Freddie Mac: All is relatively quiet on the apartment investment front

Investing

After seeing declines earlier in the year thanks to the high mortgage rates in the first half of 2018, the environment for apartment investment stabilized in the third quarter of the year, according to Freddie Mac’s latest Apartment Investment Market Index.

AIMI is an analytical tool that combines multifamily rental income growth, property price growth and mortgage rates. According to the report, AIMI came in at 115 in Q3, falling 7.21% year over year.

“After interest rate driven declines in the first two quarters of 2018, the Freddie Mac Multifamily Apartment Investment Market Index remained essentially flat in Q3,” Freddie Mac Multifamily Vice President of Research and Modeling Steve Guggenmos said.

In fact, seven markets measured by the index experienced an increase, while six other markets saw their AIMI decrease. Notably, Freddie points out that Dallas, Seattle and Phoenix experienced the most substantial declines.

These are the cities experiencing the biggest declines:

Dallas, Texas decreased 11.84%

Seattle, Washington decreased 11.78%

Phoenix, Arizona decreased 11.62%

Freddie also notes that the net operating income grew to a 2 year-high, rising in all markets but San Francisco.

“The good news for investors is that almost every market continues to experience healthy net operating income growth. Multifamily remains a competitive market that is driven by strong fundamentals girded by a tight supply and strong demand for rentals,” Guggenmos concluded.

According to Freddie Mac’s analysis, property prices rose nationally over the quarter, although New York, Philadelphia and Washington, DC experienced price contraction. That being said, property price decreased in Chicago and New York, but had double-digit price increases in Seattle, Orlando and Phoenix.

“Price growth compared with past third quarter numbers was atypically low, posting the worst Q3 growth since 2009,” Freddie writes. “Mortgage rates remained essentially flat over the quarter, following sharp quarterly increases earlier in the year.”

The image below shows the change in AIMI year-over-year:

AIMI Index Q3

(Click to enlarge. Image courtesy of Freddie Mac)

Leave a Reply