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  • As we look ahead to 2024, what is the outlook for multifamily real estate, and the economy in general?
  • The headwinds are well known to everyone by now – interest rates, inflation, global conflicts. However, how will these factors impact real estate and the economy?
  • While events in Ukraine and, more recently, Israel are tragic, historically these conflicts have little impact on the Global Economy. The sheer size of global markets versus the regional impacts dictate that these conflicts are not a dominant factor on economics, despite the heavy toll in human suffering.
  • The Federal Reserve’s goal to tame inflation through interest rate hikes seems to be working, while thus far they have not put the economy into recession. Inflation is down from 7.1% in June of 2022 to 3.2% in October 2023, while the recession predicted for 2023 never happened. This is the “soft landing” that always seemed like an ideal outcome. Data indicates the economy will continue to grow in 2024, with GDP increasing anywhere from 0.8% to 1.5%, depending on the source. This follows a somewhat surprising 2023 that saw GDP growth above 2%, in an environment of sharply rising interest rates. Consensus is now that there will be either a “brief, shallow recession” or no recession at all in 2024. The Federal Reserve should be able to start dropping rates mid-year.
  • Real estate is more sensitive to interest rates than most economic sectors. This is due to heavy dependence on financing for acquisitions and development. Lending rates have risen faster than the 10-year treasury, widening the spread between treasury yields and mortgages. More stability in interest rates should narrow this spread, which along with a drop in the Federal target rate should eventually lead to lower mortgage rates. The real estate market and banks that provide lending to the sector always take time to react. Therefore, 2024 should be a time of “normalization” and getting back to a more predictable market. Uncertainty on the part of both buyers and sellers has led to low transaction volume in 2023. In the multifamily sector, sales volume has been cut nearly 50% in 2023. A clearer picture with an end to rate increases should lead to confidence and a more active market. For multifamily real estate, fundamentals remain strong with limited supply, low unemployment, and solid wage growth.
  • What’s the bottom line? In our opinion, 2024 will present buying opportunities for multifamily investors, assuming sellers make allowances for the high cost of debt. Interest rates are unlikely to plunge to their previous levels, and buyers want to see pricing that reflects this new environment.