Apartment Transactions at a 'Virtual Standstill'

The market for apartment transactions has come to a virtual standstill, according to a recent report from National Multifamily Housing Council (NMHC) as buyers seek a higher rate of return that sellers are unwilling to accommodate via lower prices.

“The Fed’s continued interest rate hikes have resulted in higher costs of both debt and equity and a higher degree of economic uncertainty,” noted NMHC’s chief economist Mark Obrinsky in prepared statements.

“The physical apartment market is also starting to normalize after six consecutive quarters of tightening conditions, with a majority of survey respondents reporting higher vacancy and lower rent growth compared to the three months prior.”

Market Conditions Loosen for First Time in Six Quarters

In NMHC’s Quarterly Survey of Apartment Market Conditions for October 2022, market conditions weakened in the as Market Tightness (20), Sales Volume (6), Equity Financing (13), and Debt Financing (5) indices all came in well below the breakeven level (50).

The Market Tightness Index indicated looser market conditions for the first time in six quarters.

The majority of respondents (66%) reported markets to be looser than three months ago, while only 5% thought markets have become tighter, according to NMHC.

The remaining 29% of respondents thought that market conditions were unchanged over the past three months, a considerable decline from the 56% of respondents who said the same in July.

Sales Volume Declines for a Fourth Consecutive Quarter

For the fourth consecutive quarter, sales volume declined. The vast majority of respondents (89%) reported lower sales volume, while only 1% reported sales volume to be higher than three months ago,” NMHC said.

“This is the first time since April 2020 (at the onset of the COVID-19 pandemic) — and only the third time since the Quarterly Survey on Apartment Market Conditions was first conducted in 1999 — that this index has reached single digits,” according to Obrinsky.

The Equity Financing Index was below breakeven for the third consecutive quarter, meaning equity financing became less available.

Debt Financing Index continued to indicate deteriorating conditions for debt financing.

It is important to remember that the index does not measure the magnitude of change but, rather, the degree to which respondents agree on the direction of change.

For instance, an index value of 0 in market tightness would indicate that all respondents believe market conditions have become looser, but this does not tell us how much looser markets have become.