Multifamily Investment Indicator for Freddie Mac Posts Record Drop

Record mortgage rate growth had an impact on all 25 areas.

(AIMI) for Q2 dropped nationally on both a quarterly and an annual basis, driven mostly by record mortgage rate growth, which resulted in historic results.

The country and 11 markets saw the biggest annual fall in the index’s history. The AIMI index declined 17.9% from the second quarter of 2021 to the second quarter of 2018, or 11.7% overall.

The AIMI index considers employment, multifamily permits, net operating income, and property price to help investors assess the relative worth of investing in multifamily buildings in a few key metro areas.

The greatest annual increase in mortgage rates in AIMI’s history, which began in 2000, was 131 basis points. The 30-year fixed rate reached 6% last week.

Property values climbed significantly over the past year, rising by 21.8%, while net operational income (NOI) jumped by 17.7% and mortgage rates increased by 1.31 percentage points, the highest increase in AIMI history.

Every metro saw growth, and the national NOI increased by 3%. Phoenix had the weakest growth rate with a 4.5% increase, while Miami had the best performance with a 4.7% increase.

This won’t seem normal or enjoyable.

From the start of Q1 2022 until the middle of September 2022, US Treasury rates increased, high-yield loan funding has all but disappeared, and agency spreads have varied between 160bps and 200bps, according to David Fletcher, Managing Director, Head of Acquisitions at Excelsa Properties.

According to Fletcher, the remarkable rent rise experienced in the majority of the United States has kept cap rates from rising as much as they otherwise might have, according to Fletcher.

The option value of purchasing a 4% cap rate in an economy with a 3.4% 10-Year Treasury Rate (2.97% SOFR) will be drastically reduced if the unprecedented rent increase is removed, he claimed.

Fletcher continued, “The enormous rent growth won’t last for much longer.” “Multifamily investors will be compelled to return to a world where producing current yield and working hard to grow and improve properties are the only ways to make money.” While it is typical for anyone who has been in the industry for more than three years, the move away from ultra-low cap rates and loans with 80% LTV at 4% interest rates won’t feel “typical or enjoyable.”

The best deals are made when markets are disconnected. 

According to’s interview with Neil Schimmel, CEO of Investors Management Group (IMG), “Investors can take advantage of good value by disciplined buying in down or stalling markets.”

IMG is currently engaged in three purchases, a refinance, and three disposals, according to Schimmel, making it the busiest it has ever been. “Market disconnects are when the best transactions happen, therefore I anticipate there will be more alluring entry points in the future.”

In cities like Atlanta or Greenville, South Carolina, where tenant demand is driving up property values, Schimmel said he buys.

He claimed that “our Class B apartment assets are prudently positioned to perform through cycles.”

Prior to 2008, subprime markets grew at an alarming rate, but today’s stronger credit standards have restored stability to the housing market and longer-term fixed-rate mortgages.

Fewer People Can Get Home Loans.

The Freddie Mac Multifamily Apartment Investment Market Index Fewer purchasers are now able to qualify for mortgages as a result of the quick increase in interest rates and subsequent rapid rise in mortgage rates, according to Doug McKnight, President and Chief Investment Officer at RREAF Holdings.

According to McKnight, “this has encouraged more families to stay in, or resort to, rental properties, both single-family and multifamily.”

The consequent increase in NOI and the ongoing decline in vacancy rates have increased rental market values as market rents continue to rise.

According to McKnight, as leverage eventually falls into the negative zone, cap rates will rise, which would probably cause markets to respond by driving down the value of rental assets.

According to him, RREAF “continues to be net buyers of multifamily buildings with a careful focus primarily on locations where migration and economic growth continue to show signs of strength, allowing us to retain returns to investors.”

Shrinking current buyer base

P.B.’s chief financial officer, Jeff Thompson Bell, tells that because home ownership is becoming less feasible in the current market due to rising mortgage rates, the number of renters has remained high.

According to Thompson, as interest rates rise, the number of investors in multifamily acquisitions has decreased. “People are still buying and selling even if the available buyer pool is getting smaller and the number of bids in the market is declining. Among other real estate investment options, multifamily is still a desirable option.

Ground-up development hasn’t been greatly hampered on the development side. Strong population and job growth in the Phoenix metro area continue to be favorable for the multifamily market.

Freddie Thinks Investment Choices Are “Moderating”

In prepared remarks, Steve Guggenmos, vice president of research and modeling at Freddie Mac Multifamily, stated, “NOI growth is strong even though higher rates and property prices have caused the index to decline.”

The decline in AIMI this quarter is a result of weakening investment conditions brought on by shifting economic trends. Vacancy rates are still low and rents are high because of the overall housing crisis.

We are ready to assist investors with Santa Ana multifamily properties. For questions about Commercial Property Management, contact your Orange County commercial real estate advisors at SVN Vanguard.

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