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AIMISM 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:
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.
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.
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.
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.
Opinions, estimates, forecasts, and other views contained in this document are those of Freddie Mac's economists and other researchers, do not necessarily represent the views of Freddie Mac or its management, and should not be construed as indicating Freddie Mac's business prospects or expected results. Although the authors attempt to provide reliable, useful information, they do not guarantee that the information or other content in this document is accurate, current or suitable for any particular purpose. All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. ©2021 by Freddie Mac.