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Apartment Buildings on Solid Ground

September 2013 U.S. Economic and Housing Market Outlook

MCLEAN, VA--(Marketwired - Sep 18, 2013) - Freddie Mac (OTCQB: FMCC) released today its U.S. Economic and Housing Market Outlook for September showing that residential property values remain consistent with fundamental economic forces in the housing market with the rate of appreciation in the multifamily space moderating over the past year. A short preview video and the complete September 2013 U.S. Economic and Housing Market Outlook are available here.

Outlook Highlights

  • Housing property values were up a cumulative 41 percent between the second quarters of 2000 and 2013, as measured by the National Council of Real Estate Investment Fiduciaries multifamily index and the Freddie Mac House Price Index.
  • However, over the past 13 years, housing values are up only a little bit more than (non-housing) inflation in the U.S.
  • Apartment building values are affected by net operating income and cap rates. Cap rates have fallen about 35 percent over the past decade, and this is a major reason that property values have increased.
  • The spread between cap rates and Treasury yields averaged 3.0 percent over the 1996-2005 period and 4.0 percent during the first half of 2013; this spread is near all-time highs and reflects relatively cautious valuations by investors.
  • Rental revenue has improved over the past three years as vacancy rates have come down and apartment markets have tightened. Over the past year, Reis and Axiometrics have reported effective rents are up about 3 percent in apartment buildings, compared with a 1 percent increase in the CPI less Shelter (second quarter-to-second quarter).

Quote
Attributed to Frank Nothaft, Freddie Mac vice president and chief economist.

"The decline in cap rates and growth in rents (adjusted for inflation) are key fundamentals that explain the rise in apartment values over the past decade. Seen through this lens, the rise in property values appears to be consistent with overall economic forces, and the slower appreciation over the past year reflects the bottoming of cap rates. Cap rates are expected to gradually move higher in the coming year as long-term yields move higher, and rents are likely to outpace overall inflation, leaving apartment values firm and on solid ground."

Freddie Mac compiles data on major economic, housing and mortgage market indicators and offers forecasts based on those indicators.

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 home borrowers and is one of the largest sources of financing for multifamily housing. For more information please visit www.FreddieMac.com. Twitter: @FreddieMac








 

The financial and other information contained in the documents that may be accessed on this page speaks only as of the date of those documents. The information could be out of date and no longer accurate. Freddie Mac does not undertake an obligation, and disclaims any duty, to update any of the information in those documents. Freddie Mac's future performance, including financial performance, is subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect the company's future results are discussed more fully in our reports filed with the SEC.


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