Dive Brief:

• Builder and developer sentiment on the outlook for apartment and condominium construction inched up three points from the second quarter to a score of 53 in the third quarter, according to the Multifamily Production Index released yesterday by the National Association of Home Builders.

• Scores above 50 indicate that the market is improving while scores below 50 show conditions worsening. The index has tracked above the break-even mark since early 2012.

• The three components comprising the MPI increased in the third quarter, with low-rent units nudging up from 52 in the second quarter to 54 in third. Market-rate rental unit starts rose four points to 57, and for-sale unit starts jumped four points to 59 during the period.

Dive Insight:

The multifamily sector is notoriously volatile, and so while the MPI has remained consistently above the 50 mark for the last few years, the category has experienced wild swings from month to month. Most recently, starts in the sector recovered from a nosedive in September to jump 75% in October to an annualized rate of 445,000. 

Still, industry observers have predicted a cooling off in multifamily construction, which has recovered from the recession, as homeownership increases among would-be renters. The sector thrived in the years following the recession as young Gen-Xers and millennials, saddled with student debt and facing minimal job and wage growth, opted to rent. Now, as the economy improves, that pent-up demand is trickling back onto the market, where limited inventory and high prices ensure that the shift will be slow.

In a webinar earlier this year, NAHB Chief Economist Robert Dietz forecast a 4% dip in multifamily starts in 2016 followed by a modest (6%) increase in 2017. In addition to an increase in millennial homeownership rates, Dietz also noted that the decline is being impacted by older buyers re-entering the housing market.

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