Freddie Mac, MBA: Multifamily Markets Continue to Grow

Multifamily investing fundamentals grew stronger in the second quarter, reported Freddie Mac Multifamily, McLean, Va.

Investing fundamentals improved both nationally and in all 13 major metro markets tracked by Freddie Mac Multifamily’s Apartment Investment Market Index, said Steve Guggenmos, Vice President of Freddie Mac Multifamily Research and Modeling.

“The increase in the Apartment Investment Market Index over the past quarter is due to strong net operating income growth along with a declining mortgage rate environment,” Guggenmos said. “These two pieces offset the growth in property prices.” 

Guggenmos noted that the market continues to absorb new units coming online despite relatively high construction due to strong demand for apartments.

The Mortgage Bankers Association reported a 26 percent increase in multifamily loan dollar volume in 2016’s first three quarters compared to the same period in 2015. “The dollar volume of loans originated for government-sponsored enterprises Fannie Mae and Freddie Mac increased by 82 percent year-over-year,” MBA’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations said.

MBA predicted that multifamily lending could reach $272 billion in 2017.

The second quarter represented the second consecutive quarter of positive growth tracked by AIMI, a publicly available online tool that combines multifamily rental income growth, property price growth and mortgage rates to provide a single index to objectively reflect market investment conditions.

Nationally, AIMI values increased 2.6 percent in the second quarter to 110.4 from 107.4 in the first quarter, Freddie Mac Multifamily said. Local markets seeing the biggest quarterly gains included Washington, D.C. at 7.2 percent, Chicago at 7.1 percent, Philadelphia (5.9 percent) and Seattle (5.7 percent).

Guggenmos said a rise in AIMI values from one quarter to the next implies an increasingly favorable environment for multifamily investment opportunities, while a decline suggests that attractive investment opportunities are becoming more difficult to find.

But the second quarter AIMI index reflected a “moderation” in the multifamily market’s growth over the past year, Freddie Mac Multifamily said. Nationally, the AIMI index topped 115 at this same time last year. Locally, AIMI scores have fallen by 4.5 percentage points on average over that period in 11 of the 13 metro areas used to compute the index. Only two markets reported a higher AIMI year-over-year, Chicago (0.7 percent) and Washington, D.C. (0.6 percent).