The multifamily real estate market has been a hot topic for investors in recent years, and for good reason. Despite the challenges due to the pandemic, the multifamily market has remained resilient and continues to attract investment. However, as we move forward, it's essential to understand the latest trends and data to make informed investment decisions. In this article, we'll review recent and current data on multifamily real estate investing and provide insights into what we can expect from the market going forward.

Q1 Recap and Market Overview

As we moved through the first quarter the multifamily investment market continued to cool off after two years of record high sales volumes. In the height of COVID, investment sales skyrocketed as investors took advantage of record low interest rates. According to Yardi Matrix, the multifamily sector hit record high sales volumes with $223 billion in transaction volume in 2021 and only a slight drop to $184 billion in 2022.

A major reason for the decrease in transaction volume is increased interest rates. In 2021 the average mortgage rate was 2.96 percent. The Fed began raising interest rates in March 2022 and has since then increased rates nine times. The Fed’s current target rate is between 4.75 and 5 percent, which is a deterring factor for investors who scored deals in 2020 and 2021. Inflation has also contributed to the slow down as it impacts the cost of building, materials, and labor.

Along with inflation, cap rates also increased sharply in Q2 2022, further suppressing the growth and development within the real estate market. According to CBRE cap rates are stabilizing, however, we will need interest rates and inflation to stabilize before we see thriving investment activity.

We remain cautiously optimistic about the future of multifamily as we progress through the second quarter.

Looking Ahead Into Q2 2023

According to Yardi Matrix, there are currently over 1 million apartment units under construction in the United States. Some markets may struggle with the issue of over-supply in the short-term, however, we are still experiencing a housing shortage nationwide. We also do not expect to see a decrease in rental demand due to job growth and inability to afford a home.

​​Despite short-term challenges, there are numerous reasons to remain optimistic about multifamily housing in the long-term. This asset type has historically outperformed other real estate types due to the short-term nature of residential leases, which allows owners to raise rents more quickly to keep pace with operational costs that are on the rise.