While the sector has been on fire for much of 2014, recent data released by the by the National Association of Home Builders (NAHB) indicated that multifamily housing production is slowing down.

The association’s Multifamily Production Index (MPI) reached 54 in the third quarter which is four points below the previous quarter’s reading. It isn’t all bad news, though, as this is the 11th consecutive quarter with a reading of 50 or above.

The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse.

The MPI provides a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and “for-sale” units, or condominiums. Although all three components fell from 2014 peaks in the second quarter, all remain at 50 or above. The MPI component tracking low-rent units dipped one point to 51, market-rate rental units fell four points to 64 and for-sale units dropped six points to 50.

“Despite the slight drop in the index, multifamily developers remain positive about where the market is headed,” says W. Dean Henry, chairman of NAHB’s Multifamily Leadership Board. “Current growth in employment is strong enough to fuel demand for multifamily housing.”

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry’s perception of vacancies, rose three points to 41, with higher numbers indicating higher vacancies. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been fairly stable since 2011.

“We are seeing the MPI return to the mid-50s level where it has been for much of the past three years,” says NAHB chief economist David Crowe. “The moderation in multifamily builder sentiment aligns with a leveling off in production at a historically high level sufficient to keep up with rental demand.”

According to the NAHB, the MPI and MVI have performed well historically as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.

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