Coronavirus Impact on Multifamily Property
- The coronavirus impact on multifamily property will depend upon the duration of the pandemic.
- The multifamily sector is faring more favorably than other property types.
- Interest rates at historic lows support multifamily investment.
Coronavirus and the Economy
On Monday, March 16, there were over 180,000 global cases of coronavirus as tracked by John Hopkins University. The school’s Center for Systems Science and Engineering documented nearly 4,300 cases in the United States. With businesses, schools and events closed to curtail the spread of COVID-19, the economy has taken a hit. The Dow Jones Industrial Average fell almost 3,000 points on Monday. The S&P 500 and Nasdaq both tumbled 12%. Nonetheless, the coronavirus impact on multifamily property has thus far shown relative resilience when compared to other real estate groups.
The Federal Reserve Lowers Interest Rates
To stave off economic turmoil, the Federal Reserve on Sunday lowered interest rates to near zero. Mortgage interest rates dipped to record lows. The Wall Street Journal reported on Monday, March 16, the average rate on a 30-year fixed-rate mortgage was 3.36% and the 15-year fixed-rate fell to 2.77%. The newspaper also noted the 10-year Treasury was less than 1%.
CNBC reported the Fed also launched a $700 billion quantitative easing program to help shield the economy from additional consequences of the virus. The business news outlet predicted interest rates would continue to fall following the Fed’s actions. Mortgage rates dipped to a record low, two weeks ago and remain at historically low levels.
Multifamily Fares More Favorably
Experts predict the coronavirus impacts on multifamily property, at least in the immediate future, will be less severe compared to other sectors. Victor Calanog, chief economist at Moody’s Analytics, in a March 11 video, pointed out how owners with shorter leases would be more vulnerable during the economic slowdown. The reduction in travel will far more drastically negatively impact, for example, the hotel industry.
In addition, construction delays as a result of COVID-19 could cause supply shortages for some property types. In the multifamily sector, this could even result in rent increases. However, Calanog emphasized that the duration of the pandemic will determine its effects. Job growth and employment are fundamental drivers of multifamily property. Thus, continued economic turmoil would likely create more financial challenges for this class of real estate, as well.
The Federal Housing Administration Response
Amidst the current historic challenge, the FHA has stated it is working to minimize the coronavirus impacts on multifamily property stakeholders. The U.S. Department of Housing and Urban Development (HUD) is following health and safety guidelines of the Centers for Disease Control and Prevention (CDC).
Additional information on reviews, inspections, regulatory waivers, recapitalization, audits and office closures is available on the FHA Multifamily Q&A.
To stay informed on the effects of coronavirus on commercial real estate, visit our Arbor blog posts on COVID-19. It provides the latest news, and helpful industry resources. With interest rates at historic lows, refinancing may be an option for you to consider. Contact Arbor to ask about our financing solutions.