National Forecast’s Effect on Multi-Family Real Estate 2007

In this article we will discuss the National Market for 2006 and 2007. The condition of the housing sector has a direct impact on the condition of the multi-family market. As predicted, the housing sector slowed in 2006 after setting records for each year from 2000 to 2005.

The Commerce Department estimated that October’s new home sales were off 3.2% and new home sales are down 17.9% for the first ten months of 2006. Estimates for new home sales for 2006 are in the range of 1.05 to 1.06 million, compared to the April estimates of 1.17 million. We are not seeing concessions such as free vacations and new cars offered by builders to help sell new homes.

The National Association of Realtors estimated that sales of existing homes rose .5% in October, the first increase since February. Estimates for existing home sales for 2006 are in the range of 6.2 to 6.3 million as compared to the April estimate of 6.67 million.

Some of these factors that contributed to the downturn in the housing sector were the affordability of housing and the increase in mortgage ratios after 17 straight quarter-point increases in the federal funds rate. However, 15-year mortgage rates recently declined to 5.9%, the lowest level since March 2006.

The downturn in the housing sector is one of the factors that will make the 2006 apartment market the strongest it has been over the past few years. Other factors that will make the apartment market strong in 2006 include job growth and the decreasing supply of new apartments as construction costs and cost of land have contributed to the sluggish construction of apartments.

In the Bibb County market, Mill Creek Run, a 224-unit complex on Skipper Road and the 148 units at Pinewood Park on Mercer University opened in 2006. There are plans to build approximately 300 units off Zebulon Road, just west of I-475. A development group has announced they are considering building an 80 unit complex in Downtown Macon.

Sales prices for apartments continue to increase. In some cases, asking prices on smaller apartment complexes are greater than replacement costs.

For 2007, we believe the housing slowdown will continue into 2007 but should stabilize around mid-year. We believe the multi-family market will enjoy another strong year but think that cap rates will slowly increase as investors return to seek more of their return from operating income and less from the increase in the value of the property. Also, the rate of return from alternative investments should continue to increase.

If you need additional information or have questions, please feel free to call me.