After two consecutive quarters of increases, the Freddie Mac Multifamily Apartment Investment Market Index (AIMI) decreased to 107.1 in the third quarter. All 25 regional markets tracked by the index were down for the quarter. The -2.1% decline in the third quarter was attributed to higher interest rates.
However, over the past 12 months, the index is up 0.3%, with five of the tracked markets experiencing growth.
“After last quarter’s rebound, the third quarter decline in AIMI is primarily attributable to the significant increase in interest rates,” said Sara Hoffmann, director of multifamily research at Freddie Mac. “The slight annual increase is notable and largely the result of a substantial contraction in property prices, which offset the effect of markedly higher mortgage rates."
The AIMI combines multifamily rental income growth, property price growth, and mortgage rates to provide a single index measuring market investment conditions. An increase from one quarter to the next implies an increasingly favorable environment for investment opportunities, while a decline suggests attractive investment opportunities are becoming more difficult to find compared with the prior quarter.
According to Freddie Mac, net operating income (NOI) was up nationwide and in 16 markets; however, six of those markets experienced gains of 0.5% or less. Property prices dropped in the nation and all but two markets—Charlotte, North Carolina, and San Diego—while mortgage rates rose by 41 basis points (bps), the first gain since the fourth quarter of 2022.
Year over year, NOI grew in the nation and in 10 markets, with Boston posting the fastest growth at 3.9%; Las Vegas and Phoenix saw the largest declines at -5.5%. Property prices decreased in the nation and in all markets, with 11 markets and the nation contracting by more than -10%. Freddie Mac noted that mortgage rates increased by 114 bps but was lower than the prior quarter’s 131-bp annual increase.
At the national level over the past year, property prices decreased by -11.9% and NOI grew by 0.3%. According to Freddie Mac, the index suggests that investors are paying slightly less per dollar of property income compared with a year ago.
