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Mid-Year Capital Markets Sentiment: Murky

Market Monitor

According to a recent survey of quarterly apartment conditions by the National Multifamily Housing Council (NMHC), 88 CEOs and senior executives at national apartment firms appear to expect that sales volume will increase in the coming months. According to indices calculated by the NMHC, survey respondents provided a sales volume index score of 40, the highest since April 2022’s score of 50—the level that suggests sales volumes are increasing. The score seems to indicate that overall volumes are still declining. But the trend line is solidly above the low of 6 in October 2022 and marks a significant increase from 26 in April 2023, the most recent previous survey.  

Unfortunately, this metric appears to be the lone bright spot in the survey. Other indices—market tightness, equity financing and debt financing—all scored well below 50, indicating that these market segments continue to weaken. Debt financing was the lowest of the three with a score of 18, up from the July 2022 low of 3 but lower than scores of 25 and 29 in January and April, respectively.  

2Q 2023 Sales Volume, Market Tightness Indices

Market Indices

Source: National Multifamily Housing Council  

These scores are based purely on the sentiments of the real estate executives surveyed. But the latest sales volume data available from MSCI Real Assets shows that volumes on a year-over-year basis continue to plummet, falling below pre-COVID levels. According to MSCI, apartment sale volume continued its descent in the second quarter of 2023, falling 72% year over year to $28.2 billion. Even if heightened transaction activity in 2021 and 2022 is removed, this quarterly volume is still 26% below the second-quarter average volume for the five-year period prior to 2020. 


Merging the market sentiments for sales volume with the observed data would suggest that the coming quarters will register an uptick in observed transaction volume. Both sentiment and data remain pessimistic for the availability of financing within multifamily capital markets; and trend lines suggest conditions are worsening. Second-quarter loan origination data has yet to be released, but based on first-quarter data from the Mortgage Bankers Association, loan origination volumes are down 55% year over year. Further declines are expected in the second-quarter data.  

It will be interesting to see how this uptick in deal flow ultimately is financed. It is likely that many of the assets that will be placed on the market for sale will come with assumable, below-market financing. Even if available at lower leverage than buyers are accustomed to, these types of assets will retain the highest post-COVID valuations. For sales that do not involve this element, increased equity investment should translate into lower prices.   

That said, it is unclear at this point how much lower prices will need to fall to precipitate this suggested uptick in transaction volume. It does appear, at least based on the sentiments of some of the largest owners in the marketplace, that the bid-ask spread may be starting to narrow, allowing for transaction volumes to increase more closely with pre-COVID levels.   

This article is intended for informational and educational purposes only and is not intended to provide, and should not be relied on, for investment, tax, legal or accounting advice. The information is provided as of the date indicated and is subject to change without notice. Origin Investments does not have any obligation to update the information contained herein. Certain information presented or relied upon in this article may come from third-party sources. We do not guarantee the accuracy or completeness of the information and may receive incorrect information from third-party providers.