The shadow market of excess for-sale inventory strikes again. This time, builder confidence took the hit. In September, the National Association of Home Builders released its quarterly Multifamily Rental Market Index, which said that confidence dipped across product lines in the second quarter of 2007. Class A, B and C apartments all showed a decrease compared to the second quarter of 2006. Confidence in the market's demand for luxury units fared the worst, dropping nearly 10 percentage points to 63.8 percent from its all-time high of 73.2 percent in the second quarter of last year.

“Occupancy rates are still reasonably good for rental apartments, but the significant correction ... in the for-sale segment is having some spillover effect,” noted NAHB chief economist David Seiders in a press release. “It is probably good for the long-term health of the market that rental apartment developers are easing up their plans for new supply.”

Still, multifamily market perceptions remain positive. An MRMI rating above 50 typically point to positive market perceptions, while numbers below 50 indicate a pessimistic outlook. The survey indicates that confidence in Class B and C properties in the second quarter of 2007 was 67.7 percent and 66 percent, respectively.

“We are seeing the demand slip a little bit across classes, but we are still on the positive side of the confidence measure,” explains Bernard Markstein, NAHB's director of forecasting. “I think some of this has been concern over more product coming on the market over the last several months. [Yet] starts are still above completion, so you have a lot in the pipeline that will be flowing out over the next year or so.”