Apartment investment market regains footing in Q2

Pullback in property prices and higher income help market recover

Apartment investment market regains footing in Q2

Multifamily investment conditions bounced back in the second quarter, with Freddie Mac’s Multifamily Apartment Investment Market Index (AIMI) up 5.1% from the previous quarter.

While the index was down 2.6% year over year, it was still an improvement from the 17.6% annual drop in the first quarter.

“This quarter’s results show that AIMI is rebounding,” said Sara Hoffmann, director of multifamily research at Freddie Mac.

The Q2 national growth rate was the highest since the third quarter of 2019 thanks to declining property prices and mortgage rates and increased net operating income (NOI) in most markets.

“The index experienced a sharp annual decline in each of the prior four quarters, but a pullback in property prices and moderating mortgage rates are helping AIMI regain its footing,” Hoffman said in a news release. “The index increased due to the confluence of net operating income growth, property price depreciation, and lower mortgage rates relative to recent trends.”

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Nationally, property prices fell by 10.1% and edged down in all but two markets: Miami (+0.1%) and Nashville (+0.5%). The national prices have only declined twice since the second quarter of 2010, and the Q2 drop marks the second one.

NOI rose by 1.8%, but nine markets experienced declines. According to Freddie Mac, “no markets were deeply negative, with the lowest performer being Phoenix at -0.8%.”

Over the past quarter, mortgage rates fell 20 basis points, the largest quarterly decrease since the first quarter of 2020. Year-over-year rates, however, remain high by historical standards (up by 131 bps) but considerably lower than the first quarter’s 246-bps annual rise.

To date, the average 30-year fixed-rate mortgage hovers above 7%. But, analysts expect mortgage rates to stabilize later in the year if the Federal Reserve stops further rate hikes.

Mortgage rate stability, even if the stabilization occurs at a higher level, is the key to a housing recovery,” said First American chief economist Mark Fleming.

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