Condo Market Continues To Decline
|May 23, 2008|
The Multifamily Condo Market Index (MCMI) continues to reflect a contracting market – the 15.2 index value for current market conditions in the first quarter of 2008 is roughly half the 29.6 value from a year earlier. Similarly builders’ expectations regarding market conditions six months from now is at 29.7, compared to 49.1, during the same time last year, according to the National Association of Home Builders (NAHB). “As condo development has slowed sharply, the heavy inventory overhand is being absorbed to some degree– some going to owner/buyers, and others into the rental market,” said David Seiders, NAHB’s Chief Economist. “As mortgage credit once again flows to truly qualified prospective buyers, the market will slowly climb back into balance.” The MCMI index is derived from a quarterly survey of multifamily builders and developers, and the index is rated on a scale of 0 to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses. The component of the index that gauges current conditions in the condo market has been below 25 during the past five quarters. Builder expectations for the next six months are only slightly more optimistic. The component tracking expectations stood at 29.7 in the first quarter of 200. In the first quarter of 2007, this component of the index stood at 32.9. But there is reason to think that buyers are waiting in the wings, ready to buy once they think the market is approaching its bottom. The index value for traffic of prospective buyers is at its highest point since early 2006, when the survey began asking that question. Responding to a series of special questions on credit and lending that accompanied the first-quarter MCMI survey, none of the respondents said that the availability of credit for multifamily construction was better than during the 4th quarter of 2007. About 19 percent described the lending situation as “about the same,” while 81 percent described it as “worse” than the previous quarter. And 44 percent did not even seek credit. Most who described the condition as “worse” indicated that lenders had lowered the allowable loan-to-value ratio or have reduced the amount they are willing to lend.