Increase in Absorption Rates
The construction of multifamily housing has been on the rise, as indicated by the latest data from the Census Bureau’s Survey of Market Absorption of New Multifamily Units (SOMA). The percentage of new apartment units absorbed within three months of completion has notably increased, climbing from a decade-low 42% to 53% in the first quarter of 2024. This uptick reflects a more favorable absorption trend, despite ongoing shifts in the overall market.
The SOMA survey, which tracks new units in multifamily residential buildings with five or more units, also revealed a similar rise in absorption rates for condominiums and cooperative units, up from 63% to 69% over the same period. However, while these figures are encouraging, they are still well below the peaks observed in recent years. For example, the absorption rate for apartments reached its highest point in the third quarter of 2021, with 75% of new apartments absorbed within three months of completion. The rate now stands at 53%, signaling a cooling off from previous years.
Surge in Apartment Completions
Alongside the rise in absorption rates, apartment completions have surged, reaching a historically high level of 99,120 units in the first quarter of 2024, a significant increase from the 83,140 units completed in the same quarter of the previous year. This marks a noticeable acceleration in the pace of multifamily housing completions, as many units that have been under construction over the past year are now being completed and brought to market. Since the first quarter of 2022, the number of multifamily units completed has consistently exceeded 75,000 for eight consecutive quarters.
Declining Absorption Rates Across Time Periods
Further analysis of absorption rates across various time periods also shows a downward trend. The absorption rate for apartments completed in the fourth quarter of 2023 was 71% within six months, down from 88% in the third quarter of 2021. Similarly, for apartments completed in the third quarter of 2023, the absorption rate within nine months was 84%, also down from 96% at its peak in 2021. The year-long absorption rates followed a similar trajectory, with 94% of units completed in the second quarter of 2023 absorbed within 12 months, compared to 98% in the third quarter of 2021.
Condominium and Cooperative Unit Trends
In contrast to apartments, the absorption rate for new condominiums and cooperative units saw a slight increase to 69% in the first quarter of 2024, but this is still a decrease of 10 percentage points compared to the same period in 2023. Additionally, the total number of completed condominium and cooperative units dropped to the lowest level since the first quarter of 2022, with only 3,312 units completed. This marks a stark decline from the peak of 7,996 units completed in the second quarter of 2018.
Market Dynamics and Future Outlook
These trends suggest that while multifamily housing, particularly apartments, continues to be completed at a steady pace, the absorption of these units is not keeping up at the same rate. The dynamics of the market are shifting, with a slight slowing in the speed at which new units are being leased or sold. This trend could be influenced by a variety of factors, including changes in demand, pricing, and broader economic conditions.
The data from the SOMA survey underscores both the challenges and the ongoing growth in the multifamily sector. With high levels of completions coupled with fluctuating absorption rates, the multifamily housing market remains in a state of flux, requiring developers, builders, and investors to carefully monitor these trends as they plan for the future.