SOURCE: Freddie Mac

Freddie Mac

August 08, 2013 13:00 ET

Freddie Mac Releases Mid-Year Multifamily Outlook and Investment Index

Markets Strong, but Some Are Slowing

MCLEAN, VA--(Marketwired - Aug 8, 2013) - The Freddie Mac (OTCQB: FMCC) Multifamily Research Group today 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.

Outlook Highlights:

  • 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.

Quote from Vice President of Multifamily Investments and Advisory, Victor Pa:

"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." 

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four homebuyers and is one of the largest sources of financing for multifamily housing. www.FreddieMac.com. Twitter: @FreddieMac