According to Mark Obrinsky, chief economist at the National Multifamily Housing Council, condo sales “substantially stagnated” in October. This was because buyers, faced with rising borrowing costs and slowing rent growth, offered lower prices than sellers.
In a survey of 268 multifamily owners, the trade association found that 89% reported a drop in sales in the past three months.
NMHC tracks transactions on a 100-point scale. A score below 50 means fewer transactions. Its sales tracker hit single digits this month, his third time since 1999 that trading activity has been this low.
The decline in volume comes as debt and equity funding has never been more expensive.
The Federal Reserve (Fed) is set to deliver its fourth consecutive mega rate hike of the year on Wednesday, pushing internals by another 75 basis points to make borrowing more expensive across the economy and keep inflation under control. push up.
Rate hikes have pushed interest rates on 10-year fixed-rate multifamily mortgages above 5%. ten years agoKelly Carhart, head of multifamily debt at CBRE, told Wealth Management.
Not surprisingly, 90% of survey respondents believe their borrowing situation has worsened, and 77% say equity financing is no longer available.
in the meantime, Rental growth slowing or stalling Vacancy rates soared in the last quarter, according to industry groups, and investors can no longer rely on tenant demand to boost earnings.
Sellers refused to reveal much about their pricing, resulting in fewer deals.
Two-thirds of respondents said the market softened in October compared to July, the first time since January 2021 that NMHC has found evidence of a slowdown.
These conditions are unlikely to improve in the short term.
The Fed could raise interest rates by another 1.75% by next year, further increasing borrowing costs.
In such an environment, the Home Loan Bankers Association expects multifamily lending to decline 7% to $455 billion in 2022. Last year was a record $487 billion.
Meanwhile, Zumper’s expected rents could drop further as apartments are expected to be completed. Highest price in 50 years this year. Increased supply reduces pricing power, further squeezing returns for multifamily investors.