Multifamily property prices move lower in August

commercial property sales

CoStar reported that its value-weighted index of multifamily property prices fell 19.6 percent year-over-year in August. This index was down 1.4 percent month-over-month, reversing last month’s gain.

The value-weighted index of non-multifamily commercial property also fell by 1.4 percent, month-over-month, in August. However, this index was up year-over-year, rising 0.8 percent. 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.

Multifamily property prices down YoY

The first chart, below, shows the history of the value-weighted CCRSI’s since January 2016 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, commercial property price history

The rise in multifamily property prices reported last month proved to be short-lived. Not only did the month-over month price change turn negative in this month’s data, but last month’s reported gain was revised down from 1.4 percent to 0.4 percent. CoStar noted that recent interest rates increases may have put downward pressure on property prices.

The chart shows that the multifamily property prices have now dropped below the level that their long-term trend line would predict. This result matches that recently reported by MSCI. The CoStar data indicates that multifamily property prices are now are 2.0 percent lower than the long-term trend would predict. Prices for non-multifamily commercial property are now 0.1 percent below trend.

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 2016. It also shows the average rates of annual price growth for the two property classes over the period shown.

year-over-year multifamily property price history

As of August, multifamily property prices have fallen year-over-year for 9 months in a row. The August decline of 19.6 percent is the largest year-over-year price decline since the aftermath of the housing bust in 2009.

Non-multifamily commercial property prices have risen year-over-year for the last three months. However, the size of the year-over-increase in August is the lowest of the three months.

The average annual increase in multifamily property prices over the period shown in the chart has been 8.4 percent while that of other commercial property prices has been 6.2 percent.

Transaction volumes rebound

An issue with monthly property sales transaction volume reporting is that CoStar usually identifies additional transactions to tabulate over the next few months after the initial report. Usually the greatest number of additional property sales transaction is found for the next month’s report. These extra transactions tend to make the month’s transaction appear relatively better when comparing to the transaction levels of the months before.

The effect of these revisions is shown in the next chart, below. The cluster of bars at the left side of the chart represent the 6 reports that have been made so far as to the volume of transactions for March 2023. The preliminary volume for March 2023 reported in April was 1,164 transactions. This count was revised to 1,301 transactions in the May report and to 1,314 transactions in the June report. The current (September) report puts the March transaction count at 1,324. The 18 percent additional transactions identified between April and September can change the assessment of how March’s transaction volume stacks up against that of any month to which it is being compared. Making comparisons based on early reports will tend to accentuate any volume decline and to attenuate any volume increase.

transaction counts

The initial transaction count of 929 transactions reported for July last month was revised upward to 1,075 in this month’s report, a 16 percent increase.

CoStar found that transaction volumes rose during August. This was true both based on the count of the number of transactions, which rose to 1,100, and also based on the dollar volume of transactions, which rose to $7.9 billion. Only 1.9 percent of the transactions were considered to be distressed.

The preliminary number of property sales transactions reported for August was up 18 percent from the preliminary level reported for the month before. However, it was up only 2.3 percent month-over-month from the revised level of the month before contained in this month’s report.

The preliminary dollar volume of transactions was reported to rise 8 percent from the revised level of the month before. It was up 17 percent from the preliminary level reported last month.

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 September 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 1100 repeat sale pairs in August 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.