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The Inland Northwest markets are more active than ever, with record levels of investment volume, all during a volatile interest rate environment. What do rising rates and record deal flow mean for your portfolio? Keep reading for a breakdown.
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Overall Market
- The biggest change in the market? Interest rates. But what exactly is happening and what do changing rates mean for you?
- Since March, the Federal Reserve has raised its key interest rate by +75bps (or 0.75%). This began in March with a +25bps increase and continued in May with a +50bps increase, the biggest rate increase in more than two decades. In addition, the Fed is expected to continue raising rates over the summer.
- In response to the Fed, the 10-Year Treasury Note (a commonly tracked rate indicator) has gone from 1.63% to3.09% in 2022. This is a +146bps increase in the cost to borrow, nearly double the Fed's actual increase.
- So, what's this mean for multifamily investment? As the cost to borrow money goes up, relative property values are likely to fall, but they've not fallen yet. As of today, I've not seen property values or investor demand decrease. There is so much demand for multifamily investments that values have not changed due to the increase in borrowing costs (yet).
- The biggest question for investors: Where are we heading next?
- Most investors believe interest rates will continue to increase as the Fed has indicated. If rates continue to rise, I believe there will be a negative impact to property values, and more specifically, an increase in cap rates.
- If you are considering selling your multifamily property in the next 1-2 years, today may be the best time to realize maximum value, but you must move quickly to capitalize on market conditions. The Fed is expected to raise rates again in June, which means interested Sellers need to move immediately.
- Interested in knowing what your property is worth now that interest rates have increased? Reach out for a property valuation today and we'll make sure you're in the best position to capitalize on current market conditions.
Multifamily
- While interest rate volatility has priced some investors out of the market, there is still abundant demand for multifamily investment in the Inland Northwest.
- In Eastern Washington alone, there is ~$395M of multifamily on the market and $102M sold year-to-date. For context, $420M sold in all of 2021, meaning we are on-pace to surpass 2021's investment volume before the end of the summer.
- While rising rates certainly impact buyer returns, there are no market indicators of demographic trends or rent growth changes, making multifamily one of the most sought after investments.
- As our team launches new investment opportunities we'll be keeping a close eye on investor demand and will continue to share with you what we're hearing.
Development
- The development world has been trained in uncertainty for the last 2 years, so while rising interest rates has an impact on development feasibility, most developers have found a way to continue moving forward in adverse market conditions.
- Multifamily construction across the nation increased in March 2022 with little signs of slowing down through the year.
- Why do interest rates not appear to be deterring development? Development hinges on fundamentals - population, wage, rent growth - which show no signs of slowing in the years to come.
Local News
- After a decline in month-over-month rents during winter, Inland Northwest rents came roaring back as spring broke. Month-over-month rents are up +2.3% in Spokane, +3.7% in Coeur d'Alene, and +1.2% in Tri-Cities.
- Spokane County reported a +6.4% increase in wages, the 4th fastest-growing county in Washington. While this data is from 2021, wage growth typically lags rent growth, providing a positive signal for continued rent growth in 2022.
- In a recent survey of Public Parks across the nation, Spokane ranked 17th, noting that 87% of residents live within a 10-minute walk of a park.
With the confluence of record investment activity and rising rates, there has never been a better time to evaluate your property portfolio. If you're interested in understanding what these national trends mean for your local portfolio, let's schedule time to explore your investment goals, and put you in the best position over the next 10 years.
Best,
Mason Fiascone
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