Freddie Mac Investment Index Turns Positive After Disconcerting Drop

In Q2, The Freddie Mac Multifamily Apartment Investment Market Index (AIMI) turned negative for the first time in 11 years. But that turn didn’t last long.

In Q3, the AIMI rose by 1.9%. Freddie Mac says the change reflects mixed net operating income and property price growth after the pandemic drove negative NOI growth in the previous quarter. On an annual basis, AIMI rose by 2.0% as mortgage rates decreased by 44 bps.

Last quarter, 19 markets experienced quarterly growth while six metros experienced a quarterly contraction, according to Freddie Mac.

AIMI increased in the nation and in 17 markets for the year, while eight markets saw an AIMI drop.

“AIMI rebounded in the third quarter as mortgage rates dropped and despite the stresses created by COVID-19, multifamily fundamentals have been relatively resilient to date,” said Steve Guggenmos, vice president of Freddie Mac Multifamily Research and Modeling said in a statement. “Nationally, AIMI continues to be positive on an annual basis, but some individual markets are experiencing significant contractions due to the local market impact of the pandemic.”

The picture was more mixed for NOI growth. While the nation and 12 markets experienced quarterly NOI growth, another 10 markets saw NOI contract in Q3. In three metros, NOI was virtually unchanged. Not surprisingly, New York and San Francisco experienced NOI decreases of 8.0% and 8.9%, respectively.

During 2020, NOI dropped in the nation and 18 markets. Seven markets posted annual NOI gains. Jacksonville and Phoenix led the way, each exceeding 3% growth. New York and San Francisco posted double-digit NOI losses in 2020.

These findings are consistent with other reports that have shown problems in these two large markets. In a recent report, ApartmentList noted rapidly decreasing rents in coastal cities, like San Francisco, Seattle and New York City. At the same time, affordable suburban cities became more expensive during 2020. 

As mortgage rates decreased by 16 points, pricing was mixed in Q3. Apartment prices increased in 12 markets while prices dropped in 11 markets. Three markets experienced no real price change, according to Freddie Mac

During 2020, the nation and 18 markets experienced property price growth, while seven metros experienced contraction. Mortgage rates decreased by 44 basis points during the year. While the drop is large, Freddie Mac says it is not as severe as the annual rate decrease in each of the last four quarters.

Other reports show apartment pricing improving in November. Apartments increased by 2% in November but were down 5% from before COVID-19, according to The Green Street Commercial Property Price Index.