Apartment building sales are dropping at the fastest rate in 14 years.
Rising interest rates and regional banking disarray is contributing to the drastic fall in demand, The Wall Street Journal reported. Citing data from the firm CoStar Group, the outlet reported that $14 billion worth of apartment buildings were purchased in the first quarter of 2023, marking a 74% decrease from the same period the previous year and a 77% decrease since 2009.
Following record highs for rent and home purchases in 2021, the housing market began to cool in 2022 and has continued to decrease since the beginning of the year despite minor upticks in buyer interest following slight decreases to mortgage rates. Still, rising interest rates have also made real estate a less attractive investment because financing a building is more pricey than it was one or two years ago.
“Nobody wants to take a loss when they don’t have to,” Graham Sowden, chief investment officer at real estate investment firm RREAF Holdings, told The Wall Street Journal.
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Sowden told the outlet that his firm has pivoted to other property investments — such as recreational-vehicle parks — while buyers and sellers remain ambivalent on what apartment buildings are truly worth in the current and near-future market.
However, while investors pull back on apartment building purchases, one group may benefit: renters.
With less demand and purchasing, landlords are less likely to raise the rent for tenants — a phenomenon that swept American cities following a housing boom during and shortly after the pandemic. While rent across the country rose by 2.6% in March as compared to a year earlier, the rate at which rent is going up is far slower than the pandemic highs, according to a report by Apartment List.
“This month marks the lowest year-over-year growth rate that we’ve seen since April 2021 and represents a return to a level of rent growth that was the norm in the years leading up to the pandemic,” the report said.
