Apartment Market Softens as Rising Capital Costs Curb Transactions

Author Rick Bell Read bio
Date: October 25, 2023

Even with temporary doubts, the market’s core strengths persist.

The National Multifamily Housing Council’s (NMHC) October 2023 survey reveals a further dip in apartment market conditions. The Market Tightness, Sales Volume, Equity Financing, and Debt Financing indices all scored below the breakeven mark of 50.

Rising interest rates and stricter lending have reduced debt financing availability for the past nine quarters, states Caitlin Sugrue Walter, NMHC’s VP of Research. This trend, paired with disagreements on apartment pricing, has led to falling sales volumes for six straight quarters.

However, this ongoing market slump suggests a potential decrease in the inflation’s shelter component. This drop could align overall inflation with the Fed’s 2% goal, paving the way for more relaxed policies. Long-term indicators still show a solid demand for multifamily housing due to demographics and market basics.

Market Insights: Tracking Quarterly Shifts in Real Estate Financing

  • This quarter, the Market Tightness Index dropped to 21, marking the fifth quarter of slackening market conditions. 64% felt markets are now looser, 6% felt tighter, and 27% saw no change from three months prior.
  • Sales Volume Index hit 24, signaling the sixth quarter of dwindling deals. 57% noted a drop in sales volume from the last quarter, a jump from July’s 35%. Only 5% felt volume increased, with 32% noting no shift.
  • Equity Financing Index recorded 18, underscoring the seventh quarter of reduced equity financing availability. 64% reported decreased availability, 25% found it unchanged, and none saw an uptick.
  • Lastly, the Debt Financing Index stood at 9, marking nine quarters of declining debt financing. A significant 83% noted worse conditions, up from July’s 67%. 10% detected no changes, and none felt conditions improved for borrowing.

Survey Snapshot

In October 2023, 284 senior executives from apartment firms across the nation were interviewed. The data collection ran from October 10-17.