Sales of multifamily properties in the U.S. came to a halt in the third quarter, driven by rising interest rates and economic uncertainty, according to the National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions. Many multifamily investors are choosing to sit on the sidelines amid the high cost of debt and fluctuating cap rates, which have been a driving factor in investors’ decision-making. “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,” NMHC Chief Economist Mark Obrinsky said in a press release. Multifamily transactions fell 17 percent in the third quarter, according to data from MSCI, though deals are still up 25 percent so far in 2022 compared to last year.
A majority of respondents to the NMHC survey also reported higher vacancy and lower rent growth compared to the past three months. The survey, which is based on four indexes produced quarterly by NMHC, market tightness, sales volume, equity financing, and debt financing, was taken in mid-October of this year. Among the results, 89 percent of respondents reported lower sales volume in the multifamily sector, with only 1 percent reporting sales volume was higher than it had been three months prior, and seven percent reporting no change in volume. Sixty-six percent of respondents said markets were looser than the three months prior, while 77 percent said equity financing was less available than it was over the previous three months.
The sales pause comes at a time when apartment rent growth has been steadily declining. While rent prices are still much higher than they were 12 months ago in most cities around the country, on a month-to-month basis, the national median rent for one- and two-bedroom apartments has been falling in the 100 biggest U.S. cities, according to data from Zumper. The cities with the biggest percentage decreases in October were Lincoln, Nebraska, where prices fell 6.3 percent, followed closely by Baton Rouge, Louisiana; Buffalo, New York; San Jose, California; and Durham, North Carolina. With inflation still at a record high, another rate hike by the Fed this week and potentially more to come, taking a wait-and-see approach amid fluctuating market conditions is probably a smart move for a lot of multifamily investors.