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Survey of Market Absorption of Apartments (SOMA)
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Annual 2008 Absorptions: Analytical Text

The Survey of Market Absorption (SOMA) measures how soon privately financed, nonsubsidized, unfurnished units in buildings with five or more units are rented or sold (absorbed) after completion. In addition, the survey collects data on characteristics such as number of bedrooms, asking rent, and asking price.

The estimates in this report are based on responses from a sample of the population. As with all surveys, estimates vary from actual values because of sampling variation or other factors. All comparisons made in this report have undergone statistical testing and are significant at the 90-percent confidence level.

HIGHLIGHTS¹

• During 2007, a total of 104,8000 privately financed, nonsubsidized, unfurnished, rental apartments in buildings of five units or more were completed in permit-issuing areas in the United States. This estimate does not differ from the estimated 116,400 unfurnished units completed in 2006, nor the 113,000 completions of similar units in 2005. In fact, there were fewer unfurnished rental units built in 2007, 2006 and 2005 than in every year since the 104,000 constructed in 1994 (Table 8).



• Fifty-five percent of the unfurnished rental apartments built in the United States in 2007 were absorbed (rented) within the first 3 months of completion, 74 percent within 6 months, 86 percent within 9 months, and 92 percent were rented within a year of completion (Table 1). The South, with 59 percent, had a majority of these new rental completions. The West was next with 27 percent followed by the Midwest (9 percent). The Northeast had only 5 percent of new 2007 rental completions. Three-month absorption rates among the four regions of the country showed no significant differences (Table 1).



• The majority (59 percent) of new unfurnished rental apartments built in 2007 were built inside principal cities of Core Based Statistical Areas (CBSAs), followed by those built outside principal cities (38 percent). Only two percent were built outside CBSAs. Three-month absorption rates among these areas showed no significant differences (Table 1).



• The median asking rent for unfurnished apartments completed in 2007 was $1,023, which did not differ significantly from the $1,063 (in 2007 dollars; $1,034 in 2006 dollars) in 2006. In 2007, about 39 percent of unfurnished apartments rented for $1,150 or more -- a greater proportion than any of the other asking-rent categories. Units renting for less than $750 (17 percent) exceeded those with asking rents of $950 - $1,049 and $1,050 - $1,149 , but did not differ from those renting for $750 - $849 and $850 - $949 (both 13 percent). The proportion of units in the $1,050 - $1,149 asking rent range (8 percent) did not differ from those renting for $950 - $1,049 (11 percent), but comprised a smaller proportion than those renting for $750 - $849 and $850 - $949 (Tables 2 and 3).



• There were no significant differences among 3-month absorption rates by asking rent range for new unfurnished units built in 2007. Analysis of 12-month absorption rates by asking rent category also showed no significant differences (Tables 2 and 3).



• More two-bedroom units (49 percent) were built in 2007 than any other size, followed by one-bedroom units (38 percent). Units with 3 bedrooms or more (11 percent) comprised a smaller proportion than either of the two preceding categories, but did not differ statistically from efficiencies (no bedrooms), (2 percent). The median asking rent for apartments with 1 bedroom ($918) was lower by about $144 than that of 2-bedroom units ($1,062), and by about $246 from that of units with 3 bedrooms or more ($1,164). The median asking rent between the latter two categories did not differ. The median asking rent for efficiency (no bedroom) apartments was not subject to analysis as it exceeded the upper limit of the rent range. There were no statistical differences among both 3-month and 12-month absorption rates based on the number of bedrooms (Table 3).



• Of the 104,800 newly built unfurnished rental apartments in 2007, 96 percent had air conditioning and 82 percent had a swimming pool available. The cost of electricity was included as part of the asking rent in 5 percent of newly built units (Table 4).



• About 91,000 condominium and cooperative apartments were completed in 2007, some 13,600 fewer than similar completions in 2006. Within 3 months, 61 percent had been sold (absorbed), and by the end of 12 months, 83 percent were sold. The 3-month absorption rate for these newly-built condominium and cooperative units was 67 percent for both the South and the West, which exceeded that of both the Northeast (53 percent) and the Midwest (41 percent), of which these later two regions did not differ statistically from each other. There were no significant differences among 12-month absorption rate for condominiums and cooperatives built in 2007 (Table 5).



• The median asking price for all condominium apartments built in 2006 was $336,500 in 2007 dollars($327,200 in 2006 dollars). The 2007 median asking price for new condominium completions exceeded the upper level of the price range, and thus, was not subject to comparison. Seventy-nine percent of all new condominiums built in 2006 had two or more bedrooms. The South, with 42 percent of new condominium completions in 2007 had a greater proportion than any other region. The West (28 percent) had the second greatest proportion. The Midwest (13 percent), and the Northeast with 16 percent, did not differ statistically (Table 6).



• Fewer (3 percent) new condominium units built were built outside CBSAs than inside principal cities of CBSAs (54 percent) or outside principal cities of CBSAs (43 percent); completions in the latter two areas did not differ statistically. The 3-month absorption rate for condominiums built outside CBSAs was 71 percent, which was not statistically different than 3-month rates for both condominium units built inside principal cities of CBSAs as well as those built outside principal cities of CBSAs. However, the 3-month rate for condominiums built outside principal cities of CBSAs (66 percent) exceeded that of units built inside principal cities by about 9 percentage points (Table 6).



• The 253,000 apartments of all types constructed in buildings of five or more units in 2007 was exceeded by about 30,500 completions in 2006. However, 2007 total completions did not differ statistically from the 258,000 multi-unit completions in 2005. Completions in 2007 were also exceeded by those in every other year dating back to 1998, except for those built in 2003. Among the new multi-unit completions built in 2006, 41 percent were nonsubsidized, unfurnished rental apartments; fewer than 1 percent were furnished rental units; 36 percent were condominiums and cooperatives; 18 percent were subsidized and tax credit; and the remaining 4 percent were not in the scope of the survey (Table 8).

All statistics from the SOMA refer to apartments in newly constructed buildings with five units or more. Absorption rates reflect the first time an apartment is rented after completion or the first time a condominium or cooperative apartment is sold after completion. If apartments initially intended to be sold as condominium or cooperative units are, instead, offered by the builder or building owner for rent, they are counted as rental apartments. Units categorized as subsidized and tax credit are those built under two Department of Housing and Urban Development programs (Section 8, Low Income Housing Assistance and Section 202, Senior Citizens Housing Direct Loans) and all units in buildings containing apartments in the Federal Housing Administration (FHA) rent supplement program. The data on privately financed units include privately owned housing subsidized by state and local governments. Time-share units, continuing-care retirement units, and turnkey units (privately built for and sold to local public housing authorities after completion) are outside the scope of the survey.

Tables 1 through 4 are restricted to privately financed, nonsubsidized, unfurnished rental apartments. Table 5 is restricted to privately financed, nonsubsidized condominium and cooperative apartments, while Table 6 is limited to privately financed, nonsubsidized condominium apartments. Table 7 covers privately financed, nonsubsidized, furnished rental apartments and Table 8 is a historical summary of the totals for all types of newly constructed apartments in buildings with five units or more.

¹Details may not sum to totals because of rounding.