This is a narration of our weekly Rent and Operating Trends Report.
The Fed raised interest rates once again last week, bringing the benchmark short-term rate to a range of 5.25-5.50%. The change has had a very mild impact on capital markets, as major equity indices, commodity markets and long-term interest rates increased modestly. Yet each incremental increase will have a significant impact on multifamily valuations in the coming months. As loans that originated in late 2020 and early 2021 come due in the next few months, we are likely to see a significant increase in cap rates and a drop in valuations as the cost of borrowing has skyrocketed. The hit to valuations will only be exacerbated in several markets, as operating fundamentals have declined, leaving properties with lower net operating income than previously forecast. I do not expect the Fed to lower rates in the near future, which means many property owners will need to re-evaluate return expectations as a wave of loan maturities and transactions takes over the market in the next 18 months.
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