The National Association of Home Builders is reporting this week that their latest Multifamily Production Index dropped 10 points to 46 in the third quarter of 2017. This is the lowest reading since the second quarter of 2011.
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 above 50 indicates that more respondents report conditions are improving than 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. Two of the three components decreased in the third quarter: market-rate rental units and for-sale units both fell 17 points to 43 and 40, respectively, while low-rent units edged up one point to 54.
The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, increased three points to 41, with lower numbers indicating fewer vacancies. After peaking at 70 in the second quarter of 2009, the MVI first improved dramatically, then edged back up, and has been fairly stable since 2013.
"We're starting to see various markets across the country become oversupplied with multifamily construction, so builders and developers are pulling back a bit," said Dan Markson, senior vice president of The NRP Group in San Antonio, Texas, and chairman of NAHB's Multifamily Council.
"Multifamily production had been quite strong, although it slowed down in the past three months," said NAHB Chief Economist Robert Dietz. "And with approximately 600,000 units in the pipeline, builders and developers are taking a cautious approach until they see how the market absorbs these units when they come online."