As we approach the end of 2022, the last few major economic indicators will be released this week. The Consumer Price Index decelerated once again in November falling to 7.1% on an annualized basis from 7.7% in October. Yes, 7.1% is still historically high inflation, and the Fed will continue to raise rates to combat rising prices, however the continued deceleration is a welcome sight across the economy. As has been widely predicted, the Fed will likely increase rates only 50 basis points at their upcoming meeting on Friday. Inflation peaked in June and has now retreated for 5 consecutive months. As a result of the softer inflation read, the 10-year treasury rate fell below 3.5%. With inflation coming down, I expect the 10-year to continue to fall, which should drive fixed rate mortgages down along with it. The yield curve inversion will get more severe, which not only serves as a potential harbinger of recession, but it also bifurcates the multifamily borrowing market. Construction loans, bridge loans, and floating rate debt are typically tied to the short end of the yield curve and vehicles including LIBOR and SOFR. As the Fed raises rates, these rates will continue to rise. However, fixed rate debt, which is often tied to the 10-year treasury will get more affordable for multifamily investors. This may lead to a divergence in the transaction market, with deals financed by fixed rate debt getting done at a faster pace than those tied to floating rate debt.
Multifamily performance continues to slow through the fourth quarter with all major metrics either dropping or remaining flat. The slowdown across the industry has been less severe than the volatility seen in the prior two years and supports the notion that we have returned to a normal seasonal trend.
Key Takeaways – Data as of 12/11/2022
Traffic and Leases:
Occupancy and Leased:
Net Effective Rent:
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