Freddie Mac Apartment Investment Index Falls

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

The Freddie Mac Multifamily Apartment Investment Market Index fell 11.7% quarter-over-quarter and 17.9% year-over-year.

The index decreased on both a quarterly and annual basis nationally and in all 25 markets Freddie Mac studied, driven mostly by record mortgage rate growth. The nation and 11 markets experienced their largest annual decline in the history of the index, said Steve Guggenmos, Vice President of Research & Modeling at Freddie Mac Multifamily.

“The impact of the rapid and substantial increase in both mortgage rates and property prices is evident in this quarter’s AIMI,” Guggenmos said. “[But] although higher rates and property prices have driven the index down, NOI growth remains strong.”

Over the past year, property prices have increased 21.8%, net operating income grew by 17.7% and mortgage rates increased by 1.31 percentage points, the largest increase in the index’s history.

Guggenmos noted the index’s drop reflects “moderating investment conditions” brought about by changing trends in the broader economy. “There still exists an overall housing shortage, which is keeping vacancy rates low and rents high,” he said.

During the second quarter, the index decreased in the nation and in all 25 markets examined. The primary driver behind the quarterly decline was higher mortgage rates.

National NOI growth equaled 3.0% in the quarter. Every metro experienced growth; the fastest grower was Miami at 4.7% while the slowest grower was Phoenix at 0.5%.

Property prices grew in the nation and in every market except for Philadelphia, Freddie Mac reported. “Price growth moderated compared with last quarter but is still higher than the long-run average,” the report said.

Mortgage rates increased 95 basis points between April and June, the largest quarterly increase in the index’s history going back to 2000.

Over the past year, the index decreased nationally and in all 25 markets, driven by the jump in mortgage rates. The nation and 11 metros experienced the largest annual AIMI percentage decline since 2000.

NOI growth was universally positive and exceeded 10% in all but one metro, Minneapolis. New York led the way with 29.7% annual growth.

Property prices grew nationally and in every market. “Like NOI growth, property price growth was astonishing,” the report said. Only three metros grew by less than 10%–Minneapolis, Oakland and San Francisco–while 15 metros exceeded 20% growth. Mortgage rates have increased by 131 basis points over the last year, the largest annual increase in the report’s history, Freddie Mac said.