released by the National Association of Home Builders (NAHB), remained steady with an index level of 52. It is the third straight quarter with a reading over 50. The MPI, which measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of zero to 100, was essentially unchanged in the third quarter, only dropping two points from 54 in the second quarter.
The MPI provides a composite measure of three key elements of the multifamily housing market: Construction of low-rent units, market-rate rental units and "for-sale" units, or condominiums. 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. In the third quarter of 2012, the MPI component tracking builder and developer perceptions of market-rate rental properties recorded a level of 69 and has been over 60 for five consecutive quarters—the longest sustained period of strength since the inception of the index in 2003. For-sale units had its highest reading since the fourth quarter of 2005, coming in at 44, while low-rent units dropped 15 points to 46.
The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, dropped three points 33. With the MVI, lower numbers indicate fewer vacancies. After peaking at 70 in the second quarter of 2009, the MVI declined consistently through 2010 and has been at a fairly low level throughout 2011 and 2012.
"The multifamily market has recovered substantially since the end of 2010, and now stands at about 70 percent of the way back to a sustainable level. Our baseline forecast calls for further steady growth in the rate of multifamily production," said NAHB Chief Economist David Crowe. "However, there are reasons for concern, especially at the affordable end of the rental apartment market, where builder confidence dropped dramatically in the third quarter. That was likely due to a specific provision of the Low-Income Housing Tax Credit set to expire at the end of the year. The prospect of dealing with this is making lower-rent projects difficult to underwrite. Ongoing deficit-reduction negotiations in Congress need to address this issue, or a serious shortage of affordable rental housing may develop."
Historically, the MPI and MVI have performed 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.