Are Storm Clouds Keeping You on the Sidelines?
Have you ever been considering doing some fun outdoor activity, but you see storm clouds on the horizon?
One of my favorite spring and summer activities is playing tennis, but the weather can be wildly unpredictable. Many times I’ll be ready to head out the door, but then I see the gray skies and wonder if I need to cancel my plans.
Maybe you’ve had a similar experience when you were planning to go on a camping trip, or head out for a bike ride, or even just walk the dog around the block but decided to sit it out because of the uncertain weather.
The fact is, even when I was ready to go, the change in the weather held me back. The same has been true in the real estate markets for the last 12 months or so – lots of people want to go do something in real estate, but the economic uncertainty has been holding them back.
Not only did last month's SVB and Signature bank failures shine a spotlight on the economic tightrope we’re walking as a country, but real estate investors have had another major challenge to deal with this past year – rising interest rates.
Like storm clouds on the horizon might stop you from heading outside, the rising interest rates have stopped many buyers and sellers from doing what they had planned. The result is that very few multifamily properties have been listed for sale and very few buyers are trying to buy right now.
In fact, in Denver, multifamily sales in December 2022 were down 90% from December 2021!
Clearly the economic markets don't like uncertainty any more than we do!
However, with the Fed slowing down on interest rate hikes to only 25 bps (0.25%) in March and signaling that they are either at or close to the top, we expect to see some more stability over the next few months. If the April 12th CPI data comes in as expected or below, this could be the catalyst for investors to get back in the game.
So what does this mean for you?
It means you should get ready! Once the Fed does stop raising rates, multifamily investors will feel more confident buying and selling again, and transaction volume is likely to pick up very quickly. As the transaction volume picks back up and demand spikes, this will help boost prices and reinvigorate the multifamily industry.
This is good news! Sure, we may have to wait out the storm clouds of economic uncertainty a bit longer, but we know those cloudy skies won't last forever. As soon as interest rates start heading back down, people will feel confident investing again, and we may see sunshine sooner than we think. So prepare now for sunnier economic times!