Lower property prices and rental income growth offset rising borrowing costs
The Freddie Mac Multifamily Apartment Investment Market Index (AIMI) has shown modest improvement in the second quarter, indicating a gradual stabilization of the multifamily market after a period of significant volatility.
According to the latest data, AIMI rose by 0.3% quarter over quarter and 2.2% year over year nationwide. This growth, however, was not uniform across all markets. Of the 25 markets analyzed, 14 saw increases, nine experienced declines, and two remained essentially unchanged.
“AIMI continues to show slight growth quarter over quarter, as well as year over year, as the market continues to work towards stabilization after significant volatility,” said Sara Hoffmann, senior director of multifamily research at Freddie Mac.
Hoffmann noted that higher mortgage rates, which increased by 21 basis points compared to the previous quarter, were offset by lower property prices and modest rental income growth, contributing to the overall improvement in investment conditions.
Net operating income (NOI) showed largely positive performance in the second quarter, with growth observed nationally and in 19 of the 25 metros studied. Two metros saw declines, while four remained flat.
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However, the annual picture was more mixed, with NOI falling in 14 of 25 markets despite overall national growth. The District of Columbia emerged as the best annual performer with a 4.4% increase, while Jacksonville saw the steepest decline at -5.5%.
Property prices continued to face downward pressure, dropping nationally and in most markets over the quarter. Only four markets experienced growth, with Boston leading at a modest 0.6% increase. The annual trend was universally negative, with prices declining in all markets and down 8.3% at the national level. Eleven markets saw contractions exceeding 10%.
Mortgage rates reversed their previous downward trend, increasing by 21 basis points in the second quarter of 2024. This contrasts sharply with the 56-basis-point drop observed in the previous quarter. Over the year, rates increased by 64 basis points, a significant rise but notably smaller than the increases seen in 2022 and 2023.
The AIMI report, which combines multifamily rental income growth, property price growth, and mortgage rates into a single index, suggests that the investment environment for multifamily properties is becoming slightly more favorable. An increase in AIMI indicates improving conditions for multifamily investment opportunities, while a decrease suggests such opportunities are becoming more challenging to find.
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