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Freddie Mac Apartment Investment Market Index®


Considering investing in a Multifamily property?

The Freddie Mac Multifamily Apartment Investment Market Index® (AIMI®) can help you determine how the relative value of investing in multifamily properties in select major metros, and nationally, has changed over time.


About Freddie Mac Multifamily Apartment Investment Market Index® (AIMI®)

AIMI® estimates how the multifamily investment environment changes over time nationally and in select metros. Updated quarterly, the Index combines three market factors to present a value that can be compared to prior time periods. Together with our analysis, AIMI offers investors a unique insight into understanding the investment conditions for multifamily properties.

The three variables used to determine AIMI are:

  1. Multifamily mortgage rates
  2. Growth rates in multifamily property prices
  3. Growth rates in multifamily rental income

Understanding AIMI

AIMI portrays how the relative value of investing in multifamily properties has changed over time. The relative value of investing is estimated by comparing the growth in net operating income (NOI) to the growth in mortgage debt service for investors. Mortgage rates and growth rates in property prices are used to determine changes in the debt service, while rental income growth (which includes changes in rent growth and vacancy rates) is used to determine changes in NOI.

Each variable affects the Index differently. If mortgage rates or property prices increase, with all else equal, AIMI’s value will decrease due to the increasing cost of investing, as captured by higher debt service payments investors pay for the property. Conversely, if NOI increases, with all else equal, AIMI’s value will increase due to the higher rental income investors are receiving on the property. In other words, higher mortgage rates or property prices increase the cost to the borrower, decreasing AIMI; whereas higher NOI increases the income received by the borrower, increasing AIMI. The combination of these conditions provides a simple measure of the changes in the relative value of investments in multifamily properties over time.

When comparing AIMI values over two quarters for a specific metro, an increase means the cost of investing is lower implying a more favorable investment opportunity compared to the prior quarter, while a decrease means the cost of investing is higher implying a less favorable investment opportunity. For example, if AIMI’s value for the Atlanta metro region is 105 in the current quarter, and we compare that to Atlanta’s value of 114 during the first quarter of 2011, then we know that the relative value of an investment is lower in the current quarter than in the first quarter of 2011. In 2011, investors were able to find opportunities for investments at good price points and with strong property cash flows. Similarly, if we compare the current quarter to the first quarter of 2008 when the value was 98, then we know that the relative value of an investment is higher in the current quarter than in the first quarter of 2008. In 2008, pricing was quite high and property cash flows were not as strong.

AIMI views the multifamily investment market like investors would gauge the equity market: Strong cash flows that are undervalued are most favorable. The Index does not capture all factors and does not forecast future conditions. Certain factors are not captured in this measure, especially at the property level, so individual investment performance may or may not move with the Index.

Reading AIMI

We update AIMI quarterly. Each update includes commentary for each of the select metros and the country as a whole, summarizing current and recent Index values and trends. We provide insight into the three variables that make up the Index, including how they influence the Index value. When necessary, the commentary provides macroeconomic factors that play a role in the market, such as employment growth and housing construction.

AIMI Summary Statistics

AIMI Summary Statistics

This bar provides the most recent quarter’s value, the quarterly and annual percentage changes, the percentage from the average, and a quarter with a comparable value.

In this example, AIMI’s value for the nation was 107, represented in the blue box titled “This Quarter.”

The next two blocks in the bar — the “Quarterly Change” and “Annual Change” percentages — represent the change in the Index value from the prior quarter and the change from the same quarter in the prior year, respectively. Here, the national Index fell 5.3 percent from the prior quarter. Likewise, the Index fell 5.3 percent from one year prior. These percentages tell us whether the cost of investing increased or decreased, providing you with a view of how the market is trending.

The “Percentage from Average” represents the difference between the current Index and the Index average calculated from the first quarter of 2000 to the current value. While this is a short-term horizon to calculate a metro’s average, it lets you see how the market compares to its historic norm. Please note: This average is not intended to imply a benchmark for favorability of investing in multifamily properties.

Another way to use the Index is by comparing the current quarter’s value to a point in time with a similar value. In our example, a comparable quarter to the national fourth quarter 2015 value of 107 is the fourth quarter of 2004, which was 106.3.


AIMI’s Components Chart

AIMI’s Components Chart

This chart shows the AIMI value and the three variables that make up the AIMI going back to 2000. The value of AIMI is represented by the green bars in the chart. Hovering over the Index shows the value for each quarter. The orange line represents the property price growth and the yellow line displays the net operating income (NOI) growth. These two variables are indexed to the first quarter of 2000 and are represented on the left-hand-side axis. The mortgage rate is represented on the right hand side.

Additional Market Color

Variable and Economic Growth

This chart provides details about the variables used in the Index, along with relevant macroeconomic data. The annual growth is computed for each metro from the current quarter to the same quarter in the prior year. The historical average growth for Employment, Net Operating Income, and Property Price is the average annual growth for each metro computed from 2000 to 2007, representing a relatively stable time period in the multifamily market. For Multifamily Permits, we show the year-over-year change in permits along with the ratio of the current permits to the average number of permits from 2000 to 2007. This ratio provides insight as to how much new development a market is currently producing by comparing it to a prior period in time that was relatively stable.

Disclaimer

Opinions, estimates, forecasts and other views contained in this page are those of the Freddie Mac Multifamily Research and Modeling Department, do not necessarily represent the views of Freddie Mac or its management, should not be construed as indicating Freddie Mac's business prospects or expected results, and are subject to change without notice. Although the Multifamily Research and Modeling Department attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose.

© 2016 by Freddie Mac. Information from this page may be used with proper attribution.


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