The Freddie Mac Multifamily Research Group released its mid-year multifamily outlook for 2013, which includes a new Freddie Mac Multifamily Investment Index that measures the attractiveness for investing in apartment properties. The new Index shows that apartments are still a good investment in most metropolitan markets it tracks.
- While market fundamentals such as rents and vacancies are improving, increased supply is a key risk for some metropolitan markets.
- Recovery of the job market and strengthening in the single-family market may shift some demand away from the multifamily market, but renter-occupied units will remain strong.
- While delivery of new supply is still on the rise, permits for new multifamily housing have slowed. Investors’ appetite for this sector might be cooling down. That said future construction levels may remain close to pre-recession levels.
- New York, San Francisco, Denver, Seattle and Los Angeles are among the top 10 growing markets. Jacksonville, Norfolk and Washington, D.C. are not fairing as well.
- Cap rates may increase as interest rates increase. A 1 percent higher growth in employment could lower cap rate spread by 20-30 basis points.
Freddie Mac Multifamily Investor Index:
- The Freddie Mac Multifamily Investor Index measures the relative attractiveness of investing in multifamily properties over time using multifamily mortgage rates, multifamily property values and effective gross income, all of which investors consider before investing in apartments.
- The Index, using data from 2000 through the second quarter of 2013, looks attractive when there are relatively strong cash flows for each dollar of equity invested because multifamily property returns are driven by property cash flows.
- The Index does not forecast future conditions, but does provide a snapshot over time of the national picture, as well as one for Atlanta, Chicago, Dallas, Los Angeles, New York, Washington, D.C. and Seattle.
- The current investment environment is above its historical average nationally, and for the majority of the metro areas it specifically tracks (with the exception of New York, which is below average).
- In the years leading up to the recession, the Index shows that investing in apartments was becoming less attractive and hit a floor in 2007, with property prices at their peak. The Index rebounded post-recession due to growth in property income and lower rates.
“As markets move it is important to have an objective measure of current conditions. Although the multifamily market has slowed, it remains an attractive investment across the majority of the metro areas for equity and debt investors,” said Vice President of Multifamily Investments and Advisory Victor Pa.