Freddie Mac’s Investment Index Turned in a 3.4% Increase Last Year
Falling mortgage rates offset decreased net operating income and helped to keep Freddie Mac’s Multifamily Apartment Investment Market Index in the black.
Freddie Mac’s Multifamily Apartment Investment Market Index increased 3.4% in 2020. 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.
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.
Throughout the year, AIMI increased in 18 markets as well as nationally, but fell in seven markets. Net operating income fell in 15 markets with New York and San Francisco seeing double digit decreases in NOI losses. The remaining 10 markets in the index had positive NOI growth. Jacksonville and Phoenix led in NOI gains exceeded 5% growth. Pricing increased in 16 markets, led by Phoenix where prices increased 11.2%.
AIMI increased in the second half of the year, growing 1.9% in the third quarter and .5% in the fourth quarter. Mortgage rates decreased by 20 basis points in the fourth quarter, but net operating income fell in 16 markets. Unsurprisingly, in New York and San Francisco, net operating income fell the most significantly, down -6.2% and -9.4%, respectively. In addition, prices grew in 14 markets, but fell in nine markets. These trends contributed to the minor positive increase in the AIMI at the end of the year.
New York is among the markets to experience a decrease in AIMI, down 4.5% for the year. Investment activity in the market fell more than 50%, according to research from Cushman & Wakefield, totaling $22.1 billion. This is the lowest investment volumes since 2010. Institutional investment was down significantly, driving large sales greater than $75 million down 59%. It wasn’t all bad news, however. Sales activity rebounded at the end of the year. In the fourth quarter investment sales totaled $5.5 billion, up 24% from the third quarter and an impressive 48% from the second quarter.
Overall, multifamily investment moved outside of major metros in 2020. According to research from Newmark, 75.8% of multifamily investment occurred outside of major metros last year. This is the highest investment allocation outside of big cities on record.