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The multifamily sector was showing signs of caution in the second quarter, according to the National Association of Home Builders’ (NAHB’s) Multifamily Market Survey. The Multifamily Production Index (MPI) decreased six points to 42 compared with the first quarter, which the NAHB attributed to the for-sale condo sector.

The MPI measures builder and developer sentiment about conditions in the apartment and condo market on a scale of 0 to 100. According to the NAHB, the index and all of its components are scaled so that a number below 50 indicates more respondents are reporting that conditions are getting worse rather than improving.

“With rising interest rates and high construction costs, multifamily developers need to be cautious given recession concerns,” said NAHB chief economist Rob Dietz. “However, the multifamily market is showing growth this year, with five-plus unit permits and starts up 18% on a year-to-date basis.”

The MPI is a weighted average of three key multifamily market elements: construction of low-rent units—apartments that are supported by low-income housing tax credits (LIHTCs) or other government subsidized programs; market-rate rental units; and for-sale units—condos. The component measuring low-rent units decreased four points to 45, the component measuring market-rate units increased three points to 52, and the component measuring for-sale units decreased 11 points to 33.

The Multifamily Occupancy Index (MOI) decreased eight points to 60; however, “multifamily developers on balance are still reporting improving occupancy,” said the NAHB. The MOI measures the multifamily industry’s perception of occupancies in existing apartments. It is a weighted average of current occupancy indexes for Class A, B, and C units and can vary from 0 to 100, with a break-even point at 50, where higher numbers indicate increased occupancy.

“Overall, rental demand remain solid. Rising mortgage interest rates mean low vacancy in multifamily rental,” said Sean Kelly, NAHB Multifamily Council chairman and executive vice president of LNWA, based in in Wilmington, Delaware. “Additionally, recent Treasury guidance related to American Rescue Plan funding creates clarity in the production pipeline for apartments supported by the LIHTC.”