With an ever-changing economic landscape, forecasting what will happen in the multifamily investment sales market is challenging. From a macro standpoint, Walker & Dunlop typically regards these mercurial market shifts as speed bumps on the road to normalcy. Looking at the past, we can better anticipate the future.
Inflation hit a 40-year high of 9.1 percent in June before slowly decelerating to 6.4 percent in January. The federal funds rate (the rate charged by banks for lending excess reserves on an overnight basis) went from effectively zero in January to 4.25–4.5 by year-end. The 10-year treasury more than doubled from 1.79 percent to 3.88 percent, and the one-month term SOFR escalated from .05 percent to 4.06 percent in December.
Year-over-year sales volume dropped by $64 billion, a 23-percent decrease from the record-high of the previous year. Once the Federal Reserve signaled its intent to pursue aggressive interest rate hikes, expectations of a pending recession removed positive growth assumptions from most valuation models, and the disconnect in asset pricing grew.
The transaction calendar for multifamily investment sales historically begins with a slow first quarter and builds momentum toward a post-Labor Day selling season, with volume in the fourth quarter typically the highest of the year. But in 2022, there was a 50-percent drop in volume from Q2 to Q3, and for the first time in a decade, the sales volume for Q4 was not the highest of the four quarters. Fourth quarter transaction activity was off nearly 70 percent on a Year-over-Year comparison.
What will we see as 2023 progresses? What types of investors will find success? To read our predictions, download your complimentary copy of our Multifamily Outlook report.