Monday, February 06, 2012

Multifamily Market Analysts: Dumb or Lying?

There are a lot of cheerleaders (Marcus & Millichap and virtually every other multi-family broker) who claim there's nothing but rose petals and unicorns out there for the apartment biz. No vacancies, high rents, high selling prices. Woohoo!

But if you listen to the annointed gurus like M&M's head of research, Hassam Nadji, you can hear him talking out of both sides of his mouth. He starts of talking about a housing recovery in some of the worst places like Florida & Arizona. Then he finishes by projecting golden times for multifamily because housing ain't coming back.

Dig deeper and the analysis makes even less sense. Apartment vacancies are low because of the recent uptick in employment? The multifamily market vacancy rates and prices correlate w. absolute employment levels vs population regionally. Absolute levels remain very high, so something is out of whack. We've had some of the lowest vacancy rates in areas like Portland, OR with the highest unemployment. Again, you can't have it both ways. Either employment is a factor in current vacancy rates or it isn't.

- The thing that's out of whack is the high vacancy rate in single family housing. Locally, Single Family vs Multi-family is a zero-sum game. People live in one or the other. Right now, single family vacancy rates are high. With 2 or 3x the unit capacity in houses vs multi-family (depending on location), a small shift decrease in single family vacancy can mean a big shift increasing multifamily vacancy.

That brings us back to the first thing: What would precipitate increased purchasing of single family housing? As Mr. Nadji himself pointed out on Bloomberg, we're already seeing housing recovery in some of the worst areas. Improved employment (which is cited in this article as a bullish indicator for multifamily) could prove negative for multifamily if it increases a move to single family. And why wouldn't it? Employment means credit. Credit means you can get a mortgage. It's obvious that there are many many people currently renting who would buy houses if they could.

Zero Sum. Add up the numbers! (And try to be honest).

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