To read this full article you need to be subscribed to Institutional Real Estate Americas
Interest rate interactions: How a rising mortgage rate environment affects multifamily demand
Inflation has turned out to be far stickier than many initially thought and soared to a 40-year high in June 2022. To combat inflation, the Federal Reserve has raised interest rates, including a 75 basis point rate hike in June — the highest increase since 1994 — with additional 75 basis point bumps in July and September. . As a result, mortgage rates have jumped from 3.2 percent to 5.7 percent in first half 2022 (and reached 6.9 percent as of Oct. 13).
The combination of rising rates, declining purchasing power and low inventory of for-sale housing is pricing many would-be homebuyers out of the housing market. As a result, families will remain renters for longer, which will drive multifamily performance for the foreseeable future. Multifamily is often viewed as an inflationary hedge due to staggered lease expirations that allow apartment owners/operators to increase rents to offset rising operational costs.
The U.S. econ