Chart Of The Week – May 14th 2023

Interest rates have increased across the yield curve since early 2022, however the short end of the curve has moved much faster and risen more than the 10-year treasury. As a result, the overnight rate vs. 10-year treasury curve inverted in November, 2022 and the spread has widened to 180 basis points this month. Often an inverted yield curve is an indication of a future recession, but the impact for multifamily will be significant as well. With the Fed Funds rate, which can be viewed as a proxy for the Secured Overnight Financing Rate, materially higher than the 10-year treasury, floating rate loans will be more expensive than fixed rate permanent loans. This will likely lead to fewer value add acquisitions in the multifamily market, as more investors will seek core deals that pencil over a longer hold period.