Moody’s: Multifamily and Retail are Not Out of the Woods 

The Federal Reserve’s decision to pause interest rate hikes brought relief to commercial real estate (CRE) stakeholders. However, with a 90% probability of rates remaining at or above current levels by year-end, challenges persist for CRE, especially in multifamily and retail sectors, according to a new report issued by Moody’s Analytics. 

The Fed’s “higher for longer” approach increases refinancing risk and correlates with lower multifamily transaction activity. The projected median Federal Funds rate for end of 2023 has risen to 5.6% from the previous estimate of 5.1%. The aggressive rate hikes have already caused a significant decline in transaction volumes, particularly in multifamily properties.  

Despite disinflationary trends in consumer consumption, housing costs continue to drive inflation above the Fed’s 2.0% target. Rent growth turned negative in Q1 after seven quarters of positive gains. While a complete Fed pivot is unlikely, significantly higher rates are less probable in the near future, requiring CRE stakeholders to navigate ongoing uncertainty.