Is There an Apartment Bubble?

November 6, 2012 at 3:50 pm Leave a comment

From an article on CNBC’s site we learn that there might be a growing apartment bubble:

Multi-family starts and permits, however, garnered a different headline: “Headline Risk as Data Cross 10-year Averages,” came the report from Cantor Fitzgerald.

Building permits for multi-family buildings, which means five units or more, and which will be rental buildings, not condos, jumped 93.4% from a year ago to 323,000, which is above the 10-year average of 296,000.

Or perhaps not:

“There is still a tremendous amount of demand for apartments,” says Mitch Roschelle of PWC. “The supply side of the equation is a different story, there’s clearly been a run-up in building permits and the projections of growth in supply continue to be strong, however, the question becomes is there too much risk of overbuilding? If you look back at the last several overbuilding cycles that we’ve had, whether it be the one after the S&L crisis or the one from the 90s or the one from this decade, we really haven’t been a situation where we’ve overbuilt multifamily in the last 6-7 years, so we don’t have an excess of supply, and we don’t have an excess of financing to fund future growth in supply.”

PWC, which put out its 2013 forecast Wednesday, does not see overbuilding risk. Despite the recovery in the single family housing market, there are still many Americans who cannot afford to buy a home and/or cannot qualify for today’s mortgages due to impaired credit. The worst of the housing crash may be over, but the scars are not yet healed, both fiscal and emotional. The prime demographic for home buying, those in their 20s and early 30s, are still seeing homeownership is as risky. Either that, or they don’t have the down payment or the credit scores to get in the game.

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Entry filed under: Apartment Construction, Benchmarks, Economy. Tags: , , .

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