
The multifamily industry continues to feel the effects of the Federal Reserve’s efforts to combat inflation and the ensuing rising interest rates, according to the National Multifamily Housing Council’s quarterly survey of apartment market conditions for October.
Apartment market conditions softened, with the four indices coming in well below the break-even level of 50. The Sales Volume Index registered at 6, marking the fourth consecutive quarter experiencing a decline.
“The Fed’s continued interest rate hikes have resulted in higher costs of both debt and equity and a higher degree of economic uncertainty,” said chief economist Mark Obrinsky. “This has caused the market for apartment transactions to come to a virtual standstill, as buyers seek a higher rate of return that sellers are unwilling to accommodate via lower prices.”
However, the NMHC noted that the overall market has started to return to pre-pandemic trends as the skyrocketing rent growth is starting to decelerate.
“The physical apartment market is also starting to normalize after six consecutive quarters of tightening conditions, with a majority of survey respondents reporting higher vacancy and lower rent growth compared to the three months prior,” Obrinsky added.
Findings from the survey, which was conducted between Oct. 17 and 24 with 268 CEOs and other senior executives of apartment-related firms nationwide, include:
- The Market Tightness Index came in at 20, indicating market conditions have loosened. The majority of respondents, 66%, reported that market conditions were looser than three months ago, while only 5% cited tighter conditions. The remainder said they thought conditions were unchanged, a considerable decline from 56% of respondents in July.
- The Sales Volume Index’s low of 6 is the first time it has reached single digits since April 2020 and only the third time since the quarterly survey was first conducted in 1999. The majority of respondents, 89%, reported lower sales volume, while only 1% said volume was higher than three months ago; 7% reported no change.
- The Equity Financing Index at 12 indicated that equity financing was less available for the third consecutive quarter. Over three-quarters of respondents, 77%, reported that equity financing was less available, while only 1% said it was more available; 12% said availability was unchanged.
- The Debt Financing index came in at just 5, with 90% of respondents indicating that now is a worse time to borrow than it was three months ago. No respondents felt conditions have improved, while 3% reported unchanged conditions.