Multifamily property prices up despite sales slowdown

apartment building price growth

CoStar reported that its value-weighted index of multifamily property prices increased 22.9 percent, year-over-year, in June 2022. This index was up 1.4 percent month-over-month. The year-over-year increase is down from that seen in May, but only because the May increase was revised upward from 21.6 percent reported last month to 25.1 percent in the latest report.

The combined value-weighted index of non-multifamily commercial property rose by 9.6 percent, year-over-year, in June. This index rose 1.4 percent month-over-month. The other commercial property types tracked by CoStar are office, retail, industrial and hospitality.

For more information on the CoStar Commercial Repeat Sales Indexes (CCRSI’s), please see the section at the bottom of this report.

Comparing property types

The first chart, below, shows the history of the value-weighted CCRSI’s since January 2012 for multifamily property and for all other commercial property considered as a single asset class. It also shows trend lines for the growth in the two CCRSI’s based on their growth in the period from January 2012 to January 2020. The indexes are normalized so that their values in December 2000 are set to 100.

multifamily property price history since 2012

The chart shows that both indexes had remarkably steady growth from 2012 until the onset of the pandemic. It also shows that the growth in multifamily property prices began to significantly exceed its trend line late in the pandemic year of 2020. However, price growth for other commercial property did not significantly exceed its trend line until the middle of 2021.

The second chart shows the year-over-year change in the value-weighted multifamily property price index and that for all other commercial property types since January 2012. It also shows the average rates of annual price growth for the two property classes over that time.

year-over-year multifamily property price changes

The chart shows that the year-over-year rate of increase in multifamily property prices has been above 19 percent since July 2021 and was above 23 percent for the December 2021 to May 2022 period. The year-over-year rate of increase for other commercial property prices fell briefly but the latest data has it rebounding to near 10 percent.

The annual increase in multifamily property prices has been 9.8 percent while that of other commercial property prices has been 6.8 percent. For comparison, Real Capital Analytics reports that the average annual increase in multifamily property prices has been 11.1 percent while that of other commercial property has been 8.4 percent.

Tracking the regions

CoStar’s quarterly reports include information on the change in the equal-weighted CCRSI by region. The long-term history of these indexes is shown in the next chart, below. The chart shows the multifamily property prices have grown at differing rates for different regions of the country over the last 20+ years. While the Northeast has had the highest price appreciation for most of the time-period shown, it has recently been overtaken by multifamily property price appreciation in the West region.

regional multifamily property price history

The final chart shows the history of the year-over-year multifamily property price changes since 2018. The chart shows that the year-over-year rates of increase in the price indexes for most regions peaked in Q3 2021 and that the rate of year-over-year multifamily property price increases have recently fallen in all regions.

regional multifamily property price changes year-over-year

Based on CoStar’s equal-weighted quarterly indexes compared to year-earlier levels, prices in Q2 2022 were up by 17.3 percent in the South, 13.9 percent in the West and 10.3 percent in the Midwest. Multifamily property prices fell 0.8 percent year-over-year in the Northeast.

Transaction volumes down again

CoStar reported that number of repeat-sale transactions were down about 32 percent in June, falling 356 from May’s revised level to 1,321 sales transactions. Transaction dollar volume was also down from May’s revised level, falling 14.7 percent to $14.5 billion.

The full report discusses all commercial property types. While the CoStar report provides information on transaction volumes, it does not break out multifamily transactions. The latest CoStar report can be found here.

CCRSI defined

The CoStar report focuses on a relative measure of property prices called the CoStar Commercial Repeat Sales Index (CCRSI). The index is computed based on the resale of properties whose earlier sales prices and sales dates are known. The index represents the relative change in the price of property over time rather than its absolute price. CoStar identified 1,321 repeat sale pairs in June for all property types. These sales pairs were used to calculate the results quoted here.

CoStar computes CCRSI’s for a variety of property groupings, combining them by cost, region, property type or other factors. The value-weighted index is more heavily influenced by transactions of expensive properties than is CoStar’s equal-weighted index. The value-weighted index is the focus of this report because it is an index whose value is reported monthly and for which CoStar breaks out multifamily property as a separate category.