Apartment and Condominium Absorption Rates Drop

According to the most recent release of the Survey of Market Absorption (SOMA), produced by the US Census Bureau in collaboration with the US Department of Housing and Urban Development, completions of nonsubsidized, unfurnished, rental apartments in buildings with 5 or more units totaled to 73,300 in the fourth quarter of 2016, about 9 percent higher than completions in the fourth quarter of 2015 (67,300).

On the other hand, the absorption rate (the share of apartments rented within three months after completion) was noticeably lower at 48% in the fourth quarter of 2016. In the fourth quarter of 2015, it was 55% and has not been below 50% since the fourth quarter of 2009 (Figure 1).

On the condominium (and cooperative) side, completions climbed to 6,500 in the fourth quarter of 2016, up from 3,200 completions in the fourth quarter of 2015. However, similar to apartments, there was a significant drop in the absorption rate: 47% of condominiums were absorbed in the fourth quarter of 2016 compared to 81 percent in the fourth quarter of 2015 (Figure 2).

Production of new multifamily housing has been relatively strong for the past several years with over 250,000 rental apartments coming on line in each of 2015 and 2016 and condo completions more than doubling from under 8,000 in 2014 to nearly 19,000 in 2016, it’s not entirely surprising that absorption has slowed. However, it is important to note that a slowdown in just one quarter may not be indicative of a trend.

The SOMA report also contains data on the number of subsidized or tax credit based apartments completed. Although total multifamily completions in buildings with 5 or more units are up (86,000 in Q4 2016 compared to 79,100 in Q4 2015), the share that is subsidized or tax credit based continues to trend lower. In the fourth quarter of 2016, these units represented about 5% of completions (4,500), down from 9% in the fourth quarter of 2015 (7,200) (Figure 3).

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