Multi-Housing News: Fed Keeps Rates Level, but Uncertainties Multiply
- Parkview Financial
- 7 days ago
- 3 min read
By Gabriel Frank | Multi-Housing News | May 7, 2025
At the end of its third meeting of the year, the Federal Reserve Open Markets Committee decided again on Wednesday to keep interest rates level. Sitting at 4.25 to 4.5 percent, the current rate is the lowest since December 2022.
The widely expected pause follows a strong labor market report and consistent declines in inflation since January. Despite these indicators, the Fed remains cautious about jumping the gun on rate cuts, given the lack of new data regarding the impacts of the new tariffs. Higher prices and delivery slowdowns are all but guaranteed as most trading partners face a flat 10 percent baseline tariff, while imports from China face taxes as high as 145 percent.
For their part, investors have kept a bearish but not catastrophic outlook on the economy for the rest of the year. According to Barron’s, analysts at JPMorgan placed the odds of a recession in the second half of this year at 60 percent, while Jan Hatzius, chief economist at Goldman Sachs placed the odds of a downturn at 45 percent. Chief among the concerns are an escalating trade war with China, as well as the yet-to-be-seen effects of reciprocal tariffs.
“Tariffs are likely to slow economic growth by putting pressure on the labor market and raising some prices, putting upward pressure on the inflation rate,” said Ryan Severino, chief economist & head of U.S. research at BGO.
Fed Chair Jerome Powell was attuned to these uncertainties at a press conference following the meeting but stressed that any decision on rates would come from data and data alone. “The risks of higher unemployment and higher inflation appear to have risen, and we believe that the current stance of monetary policy leaves us well-positioned to respond in a timely way to potential economic developments. The best thing for us to do is to await further clarity.”
Still, simultaneously combatting a significant slowdown in employment growth or a relapse of high inflation could put the Fed in a bind. “Both parts of its dual mandate could be weakening at the same time, but the remedies for those two things are the opposite of each other,” Severino observed.
Lenders say their piece
While most decisions that the Fed has made, or could make, have been long priced in by multifamily investors and lenders, the larger, newly formed uncertainty around trade and inflation could have the biggest impacts.
Those effects wouldn’t so much be felt by multifamily owners and operators, but by residents. “For those managing existing portfolios, the key watchpoint is rising delinquency risk,” said Zack Simkins, managing director at Vaster, a private lending firm based in Miami. “Inflation and tariffs are squeezing household budgets, and that may soon impact rent collections,” Simkins told Multi-Housing News.
Others are a bit blunter, given the links between interest rates and such key indicators as asset valuations and bid-ask spreads. “Real estate valuation and capital markets are directly correlated to the Fed funds rate, so a pause in the reduction of rates is not favorable to multifamily investors,” said Paul Rahimian, founder & CEO of Parkview Financial.
But even if employment weakens while prices increase, Simkins still sees a “continuation of the status quo,” for investors following the pause. In the near term, “Multifamily investors will likely remain patient, waiting for pricing to reset before pursuing new acquisition,” Simkins told Multi-Housing News.
If the Fed decides to cut rates in the next several months, Simkins foresees lower borrowing costs, particularly if tariffs negatively impact consumer spending. “A slight easing in rates could narrow bid-ask spreads, incentivize more deals, and improve projected returns for investors. That could catalyze activity heading into the second half of 2025 to early 2026,” he said.
On-the-ground impacts
Aside from dealmaking, construction could see the biggest impacts from trade and interest rate uncertainty. Imports of raw materials such as aluminum, steel, lumber and glass, alongside kitchen, bathroom and laundry appliances, could see even more extreme prices increases. According to Construction Dive, tariffs are linked to the largest construction cost increase in two years, as contractors hastily stock up on materials.
According to David Druey, Centennial Bank’s regional Florida president, the damage has already been done in some respects. “We’re seeing more developers going back to re-bid or re-price projects as construction costs shift,” he reported. For some projects, “You might think you’ve secured windows, but until they arrive, you’re exposed to price changes or delays.”
In Druey’s view, the key to avoiding this outcome is making sure that deals are fully capitalized from the outset to avoid pricing volatility or changes to debt structures. “In this environment, managing capital costs isn’t just about interest rates, it’s about protecting against construction volatility and making sure deals are fully capitalized from the start,” he noted.