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Rental Housing Market and Economic Update--March 2001.

Fundamentals of the rental housing market remain positive while the economy continues to soften. Rent increases are healthy and construction activity is in line with current demand. The revised estimate of growth in GDP during the fourth quarter was even more sluggish than the original estimate. And further softening in the economy currently remains evident in the sharp drop in the Consumer Confidence Index and the declines in the Index of Leading Economic Indicators last month. The Federal Reserve Board's Open Market Committee (FOMC) lowered interest rates for the third time this year.

Rental Housing Market

Rents rose at a marked 6 percent annual rate in February, before seasonal adjustment. This was the second straight month with a very high rate of increase. The rent index is really net effective rents and it takes time for street rent increases to be fully incorporated into the system since renewals and new leases are spread out through the year. There was strong evidence that street rents increased sharply in many local markets last year. The rate of increase in rents will probably remain high for at least the next few months.

New apartment construction jumped up again in February. The seasonally adjusted annual rate rose to 309,000 units from a revised 265,000 for January. Year-to-year changes in February does not mean much. The February 2000 rate at 458,000 was an outlier.

The Economy

Economic growth in the fourth quarter was even more modest than the preliminary estimate. The Commerce Department reported a 1.1 percent annual rate, down from the initial estimate of 1.4 percent. It is also becoming likely that the current quarter will show a drop. Real GDP has not had a negative growth since the first quarter of 1993. A recession is defined by two consecutive quarters of dedines and we still believe that will not occur.

Consumer confidence dropped markedly for the fifth straight month in February. Only 11.1 percent of consumers, in the February Conference Board Survey, believe that economic conditions will improve over the next six months.

The Index of Leading Economic Indicators in February fell for the fourth time in five months. Still the Index has fallen only 0.9 percent over the six months period ending in February. This is not enough to signal an oncoming recession. Inflation adjusted per capita disposable income growth turned negative in January. It had been rising at a very strong 2.4 percent average annual for the past four years.

Labor Markets

The unemployment rate--at 4.2 percent in February--did not change from January. Employment growth, however, remains constrained. The annualized rate of growth in jobs for the past five months has dropped to an average of about 100,000 from the 140,000 average of the 1995 to 1999 period.

Inflation and Interest Rates

Consumer price inflation rose markedly again in February. The index rose at a 4.9 percent annual rate last month. Gasoline and food prices were the principal causes of the rise in February. The FOMC's eased monetary policy again in mid-March. They lowered both the Federal Funds target and discount rates by 50 basis points. Both the FED Funds and discount rates have been lowered by 150 basis points this year. This takes back all of the increases that they imposed from August of 1999 through June of last year. Wall Street was disappointed that the FOMC did not lower rates by 75 basis points.

Sluggish Economy Impacts Housing Starts during March

"Housing starts declined in March as the sluggish economy softened the impact of relatively low mortgage interest rates. Until uncertainty in the economy eases, housing construction may continue to be down slightly," said Robert Sheehan, Consulting Economist to the National Apartment Association. He added, "The decline occurred in the single family sector."

The U.S. Department of Commerce reported a 1.613 million unit seasonally adjusted annual rate of housing starts in March, down 1.3 percent from a revised 1.634 million for February. Single family starts declined 4.3 percent to a 1.241 million unit annual rate during March from the 1.297 million rate for February. Total multifamily starts rose 10.4 percent to a 372,000unit rate from 337,000 a month earlier. Apartment (structures with five or more units) starts rose 5.4 percent in March to a 330,000-unit rate from 313,000 in February.
 HOMEOWNERSHIP RATE RENTER SHARE OF ALL
 HOUSEHOLDS

 1st Quarter 1st Quarter
Year Unadjusted SA(*) Unadjusted SA(*)

1980 65.5% 65.5% 34.5% 34.5%
1981 65.6% 65.6% 34.4% 34.4%
1982 64.8% 64.8% 35.2% 35.2%
1983 64.7% 64.7% 35.3% 35.3%
1984 64.6% 64.6% 35.4% 35.4%
1985 64.1% 64.1% 35.9% 35.9%
1986 63.6% 63.7% 36.4% 36.3%
1987 63.8% 63.9% 36.2% 36.1%
1988 63.7% 63.8% 36.3% 36.2%
1989 63.9% 64.0% 36.1% 36.0%
1990 64.0% 64.1% 36.0% 35.9%
1991 63.9% 64.0% 36.1% 36.0%
1992 64.2% 64.1% 35.8% 35.9%
1993 63.7% 63.8% 36.3% 36.2%
1994 63.8% 64.0% 36.2% 36.0%
1995 64.2% 64.4% 35.8% 35.6%
1996 65.1% 65.2% 34.9% 34.8%
1997 65.4% 65.5% 34.6% 34.5%
9198 65.9% 66.0% 34.1% 34.0%
1999 66.7% 66.7% 33.3% 33.3%
2000 67.1% 67.1% 32.9% 32.9%
2001 67.5% 67.6% 32.5% 32.4%



Housing starts were mixed regionally. The starts rate fell 5.8 percent in the South and 2.8 percent in the Midwest. They rose 6.9 percent in the West and 4 percent in the Northeast.

Building permit activity declined 3.6 percent to a 1.615 million unit rate in March from 1.675 million in February. The single-family rate dropped 2.9 percent. Multifamily permits declined 5.5 percent and the apartment component was off 7.6 percent.

Housing starts were down 4.1 percent during the first quarter of this year from the same period a year ago. Single family starts were down 2.5 percent. Total multifamily starts fell 10.2 percent, with apartment construction off 13.3 percent.

Rental Apartment Vacancy Rate Rose In First Quarter

The rental apartment (structures with five or more units) vacancy rate, as reported by the U.S. Department of Commerce, rose to 9.3 percent in the first quarter from 8.9 percent in the fourth quarter of last year. The vacancy rate for all rental units was 8.2 percent in the fourth quarter up from 7.8 percent rate for the fourth quarter of 2000.

"Slowing in the economy is easing the demand for rental units, but the rental apartment market remains relatively healthy," said Sheehan.

Vacancy rates for all rental units rose in three of the four regions. The 11.3 percent rental vacancy rate in the South in the first quarter is up from 10.8 percent in the South. During the same period the rate rose to 8.9 percent in the Midwest from 8.7 percent, and in the West the rate increased to 5.8 percent from 5.3 percent. A decline to 5.1 percent from 5.3 percent occurred in the Northeast.

Renter's share of total households was 32.5percent in the first quarter, unchanged from the rate for the fourth quarter.
HOUSING STARTS AND BUILDING PERMIT ACTIVITY (units in thousands)

Housing Starts (Seasonally Adjusted Annual Rates)

 Feb. March Change Feb. to March
Month 2001 2001 No. %

Total 1,634 1,613 -21 -1.3%
 Single Family 1,297 1,241 -56 -4.3%
 Multifamily 337 372 35 10.4%
 2 to 4 units 24 42 18 75.0%
 5 or more units 313 330 17 5.4%

Northeast 151 157 6 4.0%
Midwest 363 353 -10 -2.8%
South 743 700 -43 -5.8%
West 377 403 26 6.9%

 Change 2000-2001

Totals 1st Three Months 2000 2001 No. %

Total 364.6 349.5 -15.1 -4.1%
 Single Family 286.0 278.8 -7.2 -2.5%
 Multifamily 78.7 70.7 -8.0 -10.2%
 2 to 4 units 5.6 7.3 1.7 30.4%
 5 or more units 73.1 63.4 -9.7 -13.3%

Northeast 30.0 27.0 -3.0 -10.0%
Midwest 64.1 61.9 -2.2 -3.4%
South 181.9 171.7 -10.2 -5.6%
West 88.5 88.8 0.3 0.3%

Building Permits (Seasonally Adjusted Annual Rates)

 Feb. March Change Feb. to March
Month 2001 2001 No. %

Total 1,675 1,615 -60 -3.6%
 Single Family 1,239 1,203 -36 -2.9%
 Multifamily 436 412 -24 -5.5%
 2 to 4 units 68 72 4 5.9%
 5 or more units 368 340 -28 -7.6%

Northeast 192 146 -46 -24.0%
Midwest 329 316 -13 -4.0%
South 737 728 -9 -1.2%
West 417 425 8 1.9%

 Change 2000-2001

Totals 1st Three Months 2000 2001 No. %

Total 368.5 370.6 2.1 0.6%
 Single Family 279.5 277.8 -1.7 -0.6%
 Multifamily 89.0 92.8 3.8 4.3%
 2 to 4 units 14.1 14.3 0.2 1.4%
 5 or more units 74.9 78.5 3.6 4.8%

Northeast 34.0 31.3 -2.7 -7.9%
Midwest 69.2 62.7 -6.5 -9.4%
South 171.7 176.9 5.2 3.0%
West 93.7 99.8 6.1 6.5%

Source: U.S. Department of Commerce

 CURRENT RENTAL HOUSING MARKET--ECONOMIC
 & DEMOGRAPHIC INDICATORS

 Unit of Measure

RENTAL VACANCY RATES
 Apartments percent
 All Rental Units percent

NEW UNFURNISHED RENTAL APARTMENTS
 Units Completed thousands
 Absorption Rates
 3 months percent
 6 months percent
 9 months percent
 12 months percent
 Median Rents-New Units $'s

Median Asking Rents-All For Rent Units $'s

NEW CONDOMINIUM/COOPERATIVE APARTMENTS
Units Completed thousands
 Absorption Rates
 3 months percent
 6 months percent
 9 months percent
 12 months percent
Median Asking Price $'s

TOTAL HOUSEHOLDS thousands
 Rental Household thousands
 % Total Households percent

MULTIFAMILY NEW CONSTRUCTION
 Number of Units Started thousands (2)
 Apartment Units Started thousands (2)
 Value of Work Put-in-Place billions of $'s (2)

RENTAL & VACANT PROPERTY MAINTENANCE,
REPAIRS, & IMPROVEMENTS (3) millions of $'s

PRICE INDEXES (4)
 Consumer Prices 1982-84 = 100
 Rents 1982-84 = 100
 Producer Prices Finished Goods 1982 = 100
 Materials & Components for Construction 1982 = 100
 Gypsum Building Materials 1982 = 100
 Cement 1982 = 100
 Softwood Lumber 1982 = 100
 Plywood 1982 = 100

ECONOMIC ACTIVITY
 GDP billions of current $'s
 billions of 1996 $'s
 Per Capita Disposable Income current $'s
 1996 Dollars
 Index of Leading Economic Indicators 1996 = 100
 Consumer Confidence Index 1985 = 100
 Business Productivity(5) Annualized % growth
 Manufacturing Productivity Annualized % growth

EMPLOYMENT
 Household Basis thousands
 Establishment Basis thousands
 Unemployment Rate percent
 Construction Workers percent
 Employment Cost Index Annualized % change
 Compensation Costs Construction Annualized % change

INTEREST RATES
 3 Month T Bills percent
 1 Year Treasuries percent
 10 Year Treasuries percent
 30 Year Treasuries percent
 Yield Curve (6) basis points

 CURRENT

 Year Previous
 Ago Period No.

RENTAL VACANCY RATES
 Apartments 8.7 9.4 8.9
 All Rental Units 7.9 8.2 7.8

NEW UNFURNISHED RENTAL APARTMENTS
 Units Completed 66.7 57.1 67.4
 Absorption Rates
 3 months 75 76 77
 6 months 88 89 90
 9 months 95 96 96
 12 months 97 99 98
 Median Rents-New Units 770 869 844

Median Asking Rents-All For Rent Units 463 492 486

NEW CONDOMINIUM/COOPERATIVE APARTMENTS
Units Completed 8.8 8.6 9.2
 Absorption Rates
 3 months 81 84 76
 6 months 88 87 92
 9 months 97 95 91
 12 months 98 84 98
Median Asking Price 139,100 135,600 157,700

TOTAL HOUSEHOLDS 105214 106364 106754
 Rental Household 34831 34163 34587
 % Total Households 33.1 32.3 32.5

MULTIFAMILY NEW CONSTRUCTION
 Number of Units Started 303 337 372
 Apartment Units Started 287 313 330
 Value of Work Put-in-Place 28.0 29.8 30.7

RENTAL & VACANT PROPERTY MAINTENANCE,
REPAIRS, & IMPROVEMENTS (3) 14369 12477 14072

PRICE INDEXES (4)
 Consumer Prices 171.2 175.8 176.2
 Rents 200.1 205.5 207.2
 Producer Prices Finished Goods 136.8 141.5 141.0
 Materials & Components for Construction 151.4 150.1 150.2
 Gypsum Building Materials 188.3 120.3 126.4
 Cement 149.5 149.8 149.2
 Softwood Lumber 193.0 163.9 165.2
 Plywood 186.8 153.3 157.5

ECONOMIC ACTIVITY
 GDP 9,559.7 10,039.4 10,112.8
 9,084.1 9,369.5 9,394.2
 Per Capita Disposable Income 2,379 25,791 25,871
 23,640 23,714 23,730
 Index of Leading Economic Indicators 110.5 108.8 108.5
 Consumer Confidence Index 137.1 109.2 117.0
 Business Productivity(5) 7.6 2.4 3.1
 Manufacturing Productivity 9.7 6.7 5.3

EMPLOYMENT
 Household Basis 135,013 132,307 135,780
 Establishment Basis 131,009 132,307 132,221
 Unemployment Rate 4.0 4.2 4.3
 Construction Workers 6.6 7.0 6.2
 Employment Cost Index 3.4 4.3 4.1
 Compensation Costs Construction 3.3 5.2 5.8

INTEREST RATES
 3 Month T Bills 5.72 4.88 4.42
 1 Year Treasuries 6.22 4.68 4.30
 10 Year Treasuries 6.26 5.10 5.82
 30 Year Treasuries 6.05 5.62 6.14
 Yield Curve (6) 4 42 152

 CURRENT

 Change From
 Reporting Year Previous
 Period Ago Period

RENTAL VACANCY RATES
 Apartments Q4 00 0.2 -0.5
 All Rental Units Q4 00 -0.1 -0.4

NEW UNFURNISHED RENTAL APARTMENTS
 Units Completed Q3 00 0.7 10.3
 Absorption Rates
 3 months Q4 00 2 1
 6 months Q4 00 2 1
 9 months Q4 00 1 0
 12 months Q4 00 1 -1
 Median Rents-New Units Q4 00 9.6% -2.9%

Median Asking Rents-All For Rent Units Q4 00 5.0% -1.2%

NEW CONDOMINIUM/COOPERATIVE APARTMENTS
Units Completed Q3 00 0.4 0.6
 Absorption Rates
 3 months Q4 00 -5 -8
 6 months Q4 00 4 5
 9 months Q4 00 -6 -4
 12 months Q4 00 0 14
Median Asking Price Q4 00 13.4% 16.3%

TOTAL HOUSEHOLDS Dec. 1540 390
 Rental Household Q4 00 -244 424
 % Total Households Q4 00 -0.6 0.2

MULTIFAMILY NEW CONSTRUCTION
 Number of Units Started Mar. 69 35
 Apartment Units Started Mar. 43 17
 Value of Work Put-in-Place Feb. 9.6% 3.0%

RENTAL & VACANT PROPERTY MAINTENANCE,
REPAIRS, & IMPROVEMENTS (3) Q3 00 -2.1% 12.8%

PRICE INDEXES (4)
 Consumer Prices Mar. 2.9% 2.8% (1)
 Rents Mar. 3.5% 10.4% (1)
 Producer Prices Finished Goods Mar. 3.1% -4.2% (1)
 Materials & Components for Construction Mar. -0.8% 0.8% (1)
 Gypsum Building Materials Mar. -32.9% 81.0% (1)
 Cement Mar. -0.2% -4.7% (1)
 Softwood Lumber Mar. -14.4% 9.9% (1)
 Plywood Mar. -15.7% 38.3% (1)

ECONOMIC ACTIVITY
 GDP Q4 00 5.8% 3.0% (1)
 Q4 00 3.4% 1.1% (1)
 Per Capita Disposable Income Feb. 1.9% 3.8% (1)
 Feb. 0.4% 0.8% (1)
 Index of Leading Economic Indicators Mar. -2.0 -0.3
 Consumer Confidence Index Mar. -20.1 7.8
 Business Productivity(5) Q4 00 -4.5 0.7
 Manufacturing Productivity Q4 00 -4.4 -1.4

EMPLOYMENT
 Household Basis Mar. 767 3473
 Establishment Basis Mar. 1212 -86
 Unemployment Rate Mar. 0.3 0.1
 Construction Workers Mar. -0.4 -0.8
 Employment Cost Index Q4 00 0.7 -0.2
 Compensation Costs Construction Q4 00 2.5 0.6

INTEREST RATES
 3 Month T Bills Mar. -130bp -46 bp
 1 Year Treasuries Mar. -192bp -38 bp
 10 Year Treasuries Mar. -44bp 72 bp
 30 Year Treasuries Mar. 9bp 52 bp
 Yield Curve (6) Mar.

(1) At annual rates
(2) Seasonally adjusted annual rates
(3) Also includes all vacant and seasonal properties
(4) not seasonally adjusted
(5) Output per hour worked
(6) Difference in yields between 10 year and 1 year Treasuries

Source: U.S. Departments of Commerce & Labor, Conference Board, Federal
Reserve Board, Regis J Sheehan & Associates



Robert J. Sheehan is President of Regis J. Sheehan Data and Forecasting Service in McLean, Va. and serves as NAA's Consulting Economist. He can be reached at 703/893-9185 or by e-mail at gdad@erols.com
COPYRIGHT 2001 National Apartment Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:SHEEHAN, ROBERT J.
Publication:Units
Date:Jun 1, 2001
Words:2788
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