Falling Rates, Increasing NOIs Boost Apartment Investment

Steve Gugggenmos

The Freddie Mac Multifamily Apartment Investment Market Index rose 5.5 percent during the third quarter as mortgage rates dropped 39 basis points, their largest quarterly decline in five years.

The GSE’s apartment investment index rose by 9.6 percent on an annual basis after growing by 4.3 percent last quarter.

“Another strong quarter of net operating income growth and a continued decline in mortgage rates resulted in the AIM index increasing on an annual basis for the second consecutive quarter,” said Steve Guggenmos, Vice President of Freddie Mac Multifamily Research and Modeling. He noted mortgage rates decreased by 70 basis points, the largest annual drop since third-quarter 2010.

“These strong numbers indicate a robust market for investors and demand for new multifamily housing,” Guggenmos said.

The report included a sensitivity table to show how the relative value of investing in multifamily properties in major metros and nationally has changed over time.

The apartment investment index increased for the nation and for every market during the third quarter, Freddie Mac said. The index increased by at least 6 percent nationally and in every metro over the past 12 months. Only New York and Houston saw less than 3 percent growth in the index while Phoenix surpassed 10 percent growth.

Apartment net operating incomes continued their decade-long rise, Freddie Mac reported. Growth was by far the lowest in two gateway markets, New York and San Francisco, and highest in Boston at 2.6 percent.

Property prices grew nationally and in eight of the 13 markets Freddie Mac studied during the third quarter. New York and Philadelphia apartment property prices contracted more than 1 percent each while prices in Phoenix grew by 3.2 percent, by far the highest of all metros examined. On an annual basis property prices grew in 10 of the 13 markets studied. As seen with NOI growth, Phoenix was the only metro to surpass 10 percent property price growth.