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Demand for Apartments Remains Strong Despite Financing Obstacles

Staff Writer |

WASHINGTON – Though demand for apartment homes remains strong, rising interest rates have hindered the industry’s ability to secure debt financing, according to the National Multi Housing Council’s (NMHC) July 2013 Quarterly Survey of Apartment Market Conditions.

The Sales Volume Index dropped from 55 to 46, marking the second time in the last three quarters that the index was below the breakeven line of 50. The Equity Financing Index dipped slightly below breakeven, dropping seven points to 49.

Taking the hardest hit this quarter is the Debt Financing Index, which dropped sharply to 20 from 59, “with 67% of respondents [indicating] that debt financing conditions had worsened since April,” according to the NMHC.

“Debt costs for apartment firms have been rising. In addition to the 90 basis point increase in interest rates from the April survey, spreads over Treasuries have also gone up, likely dampening transactions somewhat,” says Mark Obrinsky, NMHC’s senior vice president for research and chief economist. “Rates are still low by historical standards, however, and at current levels should not put too big a crimp in apartment activity going forward.”

“Underlying demand trends remain strong, and we are approaching the cusp of a meaningful increase in supply that will hopefully be enough to meet the current need for apartment homes,” he adds.

The only index showing some sign of slight improvement is the Market Tightness index, which went up to 55 from 54, marking the 13th time in the last 14 quarters in which the index was over 50, the NMHC says.

Full survey data is available at the NMHC website.

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