Interest rates, flat rents drag apartment sales to 14-year low

Interest rates, flattening rents, regional bank failures — it’s all too much for the multifamily market, where sales fall off in a way reminiscent of the subprime mortgage crisis.

Apartment building sales dropped 74 percent year-over-year in the first quarter, according to CoStar data reported by the Wall Street Journal. The figure marks the largest annual sales decline for a single quarter since the first quarter of 2009, when sales dropped 77 percent year-over-year. 

There were $14 billion in apartment building sales last quarter, the lowest for a single quarter in 11 years, not counting the pandemic-decimated second quarter of 2020.

It’s a stark turnaround for a market that seemed to benefit from some of the pandemic-era trends. Investors flocked to multifamily assets, particularly in the Sun Belt region, amid low interest rates. 

That’s no longer the case. Like seemingly every corner of the real estate industry, demand for apartment purchases dropped in the wake of the Federal Reserve’s first interest rate hikes since 2018. 

Rents are no longer spiking rapidly. Nationally, they were up 2.6 percent last month, according to Apartment List. In February, however, the same data source noted rents in every major metropolitan market declined for the previous six months, the first time that’s happened in five years.

Rents aren’t likely to see much of an upturn in the near future, either, as a four-decade delivery high in units is expected to keep prices cool.

Trouble at regional banks — one of the largest sources of multifamily loans in the nation — has led the institutions to tighten or pull back on lending. 

All of these factors are also driving apartment values down. Prices of multifamily buildings fell 8.7 percent in February year-over-year, according to MSCI Real Assets. Green Street, meanwhile, recorded a 20 percent drop since the highs of late 2021.

— Holden Walter-Warner