Apartment Absorption Rates Remain High

March 12, 2014

Absorption rates for new rental and for-sale multifamily homes remained near post-recession highs in the fourth quarter of 2013.

According to data from the Survey of Market Absorption of Apartments (SOMA), completions of privately financed, unsubsidized, unfurnished rental apartments in buildings with five or more units were up strongly for the four quarter period ending with the third quarter of 2013. A total of 129,200 such apartments were completed for those four quarters, compared to 88,700 a year earlier.

Non-seasonally adjusted three-month absorption rates (units rented after construction of the property is complete) for third quarter completions (rented during the fourth quarter) remained steady at 66% compared to 65% a year earlier. Absorption rates for rental apartments have been generally rising since late 2008 as rental demand increased as a result of the housing downturn.

Apts_4q rentals

In contrast, condo and co-op completions remain at historically low levels, with 1,700 for-sale multifamily homes completed during the third quarter. While construction remains at low levels, the 3-month absorption rate for for-sale multifamily has improved significantly, reaching 90% for third quarter completions.

Condos_4q sales

The SOMA data also reveal that for properties with five or more units approximately 10,900 Low-Income Housing Tax Credit or other federally subsidized units were completed in the third quarter of 2013. This is down slightly from the 11,600 affordable units estimated completed during same quarter in 2012. The affordable share, LIHTC and other subsidized units, of multifamily completions was 19% for the third quarter.

3q completions by type


Rental Market Continues to Strengthen

June 6, 2013

The most recent data from the Survey of Market Absorption of Apartments (SOMA) showed that completions of privately financed, nonsubsidized, unfurnished rental apartments continued to climb in the fourth quarter of 2012. The reported 31,600 completions in buildings with 5+ units were slightly above the third quarter level and more than doubled since the fourth quarter of 2011. At the same time, the absorption rates (units rented or sold after construction of the property is complete) remained high, close to 65 percent. Averaged over 2012, the apartment absorption rates reached 64 percent, a level not seen since 2001.

rentals

The condo and co-ops completions remained at historically low levels – only 1,800 units were completed in the fourth quarter of 2012. However, the condo absorption rates improved remarkably. About 78 percent of the condominiums completed in the fourth quarter of 2012 were sold within three months of completions. This rate is 20 percent higher from the previous quarter and 33 percent higher from a year ago.  Over 2012 the condo absorption rates have averaged around 66 percent, marking the highest reading since 2006. Leaner inventories should bolster condo and co-op construction activity going forward, but we expect these units will maintain a diminished share of overall 5+ multifamily production.

condo

The SOMA also reported that approximately 8,100 federally subsidized or tax credit units were completed in the fourth quarter of 2012. This represents a decline of 3,400 units since the previous quarter and 4,100 since a year ago.

types


Apartment Construction Continues to Improve

March 8, 2013

Completions of unfurnished apartments for rent or sale in 5+ unit properties climbed to more than 30,000 units during the third quarter of 2012, a 20% increase versus the third quarter of 2011. The Survey of Market Absorption of Apartments (SOMA) tracks completions and market absorption rates (units rented or sold after construction of the property is complete) for apartments sold or rented in 5+ unit properties. The three-month absorption rate of unfurnished apartments declined during the fourth quarter of 2012, slipping four percentage points to 64%. The absorption rate has averaged just above 60% during the last four quarters.

SOMA1

Absorption rates for condo and co-op units have improved compared to the numbers observed in the post-bubble aftermath. For those units completed during the third quarter and sold during the fourth quarter of 2012, the 3-month absorption rate dropped to 57% (from 66%), which is identical to the rate averaged over the past four quarters. Even though absorption rates have trended higher from their cyclical lows, the volume of condos and co-ops being built and sold remains incredibly weak. During the third quarter of 2012, a total of 1,700 condos and co-ops were completed—29% below year-ago levels. Moreover, completions are down 94% compared to the peak levels observed at the end of 2006. The forecast calls for condo/co-op construction to continue rising, but we expect their share of overall multifamily housing production to see only modest increases going forward.

SOMA2

The SOMA data also enable one to drill down further into other types of multifamily units completed in a particular quarter. Nearly 12,000 units tied to affordable housing programs such as the Low-Income Housing Tax Credit (LIHTC) were completed during the third quarter, a 9.2% improvement from the prior year. Overall, LIHTC and other affordable housing program apartments accounted for nearly a quarter of all completed units in the third quarter of 2012.

SOMA3


Multifamily Absorption Rates Increase During Second Quarter

September 5, 2012

As expected, data from the Survey of Market Absorption of Apartments (SOMA), produced by the Census Bureau and the Department of Housing and Urban Development, suggest a pickup in rentals and sales of newly built apartments. This followed a slight slowing of absorption rates in the first quarter.

The SOMA tracks completions and market absorption (units rented or sold after construction of the property is complete) for multifamily rental and for-sale housing in 5+ unit properties. Data released in September report three-month absorption rates during the second quarter of 2012 for properties completed during the first quarter of the year.

For unfinished apartments, the SOMA data confirm a pickup in rental demand. The second quarter three-month absorption rate increased to 61%, after falling to 56% during the first quarter of 2012. Completions also slightly increased for units rented during the first quarter, to 15,700 units.

A similar story played out in the for-sale multifamily sector. The three-month absorption rate for units completed during the first quarter of 2012 and sold during the second quarter increased to 64%, after a 49% absorption rate at the beginning of 2012. Completions of for-sale multifamily hit a new low however, totaling only 1,500 units that were completed at the beginning of 2012 and put on the market during the second quarter.

The SOMA data also allow a tracking of the types of multifamily units completed. Notable strength can be seen for Low-Income Housing Tax Credit (LIHTC) and other subsidized affordable housing units, which constitute 32% of total completions for the quarter.

As such, the SOMA data illustrate the importance of the LIHTC program in terms of supporting multifamily construction activity, job creation, and providing affordable housing during the housing crisis. Two critical policy changes ensured that LIHTC related starts did not collapse during 2009 and 2010, and in fact resulted in the share of multifamily 5+ unit completions due to the LIHTC program growing from less than 20% on average to around one-third of the market over the past year.

First, the LIHTC exchange program, enacted by the 2009 American Recovery and Reinvestment Act stimulus legislation, ensured equity was available for the LIHTC program. Second, the 2008 Housing and Economic Recovery Act temporarily fixed the LIHTC new construction credit at a 9% rate (absent the legislation, the credit rate would be at approximately 7.4% today, resulting in less affordable housing investment funding).

This second item is important to note because the fixed 9% rate has effectively expired and efforts are underway to ensure that it is extended.


Multifamily Market Absorption Slows at the Beginning of 2012

June 5, 2012

Data from the Survey of Market Absorption of Apartments (SOMA), produced by the Census Bureau and the Department of Housing and Urban Development, reflect the slowdown experienced for housing during the first quarter of 2012.

It is worth noting that the SOMA data are published with some time lag, and housing indicators have improved since the time period for which the most recent SOMA report covers. The next quarterly SOMA release should show improvement for the multifamily sector.

The SOMA tracks completions and market absorption (units rented or sold after construction of the property is complete) for multifamily rental and for-sale housing in 5+ unit properties. Data released in June report three-month absorption rates during the first quarter of 2012 for properties completed at the end of 2011.

For unfinished apartments, the SOMA data show some softening in rental demand for the early part of the year. The first quarter three-month absorption rate fell back 51%, after reaching 67% during the final quarter of 2011. Completions also fell for units rented during the first quarter, to 15,500 units.

A similar story played out in the for-sale multifamily sector. The three-month absorption rate for units completed during the fourth quarter of 2011 and sold during the first quarter of 2012 fell back to 40%, after a 79% absorption rate at the end of 2011. Completions of for-sale multifamily remain low, totaling 2,700 units that were completed at the end of 2011 and put on the market during the beginning of 2012.

The SOMA data also allow a tracking of the types of multifamily units completed. Notable strength can be seen for Low-Income Housing Tax Credit (LIHTC) and other subsidized affordable housing units, which are up 80% year-over-year for the 4th quarter of 2011.

As such, the SOMA data illustrate the importance of the LIHTC program in terms of supporting multifamily construction activity, job creation, and providing affordable housing during the housing crisis. Two critical policy changes ensured that LIHTC related starts did not collapse during 2009 and 2010, and in fact resulted in the share of multifamily 5+ unit completions due to the LIHTC program growing from less than 20% on average to more than 40% for the final quarter of 2011.

First, the LIHTC exchange program, enacted by the 2009 American Recovery and Reinvestment Act stimulus legislation, ensured equity was available for the LIHTC program. Second, the 2008 Housing and Economic Recovery Act temporarily fixed the LIHTC new construction credit at a 9% rate (absent the legislation, the credit rate would be at approximately 7.4% today, resulting in less affordable housing investment funding).

This second item is important to note because the fixed 9% rate has effectively expired and efforts are underway to ensure that it is extended.


Absorption Rates Rise for Multifamily Units During the Last Quarter of 2011

March 16, 2012

Data from the Survey of Market Absorption of Apartments (SOMA), produced by the Census Bureau and the Department of Housing and Urban Development, suggest continued improvement for the multifamily sector.

The SOMA tracks completions and market absorption (units rented or sold after construction of the property is complete) for multifamily rental and for-sale housing in 5+ unit properties. Data released in March report three-month absorption rates during the fourth quarter of 2011 for properties completed in the preceding quarter.

For unfinished apartments, the SOMA data indicate a return to strength after a soft patch during the middle of 2011. The fourth quarter three-month absorption rate grew to 67%, the highest rate since early 2005. This occurred despite the fact that completions were also up for this period, totaling 24,500.

Even more strength was evident in the for-sale multifamily sector. The three-month absorption rate for units completed during the third quarter of 2011 and sold during the fourth quarter accelerated to 80%, a level not seen since 2005. However, this high rate of sales is tempered by the fact that total units completed remains a shadow of previous years. At 3,000 units completed during the third quarter, this is a small fraction of the 26,900 for-sale multifamily units completed during the same quarter of 2007.

Nonetheless, the growing absorption rates are a good sign given the increased rate of multifamily 5+ starts, which in turn will lead to higher multifamily completions during 2012 and 2013. The SOMA data are also consistent with NAHB multifamily survey data.

The SOMA data also allow a tracking of the types of multifamily units completed. Notable strength can be seen for both unfurnished apartments and Low-Income Housing Tax Credit (LIHTC) units. Unfurnished apartment third-quarter completions were up 47% year-over-year. LIHTC and other subsidized unit completions were up 22%.

Finally, the SOMA data illustrate the importance of the LIHTC program in terms of supporting multifamily construction activity, job creation, and providing affordable housing during the housing crisis. Two critical policy changes ensured that LIHTC related starts did not collapse during 2009 and 2010, and in fact resulted in the share of multifamily 5+ unit completions due to the LIHTC program growing from less than 20% on average to 25% or more.

First, the LIHTC exchange program, enacted by the 2009 American Recovery and Reinvestment Act stimulus legislation, ensured equity was available for the LIHTC program. Second, the 2008 Housing and Economic Recovery Act temporarily fixed the LIHTC new construction credit at a 9% rate (absent the legislation, the credit rate would be at approximately 7.4% today, resulting in less affordable housing investment funding).

This second item is important to note because the fixed 9% rate has effectively expired and efforts are underway to ensure that it is extended.