July Apartment Market Shows Continued Impact of COVID-19 Outbreak

Apartment market conditions weakened in the National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions for July 2020, as the industry continues to cope with the ongoing COVID-19 pandemic. The Market Tightness, Sales Volume and Equity Financing indexes all came in well below the breakeven level. However, in a positive sign, the index for Debt Financing signaled improving conditions.

“Recent spikes in COVID-19 cases have caused many areas of the U.S. to scale back or completely reverse their attempts at reopening their local economy. As a result, unemployment levels stand elevated in double digits as much of the nation’s business activity remains temporarily shuttered,” noted NMHC chief economist Mark Obrinsky. “Amidst this COVID economy, 71 percent of respondents reported looser market conditions this quarter compared to the prior three months, marking the second consecutive quarter of deteriorating conditions.”

“The Federal Reserve has countered this economic malaise with aggressively accommodative monetary policy, resulting in historically low interest rates. This, in turn, has created favorable pricing for debt financing, leading more respondents than not (44% to 25%) in this round of the survey to report improving conditions for borrowing. Nevertheless, these improved financing conditions have been largely confined to stabilized multifamily assets, and underwriting standards remain fairly stringent.”

  • The Market Tightness Index increased from 12 to 19, indicating looser market conditions. The majority (71 percent) of respondents reported looser market conditions than three months prior, compared to 8 percent who reported tighter conditions. One in five respondents (21 percent) felt that conditions were no different from last quarter.
  • The Sales Volume Index rose from 6 to 18, with 73 percent of respondents reporting lower sales volume than three months prior. While a small group of respondents (13 percent) deemed sales volume unchanged, even fewer (8 percent) indicated higher sales volume.
  • The Equity Financing Index rose from 13 to 34, indicating the second consecutive quarter of worsening conditions for the equity market, albeit with less of a consensus among respondents than last quarter. Nearly half (49 percent) of respondents reported that equity financing was less available than in the three months prior, while a small portion (16 percent) believed equity financing was more available. Over a fifth of respondents (22 percent), meanwhile, thought that conditions were unchanged in the equity market.
  • The Debt Financing Index increased from 20 to 60, the only index to rise above the breakeven mark of 50 this quarter. While one quarter (25 percent) of respondents reported worse conditions for debt financing compared to the three months prior, 44 percent felt that financing conditions were more favorable. A number of respondents (17 percent) felt that conditions were unchanged in the debt market.
  • Given the extraordinary pandemic-related economic shutdown in March and April, residents in many apartment communities asked for, and received, short-term lease renewals. The majority of respondents (51 percent) thought that, while this will result in a somewhat more difficult summer leasing season with lease expirations being greater than normal, renewals will likely continue at an above-average rate and/or new lease-up activity should remain healthy. Nearly one-third (30 percent) of respondents believed, however, that it will be a much more difficult leasing season this summer, with larger-than-normal expirations and uncertain renewal and new lease rates. Still, a small portion (13 percent) believed there should not be any serious problems this leasing season, as apartments remain the preferred housing option for most current renters. (The remaining 6 percent of respondents were unsure.)

The July 2020 Quarterly Survey of Apartment Market Conditions was conducted July 13-July 20, 2020; 96 CEOs and other senior executives of apartment-related firms nationwide responded.

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