Apartment Investment Market Index Slips

Continued multifamily property price growth has emerged as a key factor driving quarterly and annual declines in Freddie Mac Multifamily’s Apartment Investment Market Index.

While both mortgage rates and net operating income affected the Index this quarter, “the continued growth of property prices–driven by healthy demand and overall housing shortages–proved to have the most meaningful impact,” said Freddie Mac Multifamily Research and Modeling Vice President Steve Guggenmos. He noted while the index’s quarterly and annual results were both slightly negative due to price appreciation, “[the index] continues to reflect the strong demand for multifamily investments and illustrates the long-term strength and stability of the multifamily market.”

The index decreased in 12 of the 13 markets it tracks in the first quarter. Dallas experienced the sharpest decline, falling 4.5 percent, while San Francisco was the only market to see an increase with 0.9 percent growth. It declined 2.4 percent nationally.

Several factors affected the index in the first quarter, Freddie Mac Multifamily said. First, property prices rose in 10 of the 13 markets studied and nationally. In two markets, Chicago and Houston, price growth was essentially flat, while prices in San Francisco declined. Other contributing factors to a lower AIMI included mortgage rates, which rose 13 basis points during the first quarter.

On an annual basis, AIMI decreased nationally and in eight local markets. Nationally, AIMI declined by 3.4 percent. Locally, Seattle and Boston experienced the most significant annual index declines, falling 9.3 percent and 8.4 percent, respectively. Houston saw the largest increase in the index at 4.4 percent and four additional markets, Orlando (0.8 percent), San Francisco (0.5 percent), Philadelphia (0.4 percent) and Chicago (0.1 percent) also experienced increases.

Over the past 12 months, property prices grew in 12 of the 13 markets studied. Only one market, Chicago, did not see property price growth. A dozen local markets and the nation experienced annual net operating income growth. As with property prices, Chicago was the only market that did not experience positive net operating income growth.

Mortgage rates decreased by three basis points over the year, which Freddie Mac Multifamily attributable to contracting spreads offsetting the increase in the 10-year Treasury rate.