The Multifamily Production Index (MPI), released by the National Association of Home Builders (NAHB), showed a slight weakening as the index declined four points to 50 in the fourth quarter of 2013. It is, however, the eighth consecutive reading of 50 or above. The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that a number of 50 indicates that the same number of respondents report conditions are improving as report conditions are getting worse.
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 MPI component tracking builder and developer perceptions of market-rate rental properties has been the strongest of the components recently, remaining above 50 for 13 straight quarters, but dipped four points in the fourth quarter to 60; while the component for low-rent units fell three points to 47; and for-sale units declined four points to 46.
The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, dropped two points to 38, with lower numbers indicating fewer vacancies. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been fairly stable since 2011.
"Multifamily developers are still seeing demand for apartments, as the MVI shows," said W. Dean Henry, CEO of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB's Multifamily Leadership Board. "However, the cost and availability of labor is putting pressure on the ability to bring new units online."
"This quarter's MPI results are in line with NAHB's forecast that calls for increased production of new apartments in 2014, but at a slower pace than last year," said NAHB Chief Economist David Crowe. "The results are also in line with recent downturns in other economic indicators, due to unusually severe weather in parts of the country that disrupted supply chains and affected confidence in several sectors of the economy."
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.