Interest Rates Dropped: What it means for the multifamily market

The Federal Reserve announced yesterday that interest rates had been lowered. There has been an anticipation of the Fed dropping rates, and the market was expecting a 25 basis point reduction. What does it mean for multifamily investors?

Stronger Cash-On-Cash Returns

Nine months ago, we were underwriting multifamily deals using nearly a 5% interest rate on the mortgages. Since the spring, we’ve seen a reduction in mortgage interest rates in the market.  Now that the Fed has reduced the Federal Funds Rate, I expect over the next 45 days we will see mortgages rates continue to come down even further and closer to 4.00%

While I don’t think rates going down will bring a surge of new investors into the market, I do think the current interest rate environment will make current inventory more attractive and gives investors more incentive to buy now.  The cash-on-cash return is now stronger.  

Looking Ahead

Barring any negative economic news (beyond what we see priced into the economy), we may see another 25 basis point reduction in 2019.