Conditions in the multifamily investment market have improved, driven by a steep contraction in property prices and growth in net operating income (NOI) that together offset the effect of higher mortgage rates.
The effect was to boost Freddie Mac’s Multifamily Apartment Investment Market Index (AIMI) for 1Q 2024 by 8.7% to 112.5. The hike in the latest AIMI marked a sharp reversal from its decline in the previous quarter. For investors, this signaled that the environment for multifamily investments is increasingly favorable. For the year as a whole, the AIMI rose by 8.1%.
“The rising index across the board this quarter is especially notable and was aided by the largest quarterly decline in mortgage rates since 2010,” said Sara Hoffmann, director of Multifamily Research at Freddie Mac. She noted that falling property prices helped, along with a 56 basis point drop in quarterly mortgage rates – the biggest slump since 3Q 2010.
During the first quarter, the index rose nationwide and in all but one regional market. Nevertheless, there were some discrepancies between regions. NOI performance was mixed, with no growth nationally or in five metros. On the other hand, another five saw growth of at least 1%, and four others saw NOI declines of less than 1%.
For the year as a whole, the nation and 11 markets enjoyed rising NOI, while 14 markets suffered drops. Property prices dropped everywhere, with some markets plummeting by more than 10%. During the year, mortgage rates jumped by 246 basis points – the second highest annual rise in AIMI history since 2000.
“Over the past year, mortgage rates rose 23 basis points while property prices decreased by -9.3% and NOI increased by 0.5%,” Freddie Mac noted. “Combining these changes in the index, it suggests that investors are paying less per dollar of property income compared with one year ago.”
