Apartment Building Sales Tank 74%, Largest Drop Since Mortgage Crisis

Topline

Multifamily sales in the first quarter of 2023 were roughly $40 billion lower than the previous year, according to a new report, marking a slowdown in one of the hottest real estate markets amid growing interest rates and banking turmoil.

Apartment sales are down $40 billion from this time last year.

Getty Images

Key Facts

Investors acquired just under $14 billion in apartment buildings nationally in the first quarter of this year, according to quarterly data from CoStar Group [Editor’s Note: the reporter of this story previously worked in the editorial division of CoStar Group].

The number represents a 74% year-over-year decline, the largest decrease since the first quarter of 2009, when sales fell 77%, per CoStar.

It was also the lowest sales quarter for the market since early 2020, right after COVID-19 broke out and threw the rental residential market into uncertainty.

Key Background

The apartment market thrived during the pandemic, spiking at a record $116 billion in the last quarter of 2021, largely due to rent increases and nationwide housing shortages. Over the past six months, however, rents have plateaued while the Fed has continually hiked interest rates, making it more difficult to finance real estate purchases. Because of the increase in liquidity during the pandemic, many buyers acquired their properties at record-high prices, making it especially difficult to now sell off the assets.

News Peg

On top of interest rate hikes, recent turbulence, like the collapse of Signature Bank, is expected to further squeeze real estate values. Regional banks like Signature are the primary lenders for commercial real estate investments; nearly half of Signature’s total loans at the end of 2022 were for real estate.

What To Watch For

A decrease in multifamily sales could be good news for renters, who have experienced a rent increase of seven percentage points since the start of the pandemic. When an apartment building is sold to a new owner, rents are more likely to increase, so fewer sales could help stabilize rent prices.

Tangent

Multifamily isn’t the only struggling real estate sector. The office industry has been particularly hard-hit by pandemic-era remote or hybrid work policies. Many employers are downsizing their footprints for newer, smaller office spaces to accommodate a reduced in-person workforce, leaving owners of older offices to either redevelop or default on their loans.