Multifamily Reacts to Interest Rate Pause

The central bank left rates alone in November. What comes next?

Jerome Powell on November 1 FOMC meeting

Federal Reserve Chairman Jerome Powell speaks at the Nov. 1 FOMC press briefing. Screenshot of the Federal Reserve livestream by Jordana Rothberg

The Federal Reserve left interest rates unchanged this month, a decision that had been widely anticipated. The Federal Funds Rate has been unchanged since July at a range of 5.25 percent to 5.5 percent.

For the last two consecutive central bank meetings, markets have priced in a pause, correctly predicting that the Fed would hold off on further increases. Key economic metrics suggested as much. The job market is showing some signs of a slowdown despite remaining relatively strong and the rate of inflation has slowed, inching closer to 2 percent.

While the Federal Funds Rate remains the highest it has been in 22 years, Federal Reserve Chair Jerome Powell indicated that further monetary tightening remains a possibility before the end of the year.

“Recent indicators suggest that economic activity has been expanding at a strong pace, well above expectations,” the chair said during his press briefing on Wednesday. Powell, who noted that the rate of inflation remains above the Fed’s target, acknowledged the tight labor market, low unemployment rate and strong job creation.

Multifamily experts’ varying expectations

Prior to the announcement, Carey Heyman, real estate industry managing principal at CLA (CliftonLarsonAllen), told Multi-Housing News that he expected the Fed to hold steady this month.

“The markets are not forecasting a rate hike, so any change would be surprising and unexpected,” said Heyman. “The Fed’s recent comments about its desire to reduce market volatility due to rate increases have reinforced our view that the central bank does not want to surprise markets and will keep rates unchanged.”

Similarly, Jason Bordainick, co-founder & managing partner, Hudson Valley Property Group, told MHN that his expectation was for a pause in November. “It would be a (negative) surprise if they elected a further increase,” he said. “The bond markets are pricing in a pause.”

However, not everyone was sold on a pause. There have been some metrics that indicate further monetary tightening could come into play.

Based on the way the 10-year Treasury has been trading over the last two weeks, Robert Nelson, president of Nelson Management Group, anticipated that the central bank would increase rates. In the past week, 10-year Treasury yields hit 5 percent, a high note. Considering this indicator of economic strength, it was possible that the Fed would raise rates this month. However, for the time being, the status quo remains.

Feeling the impact

Multifamily experts have largely been of the opinion that high interest rates have already had a significant impact on the sector, though a lone decision to raise rates this month wouldn’t have made much of an effect in and of itself.

Whether the Fed raised rates or paused today, the impacts on multifamily are largely already priced in, said Nelson. “I think panic has already set in. The market for multifamily trading is dead.”


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The value of multifamily properties has dropped significantly as rates have climbed upward. “Because the markets are moving the way that they are, and it hasn’t paused for a while, everyone is uncomfortable and not knowing what to do and not wanting to make a mistake,” said Nelson. Meanwhile, the higher rates have led to a lack of available funding and increased cost of capital which, in turn, have had a negative impact on short-term valuations.

“The cost of financing continues to rise which has made new development nearly impossible and has slowed transactional volume,” Bordainick noted.

Moving forward

Many multifamily players are desperately hoping that rates will begin to come down, but that may be wishful thinking. Few expect rates to be lowered any time soon.

“The Atlanta Fed is forecasting a decline in rates beginning in 2024 and beyond,” Heyman noted. “CLA expects the news on the inflation front to be promising. History has shown that a more dovish Fed can drive capital into real estate and improve deal flow.”

Further, recent geopolitical factors have only exacerbated broader economic uncertainty. Investors want to know how these events will have an impact on the economy, both nationally and internationally, Bordainick said. “This gives further rationale for a wait and see approach,” he explained. “While we continue to have higher than expected inflation, the new risk factors could create some other economic headwinds.”

However, no matter the market conditions, there is always someone who can stand to benefit. “There is opportunity in sellers who need to sell,” Nelson noted. “If you are willing to take that risk as a buyer, you could be buying at a lower price today and be very happy 2 or 3 years from now.”

Despite the headwinds the space faces, multifamily is expected to fare relatively well. There is still more demand than there is supply in markets across the nation and, compared to other real estate asset classes, the sector is demonstrating resilience.

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