The Federal Reserve cut its main interest rate by 25 basis points on Wednesday to a range between 3.75% to 4% following a two-day meeting.
The decision marks the second rate reduction by the central bank this year, coming after it reduced rates by a quarter point in September.
However, apartment industry observers don’t expect major short-term effects from the Fed’s move.
“We believe that near-term Fed cuts will impact the shorter end of the curve more than the longer end, and the 10-year [Treasury] will remain above 4% for a few years,” Kyle Draeger, managing executive director of CBRE, told Multifamily Dive in emailed comments. “So, there won’t be an immediate or significant impact on cap rates.”
Positive impacts
George Ratiu, the vice president of research at the National Apartment Association, thinks the second rate cut will provide a moderate tailwind for commercial real estate valuations and investment activity. But given the divergence between the Fed’s short-term rates and the longer-term rates pricing CRE debt, the immediate effect should be modest, he said.
However, the decrease in fund rate will lead to lower short-term borrowing costs, which could provide a boost. “Lower borrowing costs will have a positive impact for the CRE market, including the multifamily sector, leading to narrowing in the bid-ask spread, cap rate compression and improved debt service coverage ratios for investors looking to buy, as well as owners facing maturing debt,” Ratiu said.
Ratiu expects a boost in investor optimism and increased openness for new CRE acquisitions. The rate cut also reduces financial risk, thereby increasing liquidity in the financial system.
“Banks may lower loan loss reserves, freeing up capital and facilitating deal flow,” Ratiu said. “For apartment developers, lower rates mean that projects which were deemed too expensive to pursue at debt costs from eight months ago may become economically feasible, reopening development pipelines.”
Economic softening leads to more cuts?
The Federal Open Market Committee is “attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months,” according to a Wednesday statement.
Recent declines in hiring have complicated the central bank’s efforts to fulfill its dual mandate of reducing inflation while achieving maximum employment, CFO Dive reported. In making its quarter-point reduction last month, the Fed cited weakness in the job market.
Ratiu also noted that the Fed’s decision to cut rates also signals stress in underlying economic fundamentals. A slowing job market is a headwind for apartment owners and operators, especially in markets facing heavy new supply.
“The central bank is keen to address the slowdown in jobs growth, worried that a significant pullback in hiring could lead to reduced consumer spending, especially as we’re headed into the critical holiday season for the retail sector,” Ratiu said.
Ratiu thinks market expectations for the Federal Reserve’s actions in December and in the first part of 2026 will also have a significant impact on the economy and the multifamily sector. Already, the Mortgage Bankers Association sees more federal funds reductions on the horizon.
“MBA is forecasting another two 25-basis-point cuts to the federal funds target in December 2025 and then in the first quarter of 2026,” MBA Senior Vice President and Chief Economist Mike Fratantoni said in comments emailed to Multifamily Dive.
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