- Multifamily investments are generally positive for the majority of the 13 major metros across the U.S., says Freddie Mac.
- The quarterly rise in national AIMI reflects advantageous conditions for investments in the multifamily sphere of real estate.
- Nonetheless, the shift shown in the first quarter of this year (down 3.22 percent year-over-year) indicates the cost of investing rising, limiting the number of appealing multifamily units available compared to last year.
- In San Francisco, net operating income growth shows signs of leveling off, despite the cost to invest in the multifamily market becoming more expensive over recent years.
Despite slight moderations across the rental market, buying and leasing a multifamily property is generally positive for the majority of the 13 major metros across the U.S., says Freddie Mac.
The mortgage loan company’s Apartment Investment Market Index (AIMI) reveals the national and local shifts in the multifamily market in the first quarter of 2016 compared to both the quarter prior and the year prior.
The AIMI tool moderates the fundamentals of the multifamily investment market, which includes rental income growth, property price growth and mortgage rates — allowing landlords and investors to see market conditions.
Nationally, AIMI values increased from 107 to 107.4 between the fourth quarter of last year and the first quarter of 2016.
Freddie Mac says the quarterly rise reflects advantageous conditions for investments in the multifamily sphere of real estate. A drop would reveal fewer opportunities for multifamily investment.
“Property price and net operating income growth continue to outperform their historical averages in the majority of metros,” Steve Guggenmos, vp of Freddie Mac Multifamily Research and Modeling, said in a statement.
“What’s more, despite relatively high multifamily construction, the overall strength in the labor market and underlying demographic trends are creating robust demand for new multifamily units.”
Although the quarterly rise between 2015 and 2016 is favorable, the annual picture is less appealing. The shift shown in the first quarter of this year (down 3.22 percent year-over-year) indicates the cost of investing rising, limiting the number of appealing multifamily units available compared to last year.
Year-over-year, AIMI is trending down not just across the nation, but in 12 out of 13 major metros. AIMI moving down indicates that property value growth is exceeding net operating income growth.
A local look at multifamily market conditions
In San Francisco, net operating income growth shows signs of leveling off, despite the cost to invest in the multifamily market becoming more expensive over recent years. This quarter, the AIMI is 79.86 — down 9.03 percent since last year (and 1.93 percent since last quarter).
Orlando saw a major annul decrease in AIMI as well, driven by strong demand for apartments which increased operating income growth and property prices. The AIMI in Orlando is now 105.09, down 12.44 percent from last year.
In Houston, net operating income growth fell — resulting in lower property prices. Freddie Mac attributes this to the local economy tempering due to falling oil prices. This quarter, the AIMI is at 132.1, down .09 quarterly and almost 1 percent annually.
In Chicago, the AIMI dropped .58 percent between quarters to reach 116.41. This is .85 percent higher than the first quarter of 2015, so notwithstanding the quarterly jump, Freddie Mac says there may be an increase in beneficial opportunities for multifamily market investors.
As of the first quarter, the AIMI in Washington D.C. is 87.59, up 4.24 percent quarterly but down 4.35 percent year-over-year. This is 2.69 percent less than the historical average.
Net operating income (NOI) in L.A. reached 6.44 percent growth year-over-year. The historical average growth for NOI is 4.49 percent. This potentially narrows advantageous investment opportunities in L.A.
What’s more, multifamily permits in L.A. jumped just 1.73 percent year-over-year, compared to the historical average of 144.42 percent year-over-year. The AIMI in L.A. was 98.92 in the first quarter — representing a quarterly increase but an annual drop.
In New York City, the AIMI was 66.87 percent in the first quarter, up 1.25 percent from the final quarter of 2015 but down 5.87 percent annually. The AIMI Is 8.41 percent below average, and has been trending down over the past few years.