NMHC: Higher Interest Rates Remain a Risk to Multifamily Sector

Article originally posted on HERE on December 12, 2023

Tuesday’s Consumer Price Index data came as welcome news as far as the National Multifamily Housing Council is concerned. However, wrote Chris Bruen, NMHC senior director, research, there is a lag between asking rents (which have moderated for more than a year now) and what is captured in the CPI (what renters are currently paying), with implications for the Federal Reserve’s monetary policy.

“When we exclude this cost of shelter, core CPI was up just 2.1% from the previous November, almost exactly at the Fed’s target level,” Bruen wrote. Headline inflation, though, remains elevated at 3.1%.

“November’s CPI reading represents another month of incremental progress for the Federal Reserve in its effort to bring down inflation,” wrote Bruen. “Yet, so long as headline inflation remains above the Fed’s 2.0% target, interest rates are likely to remain elevated, posing some risk to the apartment industry both directly and indirectly.”

The direct impact takes the form of “a sharp reduction in both apartment sales volume and new apartment construction, which will only lead to higher rental prices and worsening affordability conditions in the long run,” Bruen wrote. The indirect impact is on the strength of the broader job market and economy, “which has not yet fully digested the rate hikes already enacted.”