The National Association of Home Builders (NAHB) reported yesterday that multifamily starts fell nearly 28 percent to a rate of 119,000 units-the lowest number the trade association has ever recorded.

To some, that news was better than expected. "I could have seen it [the decline in starts] being higher than that," says Greg Bonifield, a principal with Woodfield Investments, based in Ashburn, Va.

Bonifield isn't alone. In last week's Multifamily Rental Market Index (MRMI) and Multifamily Condo Market Index (MCMI), which surveys builder confidence, market conditions fell to 22.4 for affordable apartments and 18.6 for market-rate apartments, compared to 45.3 and 40, respectively, at the same time a year ago.

On the condo side, the supply component fell 11 points from the fourth quarter of 2007, to hit a new record low of 7.8. (These quarterly NAHB surveys have a scale of 0 to 100, with a rating of 50 generally meaning positive and negative responses are the same level.)

The credit market is the biggest problem for multifamily builders and developers, but it's not the only one. "Traditional bank construction financing is very difficult to obtain," Bonifield says. "It's hard in most markets to make deals pencil out. That's because hard costs have not come down enough. Rents are not going up in most places."

Bonifield has seen land prices start to move, but until credit becomes available and rents improve, it's doubtful that starts will rise. NAHB chief economist David Crowe expects the market to continue to fall until early 2010. In comparison, he says the single-family market should improve later this year. "In multifamily, you have to anticipate longer because the approval process is longer," he says.

But Crowe thinks those developers who can start the wheels turning for future developments in the right markets will ultimately benefit. "I do think we will be under some pressure to add additional rental units," Crowe says. "I'm not sure we are preparing for that eventuality. If we don't start fairly soon in anticipation in putting the deals together and getting the land assembled, we will get caught short when the land is needed."

Permit numbers in January only fell 1.6 percent to a rate of 186,000 units on the multifamily side. But right now, multifamily developers don't seem optimistic that things will improve. When asked to predict the market in six months, the affordable rental index stands at 28.6 (down from 48.9 in the fourth quarter of 2007); market-rate rentals are at 22.5 (down from 50); and condos are at 13 (down from 29.2).