The Federal Reserve’s decision to reduce the overnight benchmark rate by 50 basis points to 4.75% in September 2024 marks a significant shift after more than a year of steady rates. This move is in response to a cooling economy, as job growth slows and inflation eases, signaling a shift toward a more accommodative monetary policy. Average monthly job growth dropped to 184,000 through August 2024, compared to 266,000 in the same period in 2023, raising unemployment to 4.2%. Inflation, measured by the Core PCE, also fell to 2.6%—still above the Fed’s 2.0% target but trending downward. The combination of slowing inflation and rising unemployment set the stage for lower borrowing costs, stimulating trading momentum across markets.
The interest rate reduction is particularly impactful in real estate, where the yield spread between the 10-year Treasury and multifamily cap rates has widened, making deals more feasible. The yield spread, which hit a low of 160 basis points in 2023, reopened to 210 basis points by mid-2024, fueling lender appetite and enhancing deal-making potential. Lower interest rates are also loosening the multifamily lending environment, with more capital available from Freddie Mac, Fannie Mae, and other lenders. As financing hurdles decrease, multifamily investors are better positioned to capitalize on new opportunities in the market.
5 Key Points:
The Fed reduced the overnight benchmark rate by 50 basis points to 4.75% in September 2024.
Job growth has slowed in 2024, with average monthly gains of 184,000 compared to 266,000 in 2023.
Core PCE inflation dropped to 2.6% in July 2024, easing inflation concerns.
The yield spread between the 10-year Treasury and multifamily cap rates widened, improving deal-making conditions.
Multifamily lending conditions are loosening, with more lenders becoming active as borrowing costs decline.
Source: Multifamily National Report. Real Estate Investment Services. (n.d.-b). https://www.marcusmillichap.com/research/special-report/2024/09/3q24-multifamily-national-report
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SuiteLifeMF has acquired, operated and invested in real estate for over 10+ years, investing in over 1500 doors and with over US$ 100 under management (900+ doors). The company also operates a property management company which handles a portfolio of single family homes. SuiteLifeMF maintains a disciplined approach to investing, which focuses on capital preservation and strong returns with a deep understanding of submarkets, economic and political situations.
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