Investment opportunities in multifamily housing slipped in Q1 2022, with the Freddie Mac Multifamily Apartment Investment Market Index (AIMI) falling by 4.8% from Q4 2021 and 2.4% year-over-year.
AIMI analyzes multifamily rental income growth, property price growth, and mortgage rates to measure multifamily market investment conditions. A decline such as this indicates that attractive investment opportunities are becoming more difficult to find.
For the second quarter in a row, increases in net operating income (NOI) were overwhelmed by property price growth and rising interest rates.
AIMI fell nationally and in 18 of the 25 individual markets analyzed by Freddie Mac. Only seven markets experienced growth.
Quarter-over-quarter NOI grew 2.5% and was up in every metro. Miami saw the fastest increase (+5.6%), while Portland saw the slowest (+0.9%). NOI growth exceeded 10% YOY in all metros but Minneapolis. Orlando’s annual growth broke records at 33.1%, the single largest annual NOI growth of any metro in the entire history of AIMI.
But property price growth was equally staggering, up have grown by 21.1% in the last year. Meanwhile, mortgage rates are up by 41 basis points.
“The offsetting impact of price growth and mortgage rates on increasing net operating income indicate investors are paying more per dollar of income than a year ago,” said Steve Guggenmos, vice president of Research & Modeling at Freddie Mac Multifamily.
“Despite seeing dramatic net operating income growth, we are seeing a decline in the Index nationally and across all markets suggesting it may be increasingly difficult to find attractive multifamily investment opportunities.”
The multifamily market is expected to remain hot as more Americans rent. Some are choosing to rent forever, while others hope to buy a home but are forced to rent until prices moderate. This is changing renter demographics.
“The 35 to 50 age group is a market that’s changing over time, and they will be working their way through as the dominant factor in our housing market,” Richard Gollis, founding principal of The Concord Group, said during a session at the International Builders’ Show.
“The conversation around programming and amenities for multifamily needs to reflect prospects in their thirties, forties, and fifties.”