The National Association of Homebuilders (NAHB)'s Multifamily Market Index foreshadows vacancies and new starts from the U.S. Census Bureau. David Crowe, chief economist of economics and housing policy at the association, vacancies had been falling in the NAHB’s index since the second quarter of 2009. The Census followed in the third quarter. The next Market Index should be out in March. Crowe took a couple of minutes to speak with Multifamily Executive senior editor Les Shaver about what he’s seeing in the apartment sector.

MFE: You seem a little more guarded about the outlook for the rental market than many apartment owners and consultants. Why is that?
There are an awful lot of mom-and-pop rental owners or people somewhere between mom and pops and being professionally managed. They’re not giving me as much optimism as I get out of the big guys.

MFE: Do you think there’s too much optimism in this sector right now?
I don’t think that’s true. The larger companies are beginning to see their turnaround sooner. I think the rental markets are still extraordinarily promising because what we’ve gone through will ultimately create more renters than owners as we go forward.

MFE: Will that success eventually spread to the mom-and-pops with five- and 10-unit buildings?
The institutional owners have positioned themselves to be in the market that moves quicker. The other units are out and they will see reduced vacancies because the economy will improve and the younger generation will be renters before they’re owners, if they even become owners.

MFE: What will it take for the banks to realize the broader multifamily recovery and open up lending for development?
CROWE: Consistency is probably the one thing that’s missing now. We see spotty positive news about rental housing and production because it hasn’t been consistent for long enough to convince lenders that it’s here to stay.Then we also need good, positive, consistent job reports. We see one good month and one month that’s not good.

MFE: What are some of your key recommendations to open the construction lending markets again?
NAHB has been going to the regulator, specifically the FDIC, and suggesting that they temper their demands on builders that have loans outstanding. There’s the issue of getting loans out to new building, but there’s also the issue with builders holding lots, land, and potential projects that were originally promised credit but are being pulled back because the original plan didn’t pan out as expected. We’re asking the regulators to be more realistic about values—not to use depressed values. They’ve made some recommendations for commercial real estate, but it applies more to true commercial than residential rental. We’re trying to broaden their guidance for commercial real estate to include rental and single family, as well.

MFE: What do you see as the drivers of rental improvement?
The recovering economy is the biggest driver. We see improvement in first-quarter estimates for GDP, as we see a continued improvement in output. That, in turn, will lead to a continued improvement in employment. That, in turn, will lead to a continued improvement in consumer confidence and spending.

MFE: What do you think could trip up this rental recovery?
If the consumer backs away again. The consumer has been very hesitant in going forward with more significant purchases like automobiles and appliances. If they get cold feet again, we can’t get this thing off the launching pad.