Rent and Operating Trends – Week of March 19th 2023

After a turbulent week in the economy last week, all eyes will shift to the Federal Open Market Committee meeting, scheduled to take place Tuesday and Wednesday. The Fed has already begun slowing the pace at which they are raising interest rates, and economists believe that the failures of Silicon Valley Bank and Signature Bank can be traced back, in part, to the rapid rise in rates. Inflation continued its slow decline in February, with the annual CPI registering a 6% increase. The Fed may choose to pause its rate hikes in an effort to calm the market and mounting fears of a hard landing and an oncoming recession. However, many Fed governors still support raising rates. The results of this week’s meeting will be indicative of what we can expect in the multifamily transaction market through the spring and summer. If the Fed does not raise rates this week, I anticipate multifamily investors, many of whom have been waiting on the sidelines for a stronger buying opportunity, to re-enter the market. On the contrary, if the Fed raises rates, even by 25 basis points, I expect that to signal an even slower period for transaction activity than we’ve seen in recent months.

Multifamily leading indicators strengthened last week, while the lagging indicators were either unchanged or slightly negative. Traffic and leasing both increased nationwide, while NER was flat, and occupancy declined modestly. The continued steadiness and strength of operations in multifamily is partly contributing to the slowdown in transactions. Sellers are looking at the continued performance of their assets and holding firm on their lofty valuations. Buyers who are grappling with significantly higher interest rates than at any point in the past 15 years are not willing to accept such slim returns considering the increased interest expense. As a result, the bid-ask spread between buyers and sellers has widened.