World Markets Flounder in New Financial Terrain

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Carnage in the major markets left no one unscathed, and the Apartment Finance Today Index was no exception. As our trading session ended Oct. 15, 2008, all components in the index were negative, an occurrence not seen since the period ended December 2007. The index fell 298.53 points, or 31.38 percent, and ended at 652.73. In a quarter that is usually strong for apartment rentals, vacancy rates in the United States rose to their highest level in three years in the third quarter, responding to the soft economy and loss of job growth.

“Whenever the economy is slowing, when the job market is weak, particularly for young people, it undercuts the rate of household formation and the demand for apartments,” said Sam Chandan, chief economist of real estate research firm Reis, Inc.

However, Chandan said that when job growth stabilizes, he sees a return to apartment rental strength. “For a lot of young people not having to make that down payment allowed them to become homeowners sooner over the last couple of years,” Chandan said. “With [downpayments] becoming a factor again, we’ll return to a situation where we’ve been historically, where younger households tend to be renters because they have to save a while before they can afford a home.”

Countries around the globe worked to shore up faltering banks and stem the fear of a deepening economic crisis. The U.S. government announced an unprecedented plan for a $250 billion buy-in for stock in private banks, following the $700 billion rescue plan approved by Congress and signed into law by President Bush. Uncertainty reigned, however, and stocks continued to fluctuate wildly.

“We don’t know if the bottom is in,” said Lincoln Anderson, chief investment officer and chief economist at LPL Financial in Boston, about the market’s increases following its plunge earlier in October. “We certainly expect heightened volatility for a fair amount of time while we sort out just exactly what’s going on.”

One of the stopgap provisions of the rescue plan was the Securities and Exchange Commission (SEC) decision to stop short selling. Centerline Holding was one of the companies added to the New York Stock Exchange’s list of those prohibited from short selling by the SEC’s rules.

Earlier in September, Centerline said it supported the government’s decision to place mortgage lenders Fannie Mae and Freddie Mac under the conservatorship of the Federal Housing Finance Agency.

“We support the government’s actions last week to shore up Fannie Mae and Freddie Mac’s financial conditions,” said Marc Schnitzer, president and CEO of Centerline Capital Group. “We believe it could have a steadying impact on confidence in the mortgage financing markets as a result. Our multifamily financing business is still strong. We expect to continue doing business with both companies in our multifamily and affordable housing lending practices.”

Centerline shed 1.50 points, and 60 percent to earn the top spot as the lowest dollar loser but highest percentage loser in the index. Centerline closed at 1.00.

Two index components were upgraded at the end of our session by research firm Keefe, Bruyette & Woods, Inc. AvalonBay was increased to “market perform” from “underperform.” AvalonBay lost 30.93 points, or 30.88 percent, and was the top dollar loser in the index. Mid-America was upped to “outperform” from “market perform.” MAA slipped 9.41 points, or 19.07 percent, and closed at 39.94. Mid-America was the smallest percentage loser in the index.