The Freddie Mac Multifamily Apartment Investment Market Index fell at the end of last year, signaling that it may become increasingly difficult to find multifamily investment opportunities. The index fell 4.8% in the fourth quarter of 2021 and was down 2.4% year-over-year.
AIMI is an data tool from Freddie Mac that analyzes multifamily rental income growth, property price growth and mortgage rates to measure investment conditions. The positive annual growth equates to a healthy environment for multifamily investment, despite the pandemic and market dislocation.
The combination of record pricing appreciation, rising mortgage rates and increasing NOI drove the decrease in the index. Apartment prices appreciated nearly 20% in the last year, the biggest growth spurt in the history of the index, while mortgage rates also increase six basis points. These two factors have offset strong NOI growth, which grew 17.7%, according to the index.
Of the 25 markets analyzed by the index, AIMI fell in 24 of the markets in the fourth quarter. New York was the exception due to NOI growth outpacing pricing appreciation. Property prices increased in all markets, with Las Vegas, Phoenix and Raleigh prices increasing by more than 10%. For the year, however, only 11 of the 25 markets analyzes saw a decrease in AIMI. That is thanks to strong NOI growth, which exceeded 10% in every market except Minneapolis. Prices also increased in all markets, but often at a slower pace than NOI growth. In New York, prices increased by 2.8%, for example. However, emerging markets saw significant increased in pricing. In Phoenix, apartment prices were up a staggering 41.8%.
The decrease in AIMI was a significant turn from the close of 2020, when the same index increased by 3.4%. At the time, falling mortgage rates, which decreased 57 basis points annually, offset decreased net operating incomes and increased asset pricing, ultimately producing positive AIMI nationally and in most markets.
Despite the decrease in opportunities, experts are still predicting an active year for multifamily investment.
“2022 will be an exceptionally active investment year, especially for the large apartment market,” said John Chang, SVP and director of research services, at Marcus & Millichap. “I can’t tell you how many times investors told me they had hundreds of millions of dollars ready to deploy.”