New Capacity May be Softening Rents | Mount Kisco NY Real Estate

Soaring capacity may be starting to slow the tide of rent increases that have spurred real estate investment and the greatest multifamily construction boom in seven years and record numbers of single family rentals.

The Multifamily Production Index (MPI), released by the National Association of Home Builders (NAHB) last week, improved for the eighth consecutive quarter with an index level of 54. It is the highest reading since the second quarter of 2005.  The MPI, which measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100, rose from 51 in the first quarter to 54 in the second quarter.

Millions of small real estate investors, encouraged by rising rents, have contributed to the nation’s rental capacity by buying distress sales and converting them to single family rentals.  The National Association of Realtors reports investors purchased some 1.23 million properties last year, more than a quarter of all homes that were sold in 2011.

“The strength of the MPI suggests that multifamily production is likely to increase somewhat going forward,” said NAHB Chief Economist David Crowe. “Multifamily production has already recovered substantially from a historic low of about 110,000 starts a year in 2009 and 2010 to the current annual rate of a little over 200,000. However, prior to the downturn multifamily starts remained about 300,000 per year for 12 consecutive years, so there is room for further improvement before apartment and condo production return to normal, sustainable levels.”

However, the latest data suggests that in some leasing markets the bloom may be off the boom in rising rents.

Nationally, rents rose 4.7 percent in August from a year ago, which, while still a gain, is down from the 5.8 percent annual increase in May – making it the slowest rise since March, according to Some markets, however, are still hot, with rents up around 10 percent year over year. These include Houston and Seattle, Denver and San Francisco.

“Rents had been on fire earlier this year, but some of the hottest rental markets are starting to cool,” said Jed Kolko, Trulia’s chief economist, told Diana Olick of CNBC. “New construction that started last year is finally coming onto the market, giving renters more choices and some relief from rising rents. Still, rents are climbing in nearly all of the major rental markets.”

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