The ongoing turmoil in the financial markets is affecting the apartment sector, according to the National Multi Housing Council's (NMHC) latest Quarterly Survey. Overall apartment demand is holding up fairly well in the face of a sluggish economy, though there was a small decline in market tightness. Sales volume is down and both equity and debt capital are less available.

"Demand for apartment residences is holding up relatively well despite the weakening job market and sluggish economy. If employment continues to fall, however, we'll likely see apartment demand follow suit," noted NMHC Chief Economist Mark Obrinsky. "At the same time, the financial markets have still not returned to normal, with the CMBS market-and many banks-effectively sidelined."

"Overall," Obrinsky added, "the apartment industry remains reasonably well as a result of continuing fallout from the for-sale housing market and the fact that apartment firms did not overbuild during the latest economic cycle."

The Market Tightness Index, which measures changes in occupancy rates and/or rents, decreased from 44 last quarter to 40 this quarter. For all four of the survey indexes, a reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.

More than twice as many respondents said markets were looser rather than tighter, although about half of respondents said market conditions were unchanged from the previous quarter. Of the four measures in the Quarterly Survey, this one has held up the best over the last year.

This is the fourth straight Market Tightness Index measure under fifty. The job market weakening-employment has fallen in each of the last seven months-seems to have been largely offset by the substantial shift from owning to renting over the last two years.

The Sales Volume Index increased slightly to 17. Although this index figure increased this quarter, it was well below 50, which signals widespread deterioration in transaction activity. Seventy percent of respondents said sales volume was lower than it had been the prior quarter, while only four percent said it was higher.

The Sales Volume Index now has been below 50 for eleven consecutive quarters. At first, this decline was attributable to the withdrawal of condo converters from the market, but over the last year the main cause has been the unsettled state of the financial markets.

The Debt Financing Index declined by nearly half again from the previous quarter, from 22 to 13. This is the second-lowest reading on record for this index, and the fifth consecutive quarter where the reading was under fifty.

The Equity Financing Index declined to an all-time low of 11. No respondent said equity financing was more available than it was three months ago (for the first time ever) and nearly fourth-fifths of respondents said it was less so.