Apartment Investors 'Very Concerned' About Rising Rates, Inflation Combination

Apartment markets tightened for the fifth straight month and debt financing became less available for the third consecutive quarter, according to National Multifamily Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions, issued last week.

This is now a worse time to borrow than three months ago, a vast majority of respondents (83 percent) indicated. Meanwhile, 42 percent are “very concerned” about the combined impact of rising interest rates and inflation and 55 percent are somewhat concerned.

In mid-April, Goldman Sachs economist Ronnie Walker issued a research note titled: “Will Higher Rates Put Out the Housing Fire?” In it he wrote that “standard economic models suggest that an increase of that magnitude should weigh substantially on housing, the most interest rate-sensitive segment of the economy and the textbook channel of monetary policy transmission.”

Last month, in the Calculated Risk blog by Bill McBride, related to housing, the Fed, interest rates and inflation, McBride noted that housing “is a key transmission mechanism for Fed policy.”

However, Walker argues that “the extreme supply-demand imbalance in today’s housing market will likely dampen the hit to activity from higher rates.”

To that, Mc McBride commented, “This is critical, and if correct, may suggest the Fed will have to hike rates more than expected.”

NMHC’s Chief Economist, Mark Obrinsky on the tight markets: “Yet, even as rent growth and occupancy remain elevated, developers are struggling to build more housing due to the increasing cost of materials, a lack of available labor, continued obstructionism from NIMBYs, and, because of rising interest rates, an increasing cost of capital.”