NMHC Research Forum Recap: Inflation, Interest Rates and Affordability

April 19, 2022

Markerr recently attended the 2022 NMHC Research Forum in Denver, Colorado. The main topics of conversation centered on inflation, interest rates, the direction of the U.S. economy, housing affordability, and housing undersupply. Naturally all discussions attempted to predict how all of these factors will influence the multi-family market.


Inflation is highly topical with the most recent CPI print of 8.5% (core PCE 6.5%) being the highest in the past 40 years. Most folks assume that inflation will tick modestly higher before beginning to decelerate throughout the rest of 2022 and end 2023 in the high-2% range (this tracks with the Fed’s PCE projection at the latest FOMC meeting). Rent growth and inflation are highly correlated; over the past ~10 years, national YoY rent growth has a 0.70 correlation with CPI (0.90 over the past year) as measured by Markerr’s RealRent.

Sources of pressure on inflation include higher home prices/rents (~33% of CPI), the war in Ukraine, declining globalization, and the labor shortage leading to higher incomes. Reasons that inflation will decelerate include more difficult YoY comps, easing supply chain pressures, rising Fed funds rate, and importantly the declining quantitative easing that have kept rates artificially low.

Interest Rates

The Fed Funds rate has finally increased from emergency levels to 25-50 bps in an effort to combat non-transitory inflation. The Fed has widely telegraphed another rate hike (25-50 bps) at the coming FOMC meeting. The 10-year treasury is now hovering around ~2.8%. As noted above, the Fed is also willing to quickly taper its quantitative easing. 

The impact of interest rates on multi-family is widespread. The cost of debt for both individuals and institutions has been increasing steadily. Typically, this would cause cap rates to rise, but there is a TINA (there is no alternative) situation with the massive fundraising activity seen recently. The other piece of the puzzle is the lack of supply for residential housing. One of the other potential knock-on effects is that recession risk has risen with some panelists and large banks saying that odds have increased to ~30% for a recession in the next two years. While multi-family has proven to be a resilient asset class, this would clearly be a negative.

Housing Undersupply & Affordability

It is no secret that residential supply has not kept pace with demand over the past decade. This is one of the main arguments against a recession in housing, and the U.S. economy in general (because of the outsized impact housing has on the economy). 

Housing affordability has gotten notably worse with increasing rent-to-income ratios, as well as on the single-family side. Not only was home price appreciation ~17% over the past year, but mortgage rates have skyrocketed in 2022. To put it in perspective, last April the average monthly payment was ~$1,250 and now it hovers over $1,850 (a ~50% increase!)*. The clear knock on impact is that homeownership rates will tick down, and multi-family rents will have a tailwind to continue to run up further.