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Our thoughts on the multifamily market and economy at large (with the help of a few M&M charts of course):
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While the Fed has been tightening monetary policy 75 bp at their prior four FOMC meetings, it finally seems as though that pace may be slowing. At their last meeting, they hiked the Fed Funds Rate (FFR) by 50 bps and the market is expecting moderation to a 25 bps hike in February. This is on the heels of recent data releases which seem to indicate that inflation is beginning to slow from the peak earlier this year. However, it’s not how much the Fed raises rates at their next meeting that matters to us as multifamily investors. The more important questions are (a.) is the ~5% terminal rate that they’re trying to achieve enough to bring long run inflation back to 2% and (b.) how long will rates have stay elevated to do so. In order to know these answers, we’ll be following labor, consumption, and financial market data in the coming months.
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Thankfully, the Fed’s quantitative and FFR tightening is beginning to have an impact on input costs (their desired effect). Lumber, steel, and freight costs are all down measurably since they peaked in late ’21. Lower inflation in these areas will mean lower materials costs for builders. While labor is still a drag on many sectors, seeing these costs recede is welcomed news to us as multifamily operators.
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In each year from 2022-2029, more than $100B in debt matures, except for the year 2027 when $98B comes due. For context, in 2021 about $75B came due. This is the highest figure recorded in history, so every year through 2029 is scheduled to surpass the all-time high mark. This could offer opportunity as operators whose debt is maturing may not achieve the proforma valuation they were hoping for. This could make refinancing difficult in those instances and potentially even force sales. We’ll be watching this closely, although we don’t expect to see systemic market distress as there’s still ample liquidity available in the multifamily market.
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