The Feds Raises Interest Rates by .25% and Its Impact on Multifamily Investing

[Jason Malabute]

Yesterday, the Federal Reserve made the announcement that it would be increasing interest rates by 0.25%. The Federal Reserve's goal is to lower and stabilize inflation at 2%. This move was taken in an effort to control inflation and keep the economy stable. At the same time, Freddie Mac, a leading provider of mortgage financing, dropped its rates by 0.40%. The impact of these decisions on multifamily investing is something that many people in the real estate industry are concerned about.The Federal Reserve is expected to raise rates a couple more times this year.

Higher interest rates typically make it more expensive for borrowers to secure financing, which could lead to a slowdown in demand for multifamily properties. However, the decrease in rates by Freddie Mac could offset some of the impact caused by the Federal Reserve's interest rate hike in the short run. 

In conclusion, the impact of the Federal Reserve's decision to raise interest rates and Freddie Mac's decision to drop its rates on the multifamily market will depend on a variety of factors. While higher interest rates could potentially lead to a slowdown in demand for multifamily properties, the decrease in rates by Freddie Mac could offset some of this impact. It is important for investors to stay informed about the latest economic developments and adjust their investment strategies accordingly. Additionally, it is crucial for investors to consider multiple factors and not just interest rates when making investment decisions.

[Reed Rickenbach]

A lot to comment on here. 

Properties already purchased: I think the repercussions of the rate increases will differ property-by-property. Some operators may have floating debt, some don't have adjustments until 2026 and beyond. Those with floating debt & lofty market rent growth proformas will likely be in a negative cashflow situation as early as this year. I haven't found any concrete data on what % of properties have lofty rent projections + floating debt.. Could be 2% of existing multifamily or 25%. Not sure where the breaking point is. BUT it is likely that any "bad operator" inventory that hits the market due to default will be bought up by good operators at a discount.

New acquisitions: Short and sweet. I HOPE operators are underwriting at current debt cost levels, moderate to flat rent growth in the next 1-3 years, and exiting at a higher cap rate than purchasing. Of course this would support a lower purchase price than when rates were at 3% and new leases were trading out at 25%+. 

Rents: I have seen OFFERED rents in the sunbelt down 15%+ from last year. This is different than the rent roll or existing rents down 15%. The FED is aiming at getting the cost of housing down and it is working. Where the bottom is for rent declines, I have no idea.