Freddie Mac Multifamily Investment Index Drops

Freddie Mac, McLean, Va., said multifamily market investment conditions turned negative in late 2021 as price appreciation and rising mortgage rates more than offset net operating income growth.

The Freddie Mac Multifamily Apartment Investment Market Index fell 4.8 percent in the fourth quarter and now stands 2.4 percent below fourth-quarter 2020. Strong multifamily price appreciation–which saw its largest single-quarter growth in the history of the index–and rising mortgage rates more than offset strong growth in multifamily property net operating incomes. Property prices grew 19.6 percent, mortgage rates increased 6 basis points and NOI grew 17.7 percent over the past year.

“The year-over-year AIMI decline shows us that it may be more difficult now to find attractive multifamily investment opportunities in some markets than it was a year ago,” said Steve Guggenmos, Vice President of Research & Modeling at Freddie Mac Multifamily. “Even though we’re seeing off the charts net operating incomes, prices are also rising dramatically.”

Guggenmos noted investors now pay more per dollar of property income than they did one year ago in most markets.

Over the quarter, AIMI decreased nationally and in 24 of the 25 markets Freddie Mac examined, with New York the lone exception. NOI growth and property price growth were both very strong, but prices grew faster, which led to near universal AIMI declines, the report said.

National NOI growth equaled 3.5 percent and every metro experienced growth in 4Q 2021. The fastest grower was New York at 7.3 percent while Minneapolis saw the slowest NOI growth at 0.6 percent.

Property prices grew nationally and in every market Freddie Mac looked at in the fourth quarter. Price growth reached 7.0 percent in the fourth quarter and three metros, Las Vegas, Phoenix and Raleigh, N.C., saw 10 percent price growth or more.

Multifamily mortgage rates increased 12 basis points during the quarter, the largest increase since fourth-quarter 2018, Freddie Mac noted.

For full-year 2021, the AIMI decreased nationally and in 11 of the 25 markets studied. “NOI growth was universally positive for the nation and all markets,” the report said. “Amazingly, NOI growth exceeded 10 percent in all but one metro, Minneapolis.”

Property prices grew in the nation and in every market during 2021. “Like NOI growth, property price growth was astonishing,” Guggenmos said. The slowest growing market was New York at 2.8 percent, while property prices in Phoenix grew more than 40 percent.

Mortgage rates increased by six basis points during the year, Freddie Mac said–the first annual increase since first-quarter 2019.