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May 10, 2018
Apartment Market Posts Solid Quarter
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The U.S. Census Bureau’s apartment vacancy rate for all rental apartments (in buildings with 5 or more units) fell 10 basis points (bps) in the first quarter of 2018—but rose 40 bps from the first quarter of 2017—to 8.2 percent.
RealPage’s national vacancy rate for investment-grade apartments rose 10 bps to 5.0 percent in the first quarter, remaining unchanged from the previous year’s 1Q figure. This slight uptick in vacancy rates spanned all regions but was most pronounced in the Northeast, where rates increased 30 bps to 4.3 percent. The Midwest followed with a 20 bps rise in vacancy rates to 5.1 percent, while rates in the South and West climbed 10 bps each to 5.7 and 4.4 percent, respectively.

Multifamily Permits, Starts and Completions Rose

Multifamily permits (5+ units in structure) rose 9.1 percent from last quarter to a seasonally adjusted annual rate (SAAR) of 441,700 in the first quarter, up 10.2 percent from 1Q 2017. On a not seasonally adjusted basis, however, permit levels (2+ units in structure) fell in all regions but the South, which saw 1.7 percent permit growth from 4Q 2017.

Starts rose 17.8 percent in the first quarter to a SAAR of 415,000, also marking a year-over-year increase of 6.9 percent. This marks the second highest level of starts recorded in 31 years.

Multifamily completion levels grew 2.8 percent from the previous quarter to a SAAR of 368,000, up 7.5 percent from 1Q 2017. 


Multifamily Absorptions Remain Just Below Record Highs

Net absorptions of investment-grade, market-rate apartments tracked by RealPage ticked up to 47,458 in the first quarter—up from the seasonally weak 31,952 units absorbed in 4Q 2017. This was not enough to keep the trailing four-quarter sum from sliding 2.5 percent from 4Q 2017 to 295,650 units, though still marking a 21.6 percent increase from a year earlier. This marks the sixteenth consecutive quarter in which the trailing four-quarter sum was over 200,000.

Rent Growth Picks Up During the Quarter

Same-store apartment rents for professionally managed apartments tracked by RealPage rose 2.6 percent in 1Q 2018, 10 basis points higher than the previous quarter and 20 bps lower than a year earlier.
This very slight acceleration of rent growth was most driven by the South, where rent growth was up 20 bps from the fourth quarter. The Midwest, meanwhile, recorded a 10 bps deceleration of rent growth in 1Q 2018, while the Northeast and West regions saw rents grow at the same rate as last quarter. Rent growth remained strongest in the West, which has now led the other regions for 24 straight quarters.
The CPI rent index, which covers all rental housing, rose 3.7 percent for the second straight quarter, down 20 bps from the first quarter of last year.

Transaction Volumes Retreat from Fourth Quarter Highs

In the apartment transaction market tracked by Real Capital Analytics, sales volume decreased 25.6 percent from the previous quarter to $34.8 billion, up 25.1 percent from 1Q 2017.
The market value of investment-grade apartments, as measured by the National Council of Real Estate Investment Fiduciaries (NCREIF), rose 0.4 percent from 4Q 2017 and 1.9 percent from a year ago. The NCREIF transactions-based index (TBI), which uses only transaction prices, not appraisal prices, increased 2.8 percent from last quarter and 10.4 from a year earlier. Cap rates edged up 10 bps for the second straight quarter to 5.7 percent in 1Q 2018. 

GSEs Top Record Year in Multifamily Mortgage Credit

Net multifamily mortgage credit extended reached an all-time high of $43.7 billion in 4Q 2017, contributing to a record $115.2 billion for the year. This was the third consecutive new record and 29.2 percent higher than the previous high from 2007.

There were significant changes among lender groups. In particular, net lending by depository institutions fell to $25.6 billion last year, less than half that of 2015 ($52.2 billion). At the other end of the spectrum, Freddie Mac and Fannie Mae provided a net $75.7 billion, practically two-thirds of all net multifamily mortgage credit supplied last year. It was also more than $30 billion more than the amount they provided at the height of the Global Financial Crisis in 2008.

The CMBS market contracted for the 10th straight year, with a $4.4 billion reduction in net credit. Ginnie Mae provided a net $9.4 billion, a big increase from 2016 but just below the high-water levels of 2012-2013. Life insurance companies provided $5.9 billion—a new record, though not much over their 2015 level of $5.8 billion.

Technical Note. Historical statistics from RealPage, Inc., reflect consolidation of records from the firm’s MPF Research and Axiometrics data sets into a single information source. While individual performance metrics such as monthly rent and net absorption shift to some degree, trends follow patterns reported previously.

About Market Trends
Market Trends is a high-level quarterly summary of key trends in the industry for apartment executives. Each issue features the latest data on demand and supply trends for apartment residences, along with vacancy rate, absorption and rent trends. In addition, coverage includes an overview of the apartment transaction market with data on apartment sales volume and pricing. Each issue also contains a special analysis of an important and timely trend.
Questions & Comments
Questions or comments on Research Notes should be directed to Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist, at mobrinsky@nmhc.org or 202/974-2329.
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