Phoenix—After the solid performance apartments posted in 2006, I was expecting to hear a more positive outlook at the National Multi Housing Council’s annual meeting here in January. But I was surprised at how cautious the speakers were about this year and next.

True, the real estate brokerages spent small fortunes on music, food, wine, and cigars, but they have already made their money. And they will keep making money whether owners are cashing out or bailing out.

Owners, on the other hand, face a year marked by smaller rent increases than last year, a growing number of markets where there might be no rental or occupancy growth, and a decline in demand for some property types.

Several speakers here said rent increases would not be as great this year as they were in 2006. Even in the hot Southern California markets, one observer said he thought rents had reached the upper end of most tenants’ ability to pay, and as home sales prices soften, future increases would be limited.

The biggest wild card is the fate of failed condominium projects. None of the speakers had a good handle on how many are being converted to rentals, but it’s clearly a threat in some markets.

There was no doubt about the impact of the decline of the condo conversion business: less demand for apartment properties and less upward pressure on values.

The speakers here agreed that capital would remain readily available for apartments—until it isn’t. In other words, the current flows of capital could stop suddenly and just might, given that the S&P 500 index rose 15.8 percent in 2006. By contrast, the National Council of Real Estate Investment Fiduciaries Fund Index posted a 15.6 percent return, net of fees.

The point is, capital may love real estate, but it never proposed marriage and it can leave whenever it finds something that looks more appealing. No one knows when that time will come, but the resurgent stock market and the growth of foreign real estate investment vehicles are mighty strong temptations.

Finally, there’s general agreement that the U.S. economy will slow this year, due largely to a housing sales slump. There is the immediate effect of less construction, plus the impact of slower appreciation and financing defaults by consumers who stretched to buy, often with risky adjustable-rate loans.

No one here was predicting a recession or a very bad year, just a slowdown from the rent and value increases of 2006. But forecasters almost always slant things to the positive side. If apartment market analysts are now warning that 2007 will be just a little softer than 2006, we can safely assume it will be a whole lot softer in some markets.

After all, it was less than two years ago that the chief economist for the National Association of Realtors claimed repeatedly that there was no housing bubble. Now we know just how wrong he was.