Multifamily Minute Reader Reflections: What Are 2023's Financing Challenges?
We surveyed 40,000 multifamily investors and, unsurprisingly, the largest concern was rising interest rates.
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In the Jan. 3 edition of the Multifamily Minute, we surveyed our 40,000 readers. The question? What challenges face those seeking multifamily financing this year.
Survey Results
It's absolutely unsurprising that the majority of respondents — more than 60% — pointed to rising interest rates. After all, the current federal funds rate of 4.25% to 4.5% is in stark contrast to the same time last year, when rates ranged between 0.0% and 0.25%.
See the full table of results below.
Factor | Percent of Respondents |
|---|---|
Higher interest rates | 62% |
Tighter underwriting standards | 24% |
Harder to find a good lender | 5% |
Lengthier approval timelines | 5% |
Other | 4% |
There's a lot to unpack regarding the tightening of underwriting standards. This involves the standards lenders set for debt service coverage ratios, loan-to-value ratios, and more. But we'll get into that in a future survey to drill down on the most relevant aspects.
How Much Will Interest Rates Rise?
So, back to interest rates: There are two things to think about here.
First, the federal funds rate is positively, absolutely going to rise even further. Federal Reserve Chair Jerome Powell has hinted that rates will continue increasing, likely capping north of 5%. And, if inflation isn't sufficiently mitigated, expect rates to grow even more.
The second? Rates are not at historic highs. Yes, it's been a painful adjustment, especially for those with floating-rate financing. Still, it's not even as high as rates were in mid 2006, when rates hit 5.25%. And, of course, we're a long way from the crazy days of the early 1990s, when rates got as high as 8%.
Here's how the higher federal funds rate has pushed other index rates, like SOFR and the WSJ Prime, northward:
So, are things looking great? Not particularly, no, but they could be worse.
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Our Previous Survey
In case you missed it, the week before we asked about our readers' multifamily plans for 2023. Is it a good time to buy, sell, or refinance? Read our analysis of the results.