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The Freddie Mac Multifamily Apartment Investment Market Index (AIMI) dropped by 7.6% in the fourth quarter of 2022, with the index down 25.8% year over year. Driven primarily by rising mortgage interest rates, the nation and all 25 markets saw decreases on an annual and quarterly basis.

The AIMI combines multifamily rental income growth, property price growth, and mortgage rates to provide a single index measuring market investment conditions. A decline suggests attractive investment opportunities are becoming more difficult to find compared with the prior quarter, while an increase from one quarter to the next implies an increasingly favorable environment for investment opportunities.

“The extraordinary increase in mortgage rates drove the decline in AIMI as 2022 concluded,” said Steve Guggenmos, vice president of research and modeling at Freddie Mac Multifamily. “Rising rates and slowing property cash flows impacted investment conditions, despite the fact that multifamily fundamentals that drive property cash flows are not expected to weaken significantly.”

The nation and 22 markets saw their steepest annual AIMI decreases since the index started in 2000. According to Freddie Mac Multifamily, over the past year mortgage rates increased by 282 basis points, also the largest annual increase in the history of the AIMI.

However, net operating income (NOI) was generally strong with a national growth rate of 6.3%. NOI declined in Las Vegas and Phoenix but surpassed 10% in Miami, New York, and San Diego.

Freddie Mac Multifamily said property price performance was mixed but generally positive over the year. The nation and 18 markets experienced price growth year over year, while prices declined in seven markets.

Quarter over quarter, mortgage rates increased by 100 basis points, the largest quarterly increase in the AIMI’s history. In addition, NOI contracted in the nation and in every market, except for Miami. However, according to Freddie Mac Multifamily, this result is not atypical as NOI change is negative for most fourth quarters.

Property prices also dropped in the nation and in every market, except for Tampa, Florida, in the fourth quarter. Freddie Mac Multifamily said the contractions were larger than normal during the quarter, with the nation experiencing its largest drop since 2009.