Higher Mortgage Rates Drive Apartment Investment Market Index Decline

Michael Tucker mtucker@mba.org

October 17, 2018


Significant mortgage rate increases once again drove declines in the Freddie Mac Multifamily Apartment Investment Market Index in the second quarter and from a year ago.

The decline suggests attractive investment opportunities are becoming more difficult to find compared to the prior period, said Steve Guggenmos, Vice President of Freddie Mac Multifamily Research and Modeling. He noted despite the drop, the investment index indicates multifamily remains a competitive market with tight supply and strong demand. "For example, in almost every market across the quarter and annually, net operating income growth was positive and property price growth continued to increase significantly," he said.

The AIMI experienced a decrease nationally and in 12 of the 13 local markets it tracks during the second quarter, Guggenmos said. At the national level, AIMI declined 2.6 percent. Locally, Phoenix and Houston saw the sharpest declines, down 4.77 percent and 3.79 percent, respectively, while Boston was the only market to see an AIMI increase, up 0.39 percent.

A 29 basis point increase in mortgage rates over the second quarter drove these declines, Freddie Mac reported. But net operating income grew in every market and the nation, which Guggenmos said was largely consistent with the rapid NOI increases typically experienced in the second quarter. Seattle saw the fastest NOI growth by far with a 4.6 percent quarterly increase. Property prices in Boston and Chicago contracted while all other markets and the nation experienced growth.

Year-over-year the index decreased in every local market and nationally. This included substantial decreases in Seattle (-13.35 percent), Dallas (-11.38 percent) and Phoenix (-10.26 percent), which experienced the sharpest declines.

Mortgages rates rose 38 basis points during that period. "This increase in rates and high property price growth are the primary reasons for the across-the-board AIMI declines," Guggenmos said.

Nationally, NOI grew in every market and nationally over the past 12 months, Freddie Mac Multifamily reported. Orlando and Houston saw the highest income growth at 8.3 percent and 9.2 percent, respectively. Property prices grew in every market except for Chicago. Seattle, Orlando and Phoenix prices grew by 10 percent or more.

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