Falling Rates, Increasing NOIs Boost Apartment Investment

The apartment investment environment improved significantly in the second quarter, Freddie Mac reported.

The GSE’s Multifamily Apartment Investment Market Index jumped 4.8 percent during the quarter as mortgage rates dropped 28 basis points, their largest quarterly decline in nearly five years. Apartment net operating incomes also continued their decade-long rise.

The index increased 4.3 percent on an annual basis, a considerable improvement compared to the first quarter, when the index contracted by 2.9 percent year-over-year.

“The across-the-board growth we are seeing is a response to falling mortgage rates and strong demand for rental units in a market that maintains strong occupancy,” said Freddie Mac Multifamily Vice President of Research and Modeling Steve Guggenmos. “Overall, [the index] shows a healthy market for investors as sustained growth in net operating incomes continues to bolster the multifamily asset class.”

Guggenmos said the index increased for the nation and every market during the second quarter.

Apartment property net operating incomes saw healthy growth nationally and in all 13 markets Freddie Mac studied during the quarter. New York and Houston saw the slowest growth among major markets at 1.7 percent each while Boston led with 4.2 percent NOI growth–its highest growth rate in four years.

“Property price growth was mixed but generally positive,” Freddie Mac said, noting nine metros and the nation experienced growth, though Los Angeles only grew by 0.1 percent during the quarter. The remaining four metros saw property price contraction, although Boston remained essentially flat at -0.01 percent.

Over the year, AIMI increased in the nation and in every metro except for San Francisco, which experienced only a minor decline. NOIs grew in the nation and in all markets. Phoenix’s 11.4 percent growth rate was much higher than the second-fastest growing metro, Atlanta, at 7.4 percent. 

Property prices grew in the nation and in all markets except for Philadelphia year-over-year. Just like for NOI growth, Phoenix was the only market to exceed 10 percent in property price growth.