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LA QUINTA, CA-The multifamily sector stands a good chance of being the first to recover when the economy finally turns around, according to industry leaders at the National Multi Housing Council’s annual meeting here, but the big question is when that recovery will begin. Members of the Multi Housing Council, gathering here at the La Quinta Resort near Palm Springs, began their assessment of the multifamily market and its future with a slate of meetings Wednesday and will continue with a series of sessions today.

Panelists varied in their estimates of when the economy might begin to recover and how long before the recovery would translate into a more active transaction market, but they all agreed that the market is subject to economic forces ranging from the availability of credit to job growth to consumer confidence. The bottom line about when the recovery will begin is that, “Nobody knows,” commented senior vice president and chief economist David Berson of Walnut Creek, CA-based PMI Group Inc.

Berson was a member of an economic outlook panel that kicked off the day’s sessions. Panel moderator Hessam Nadji, managing director for research services at Marcus & Millichap, noted the importance of job growth to the apartment market and asked the panelists how the huge job losses that have jolted the US economy in the current recession compare to those of past recessions. Since US employers in general did not over-hire during the expansion,” Nadji noted, one theory is that this recession would produce fewer job cuts than some downturns.

That theory has held true until recently, according to the panelists, but Berson pointed out that with the acceleration of job cuts in the fourth quarter of 2008, this recession is now looking a lot like those of 1971-1973 and 1981-1982, which are considered average in terms of number of jobs lost. What remains to be seen is whether the accelerating job cuts in this downturn will continue or will level off—and when.

In other sessions throughout the day—tackling topics ranging from the capital markets to transaction flow to specific geographic markets—panelists touched on a host of observations that describe how the economy in general and the apartment market specifically are performing. One frequent observation was that a significant gap still exists between what buyers are willing to pay and the prices that sellers expect to receive–a gap that is one of the obstacles to reviving transaction flow.

Among the forecasts for the apartment market is the National Multi Housing Council’s latest quarterly survey of apartment market conditions, which views the long-term prospects for apartments as strong but points out that apartment owners and investors “are facing tough market conditions not of their making.” Mark Obrinsky, the NMHC’s chief economist, points out that earlier in this decade, “the bubble-induced rise in home ownership eroded apartment demand.” The economic and financial collapse caused by the bursting of that bubble is now taking a toll on all sectors, including apartments, according to Obrinsky.

Obrinsky sees long-term strength in the apartment market because, in part, the US population between 20 and 34 years of age is rising rapidly, which will increase demand for apartments. “For now, though, that demographic advantage is being trumped by the worsening job market, which is leading more people to move back in with family or take on roommates to save on housing costs,” the NMHC economist says.

Despite the declining economy, apartment performance topped all commercial real estate sectors in 2008, according to the Marcus & Millichap forecast for 2009, but job losses “dim the prospects for 2009,” the forecast states. The company forecasts that approximately 80,000 apartments are slated for completion in 2009, down from 93,000 units in 2008, and that new supply will fall to its lowest level since the mid-1990s as construction financing remains relatively expensive and difficult to obtain.

The national apartment vacancy rate is expected to rise 110 basis points in 2009 to 7.7%, and effective rents will be flat this year while asking rents will rise 1.7%, according to the Marcus & Millichap forecast. Class B and C properties will suffer the lease from the recession, but fundamentals in the class A segment have already declined disproportionately because of eroding household credit quality, “which has made it difficult for many renters to qualify for high-end units,” the forecast says.

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