Freddie Mac Multifamily Investment Index Drops

Freddie Mac, McLean, Va., said multifamily market investment conditions deteriorated in the first quarter as price appreciation and rising mortgage rates more than offset net operating income growth.

The Freddie Mac Multifamily Apartment Investment Market Index fell by 5.3 percent in the first quarter to a point 6.1 percent below first-quarter 2021. “Significant multifamily property price growth and higher mortgage rates offset a dramatic net operating income rise, driving the index down for a second consecutive quarter,” the report said.

Over the past year, property prices grew by 21.1 percent, NOI grew by 19.8 percent and mortgage rates increased by 41 basis points, the largest increase since 2018.

“The offsetting impact of price growth and mortgage rates on increasing net operating income indicate investors are paying more per dollar of income than a year ago,” said Steve Guggenmos, Vice President of Research & Modeling with Freddie Mac Multifamily. “Despite seeing dramatic net operating income growth, we are seeing a decline in the index nationally and across all markets suggesting it may be increasingly difficult to find attractive multifamily investment opportunities.”

Over the quarter, AIMI decreased in the nation and in all 25 markets Freddie Mac studied. NOI growth remained very strong, but property price growth was far greater and mortgage rates increased significantly.

National NOI growth was 2.5 percent and every metro experienced growth. The fastest grower was Miami at 5.6 percent while the slowest grower was Portland, Ore., at 0.9 percent.

Property prices grew in the nation and in every market. Price growth moderated compared with last quarter but was still strong at 4.3 percent for the nation, the report said.

Mortgage rates increased by 29 basis points, the largest increase since second-quarter 2018.

Over the year, the index decreased in the nation and 18 of the 25 markets, while seven markets experienced growth. Just like last quarter, metros commonly experienced record-breaking annual NOI growth and property price growth.

NOI growth was universally positive for the nation and all markets. Freddie Mac reported NOI growth exceeded 10 percent in all but one metro–Minneapolis. Orlando led the way with 33.1 percent annual growth, the single largest annual NOI growth of any metro in the report’s history.

Property prices grew in the nation and in every market. “Like NOI growth, property price growth was astonishing,” the report said. The slowest grower was Chicago at 4.9 percent, while prices in Phoenix grew by 45.6 percent.

Mortgage rates increased by 41 basis points annually–the biggest annual increase since late 2018, Freddie Mac said.