January Pulse Check
Friend,
Sometimes, bad news is actually good news.
Since March of 2022, when the Fed raised rates for the first of what would be eight times, we have all been quietly hoping for “other” bad news — slower growth, fewer job listings, rising unemployment — any sign that interest rates had peaked and would move down. It’s not that those of us in the multifamily industry wanted to see folks lose their jobs, but we were anxious to get back to work. Bad news in the economy was, we hoped, good news on rates.
Multifamily construction, financed before the 2022 run-up in rates, has been robust, but we have been hearing for some time that developer and builder pipelines are pretty thin. Record deliveries have put downward pressure on rents in many markets. Higher rates and retrenching by banks are still making it harder to access capital, contributing to a 14.2% drop in multifamily starts in 2023 compared to the year before.
However, bad news may be good news for the multifamily industry.
As those units under construction are completed and absorbed, there will be opportunities to start new projects. Expected lower rates in 2024 will certainly help, and we are already hearing about lower subcontractor pricing in several markets around the country. All this will help drive the next upturn in development and construction. And while traditional lenders are still on the sidelines, FHA and the agencies are still available to finance multifamily projects.
For a very long time, interest rates near zero kept us all busy, and many forgot that multifamily is a cyclical industry. Now, with lower rates and a healthy economy, the bad news of fewer starts may well point to good news for multifamily.
