Falling Rates Bolster 1Q Apartment Investment Outlook

August 1, 2019

The apartment investment outlookimproved in the first quarter after showing deterioration in late 2018, Freddie Mac reported.

The GSE’s Apartment Investment Market Index rose 2.4 percent in the first quarter as mortgage rates fell and apartment net operating incomes continued their decade-long rise. Freddie Mac Vice President of Multifamily Research and Modeling Steve Guggenmos noted the asset class has shown “stability and strength” throughout the past decade.

“The first quarter growth [in the Apartment Investment Market Index] was largely attributable to falling rates, but growth in net operating incomes and a marginally slower rate of property price growth were also factors,” Guggenmos said. “The index is down somewhat compared to this time last year, but overall the Apartment Investment Market Index shows a healthy market.”

The index increased for the nation and in every market over the quarter, Freddie Mac reported. Net operating incomes grew at least slightly nationally and in all markets except New York. National NOI growth equaled a modest 0.5 percent, but some markets saw considerably more property income growth. Phoenix for example posted the largest quarterly NOI growth, 3.2 percent.

Apartment property prices grew nationally and in all markets except Seattle. Phoenix again performed the best among metros, far better than the next highest market, Washington, D.C. Phoenix property prices increased 4 percent compared to 2 percent in D.C.

Mortgage rates decreased 22 basis points during the first quarter compared to 2018’s last quarter when rates increased 19 basis points.

Over the past year, NOI grew nationally and in all markets Freddie Mac studied. Houston saw the least growth, just 0.3 percent, while all other markets (and the nation) grew at least 2.7 percent. Property prices grew nationally and in all markets except New York.

Mortgage rates increased by 29 basis points over the past year. “Although this is a large increase, the prior three quarters have seen even larger ones,” Freddie Mac said.