Debt financing conditions for the multifamily sector fell sharply in the first quarter, according to a new survey from the National Multi Housing Council. The industry trade group's index dropped from 48 in January to 21 at the end of April. This is the lowest level since January 2000 and the third-lowest level in the survey's history, said Mark Obrinsky, chief economist. The index is based on feedback from senior apartment real estate investment trust executives and is based on a scale of 0-100.

More than 69% of survey respondents, the second-highest ever, said that borrowing conditions for debt financing had worsened in the last three months, based on interest rates and other non-rate conditions. Despite the rising rates, respondents noted that mortgage financing is still widely available, albeit on changing terms. "While investment activity continues at historically high levels, there has clearly been some pullback from the extraordinary levels of late 2005," Obrinsky said.

Higher interest rates are also reducing the advantage of leverage, which may lead to a shift in the profile of buyers of apartment properties over the near term, Obrinsky said. The rate-driven advantage that private buyers have taken advantage of in the past year, over institutional competitors, appears to be diminishing, he added.