Multifamily property price slide accelerates

multifamily property prices decline

CoStar reported that its value-weighted index of multifamily property prices fell 1.4 percent month-over-month in January 2024, the fifth decline in a row and the 16th decline in the last 18 months. This index was down 9.2 percent year-over-year.

The value-weighted index of non-multifamily commercial property rose 0.9 percent, month-over-month, in January. This index fell 9.9 percent year-over-year. 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 description at the bottom of this report.

YoY multifamily property prices fall

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

The chart shows that multifamily property prices are falling in both relative to the pre-pandemic trend and also in absolute terms. Multifamily property prices dropped from a revised level of 4.7 percent below trend last month to 6.4 percent below trend this month. This month’s rise in other commercial property prices caused them to reach 8.9 percent below pre-pandemic trend from a revised level of 9.4 percent below trend last month.

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 since January 2012.

Year-over-year multifamily property price changes

The chart shows that both multifamily and non-multifamily property prices have fallen by the same percentage over the last year. However, year-over-year price declines are becoming smaller for multifamily property but are becoming larger for non-multifamily property.

Since January 2012, the average annual increase in multifamily property prices has been 7.7 percent while that of other commercial property prices has been 5.8 percent.

Transaction volumes much lower

An issue with monthly transaction volume reporting is that CoStar usually identifies additional transactions to tabulate over the next few months after the initial report, and these extra transactions tend to make initial reports of declining transaction volumes worse.

CoStar reported that the initial transaction count for January was down sharply from that of the prior month at 923 transactions. However, the report noted that transaction volumes often drop sharply from December to January.

Last month’s transaction count was revised higher by 19.4 percent as 229 additional transactions were identified for December. This is an unusually high number of additional transactions found for the prior month. On an initial report to initial report basis, transactions were down 21.6 percent for the month. However, comparing the transaction count for January to the updated transaction count for December indicates that transactions were down 34.4 percent.

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 August 2023. The preliminary volume for August 2023 reported in September was 1,100 transactions. This count was revised to 1,246 transactions in the October report and to 1,272 transactions in the November report. The current (February) report puts the August transaction count at 1,299. The 18 percent additional transactions identified between September and February can change the assessment of how August’s transaction volume stacks up against that of any month to which it is being compared.

property sales transactions and revisions

The preliminary dollar volume of transactions was reported to fall 49.4 percent from the revised level of the month before at $5.1 billion. It was down 41.6 percent from the preliminary level reported last month.

The full report discusses all of the commercial property types CoStar covers. 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 1,178 repeat sale pairs in January 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.