What’s new: The Federal Reserve raised the short-term interest rate by 75 basis points on July 27 in response to persistent inflation, marking the fourth round of tightening this year.
Why It Matters: Continued interest rate hikes from the Fed have translated into higher longer-term rates and a higher cost of capital for apartment investors. As a result, sales volume has started to fall.
In NMHC’s Quarterly Survey of Apartment Market Conditions for July:
- Nearly all respondents (95%) indicated that now is a worse time to borrow compared to three months ago;
- Two-thirds (67%) reported equity financing to be less available; and
- Eighty-three percent of respondents thought that sales volume was lower than three months prior.
Historic Apartment Demand Beginning to Moderate: We’re seeing some indication that the apartment market is beginning to soften amidst lower overall economic growth. U.S. GDP fell 0.9% in the second quarter on an annualized basis, according to an advance estimate, marking the second consecutive quarter of contraction.[1] This is what we’re tracking within the industry:
- The national vacancy rate of professionally managed apartments increased 80 bps to 3.2% in the second quarter, according to data from RealPage – still lower than both the 3.8% vacancy recorded in 2Q 2021 and a traditional “healthy” vacancy rate of 5%.
- Apartment rents grew 14.5% in 2Q 2022 – down 80 bps from the first quarter. This marks a 10.4 percentage point increase from the prior year (we will report on additional 2Q data in our August release of Market Trends).
- Those reporting tighter conditions in NMHC’s Quarterly Survey of Market Conditions for July (23%) still slightly outpaced those reporting looser market conditions (21%).
[1] U.S. Bureau of Economic Analysis.
