Multifamily Investment Opportunities Moderate–As Expected

Multifamily investment opportunities moderated in the first quarter, reported Freddie Mac, McLean, Va.

The Freddie Mac Multifamily Apartment Investment Market Index combines rental income growth, property price growth and mortgage rates to measure multifamily market investment conditions. A higher index reading from one quarter to the next implies a better environment for multifamily investment; a decline suggests that attractive investment opportunities are becoming harder to find.

Freddie Mac Multifamily Research and Modeling Vice President Steve Guggenmos said the Apartment Investment Market Index decreased during the first quarter and over the past 12 months, primarily driven by a 40 basis point mortgage rate jump. In addition, multifamily market fundamentals continued to moderate over the first quarter, with mixed growth among property prices and rental income.

“A substantial rise in mortgage rates over the first quarter of 2017 was the main driver of declining AIMI values in all the markets tracked, including nationally,” Guggenmos said. “Annually, AIMI has also seen declines, but largely due to increases in multifamily property prices that have outpaced the growth in rents.”

Guggenmos called this moderation “consistent with our outlook” for 2017. “We believe the multifamily market will continue to be bolstered by strong demand fueled by demographic changes as well as shortages in supply in most markets,” he said.

Apartment demand grew in the second quarter, reported RealPage, Richardson, Texas. “With demand topping completions by a wide margin in the quarter, occupancy is back to the essentially full mark and the annual pace of rent growth has stabilized,” said RealPage Chief Economist Greg Willett.

RealPage reported demand for 175,645 apartments across the U.S. in the second quarter, up one-third from a year ago.

“Today’s strong demand for apartments reflects the combination of solid job formation, continued limited loss of renters to home purchase and widespread availability of appealing new apartments,” Willett said.

On an year-over-year basis, the Freddie Mac multifamily investment index decreased nationally and in 13 local markets. Washington, D.C. was the only market that saw an AIMI increase (5.5 percent), largely fueled by declining property prices and increasing rents. Meanwhile, areas with high supply including New York City (-4.7 percent), San Francisco (-10.5 percent), Austin, Texas (-2.7 percent) and Houston (-0.2 percent) saw rent growth slow more than other markets.