Today the Federal Reserve announced a 75-basis-point hike in the federal funds rate. This increase places the federal funds target range between 2.25% and 2.5%.
The Fed last increased rates only six weeks ago, when the monetary authority pushed the range up 75 basis points in response to deepening issues surrounding inflation. Many experts agree that further rate increases are in store later this year, though some economists expect future hikes to be smaller, according to The New York Times.
While increases thus far have failed to curb inflation, there are major concerns that future rate hikes could usher in a recession. And the recession could have greater negative impacts than even the highest inflation in more than four decades, Nobel laureate Paul Krugman noted in an interview with PBS NewsHour.
Multifamily Financing Impacts
The multifamily sector has traditionally held fairly strong in times of turmoil. Despite rising inflation and increasing borrowing costs, multifamily investments are still very strong performers.
Should a recession come about, it's true that some luxury assets in major markets may feel pain. However, one key advantage to investing in apartments is that demand remains relatively static. Sure, residents may downsize or move to less expensive properties. But, with the home mortgage rates also rising, renters are far less likely to exit the rental market entirely.
On the other hand, rising financing costs aren't necessarily the death knell for getting advantageous lending terms for multifamily investors. Lenders generally view the multifamily sector as a safe play compared to single-family homes and many other types of commercial real estate. As a result, there are plenty of advantageous loan products. HUD loans, like the 223(f), offer a good example. These financing programs lock in low, fixed rates for 35-year terms.
While closing a loan now is more expensive than it was yesterday, we can comfortably assume we haven't seen the last interest rate increase this year. While it may seem counterintuitive, securing that acquisition financing, or refinancing your current debt, may make a lot more sense now than it will in a few months. And with rents set to continue growing — albeit at a slightly moderated pace compared to last year — the future of the sector looks bright.