Investment Conditions Dip in Q2, Freddie Mac Finds

The pandemic has shrunk the pool of attractive investment opportunities, yet several key metrics have improved year-over-year.
Freddie Mac headquarters. Image courtesy of Freddie Mac

The COVID-19 pandemic has weighed on multifamily investment conditions in the U.S. during the second quarter as net operating income (NOI) shrank in almost all major markets, according to a new index reading by Freddie Mac.

The agency’s Multifamily Apartment Investment Index (AIMI) fell by 0.3 percent during the quarter, a slight decline that suggests attractive investment opportunities were increasingly scarce. Updated every quarter, the AIMI combines rental income growth, property price growth and mortgage rates to gauge investment conditions in the multifamily market.


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The negative reading for the second quarter was driven by a 1.2 percent contraction in overall NOI, marking the first negative second quarter for NOI since 2009, as well as mixed property price growth across the country. Broken down by metro area, 20 metros experienced falling AIMI while only five metros (Chicago, Denver, Minneapolis, San Diego and Seattle) saw an increase.

NOI growth was negative in all 25 markets tracked by the index except for Philadelphia, where multifamily development has remained active. Property prices declined in the U.S. overall, along with 14 individual markets, including Chicago, New York, San Francisco and Seattle. Nine metros registered price growth and two had flat prices over the quarter.

Borrowing costs remain low

The second quarter was the first time in the history of the index that both AIMI and NOI were negative together. On the other hand, mortgage rates—the third component of the index—remained unchanged from the first quarter but were 67 basis points lower than the same period of last year, a massive annual decline that helped offset the market’s unfavorable trends.

Even after an exceptionally difficult quarter, AIMI increased by 6.1 percent on an annual basis, bolstered mainly by low borrowing costs and a 0.4 percent uptick in NOI, which offset property price growth of 2.8 percent. These changes imply that investors are paying less per dollar of property income now than they were a year ago.

A recent study by Middleburg Communities found that average asking rent across all apartment classes in the U.S. fell by just $1 quarter-on-quarter in Q2. Absorption was positive, with 60,000 more apartment renters during the second quarter.