This is an excerpt of the Multifamily Forecast from February 2011.
By 2008 the rental market was weakening, joining the condo market which continued to decline. Rental vacancy rates rose, peaking at 12.0% in the third quarter of 2009. It was inevitable that multifamily construction would slow. However, in the second half of 2008 with the meltdown of the financial sector as exemplified by the bankruptcy of Lehman Brothers in September 2008, multifamily construction began its final slide into the abyss. Although most projects that had already secured financing proceeded, obtaining financing for new projects became more and more difficult.
In 2005 and through the first half of 2006, roughly 80% of respondents to NAHB’s Survey on Acquisition, Development, and Construction (AD&C) Financing responded that they were seeking new AD&C loans for multifamily projects. In third quarter 2006, that percentage fell to 52% from 83% in the second quarter. In second quarter 2008, it fell to 21% and has remained in that general range since. As of the fourth quarter 2010 survey, it was at 19%.
A second question from the NAHB survey that focuses on the availability of AD&C loans relative to the previous quarter among respondents seeking loans for multifamily projects showed early signs of tightening in the fourth quarter of 2006 and noticeably tighter conditions in the second half of 2007. The availability of AD&C loans continued to worsen throughout 2008 and 2009 and has remained near those levels through 2010.
Starting in second quarter 2009, multifamily housing starts slowed to the lowest levels on reliable records that go back to 1959, with six of the lowest quarterly starts numbers on record through the end of 2010. The bottom was hit in the fourth quarter of 2009 at 76,000 starts. It appeared that multifamily construction was making a comeback, one of the few relatively bright spots in housing in 2010, as starts rose in the first three quarters, hitting 153,000 starts in the third quarter. However, multifamily starts fell to 99,000 starts in the fourth quarter. NAHB believes that was only a temporary setback and forecasts a slow but steady rise this year, continuing through 2012