The Fed will meet on Tuesday and Wednesday this week, and economists anticipate another interest rate hike of 25 basis points, bringing the Fed Funds target rate to between 5.0% and 5.25%. There is widespread speculation that this will be the last interest rate increase, as inflation metrics are trending downward, even if they remain above the Fed’s target. There are still hopes for a soft landing across the broader economy, however the interest rate increases will have a meaningful impact on multifamily. Upcoming loan maturities will put owners of multifamily in a difficult situation as refinance rates are almost guaranteed to be higher than their original interest rates, and buyers will be pricing in higher borrowing costs on their underwriting. Multifamily valuations are likely to fall through the end of the year and into next year.
On the operating side of the business, multifamily remains well balanced and is growing steadily. Occupancy and new leases signed were unchanged last week from the week prior, while traffic and net effective rent increased modestly. As traffic continues to rise while new leases signed have stayed flat, the nationwide conversion ratio is falling. Demand remains for apartments; however, residents seem to be more selective this year and are shopping around for apartments as concessions and leasing incentives have increased.
Key Takeaways – Data as of 04/30/2023
Traffic and Leases:
Occupancy and ATR:
Net Effective Rent:
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