Positioning for the Next Interest Rate Cycle

As we move deeper into 2025, interest rates remain one of the most powerful forces shaping real estate investment decisions. After a rapid climb over the past two years, borrowing costs have settled near multi-decade highs, with the average 30-year fixed mortgage rate hovering around 7 percent, according to Freddie Mac. While this has cooled transaction volume and created headwinds for many operators, there is growing consensus among economists that relief could be on the horizon.

Fannie Mae’s Economic and Strategic Research Group projects that mortgage rates could fall into the mid-6 percent range by late 2025 as inflation continues to moderate and the Federal Reserve gradually eases its policy stance. Even a modest 50–75 basis point drop in rates could have a significant impact on multifamily investments, lowering debt service costs, improving cash flow, and potentially increasing property values through cap rate compression.

For experienced operators, the key to capitalizing on this shift is preparation. In markets like Des Moines, where Hammer & Hampel is active, lenders may be more willing to negotiate favorable terms than in the most competitive coastal metros. By having financing conversations early, exploring forward rate locks or “float-down” provisions, and maintaining relationships with local and regional banks, investors can position themselves to move quickly when rates begin to decline.

Lower rates can also unlock opportunities on the acquisition side. Many owners who have delayed selling in today’s high-rate environment may re-enter the market once financing becomes more affordable for buyers. This window can be particularly attractive in secondary markets, where competition tends to lag behind national trends. In Des Moines, fundamentals remain resilient, steady population growth, a diverse employment base, and insulation from the oversupply issues facing some Sun Belt cities provide a solid backdrop for strategic acquisitions.

Acting now, while rates are still elevated, can be a smart play for those able to secure assets at a discount. Deals made under today’s conservative assumptions may benefit disproportionately if debt costs ease in the coming quarters. This is especially true in markets with healthy occupancy and stable rent growth, where income streams are less vulnerable to broader volatility.

While the prospect of lower rates is encouraging, timing the market perfectly is unrealistic. What matters more is structuring investments that are resilient in the current environment but flexible enough to capture upside when conditions improve. That means focusing on properties with strong in-place cash flow, maintaining prudent leverage, and ensuring that any planned financing activity has a clear path forward regardless of short-term fluctuations.

For passive investors, this underscores the importance of aligning with experienced sponsors who are proactive about financing strategy rather than reactive to headlines. For active participants, it reinforces the value of building relationships, monitoring lending conditions closely, and preparing to act before competition floods back into the market.

The next interest rate cycle will not arrive overnight, but when it does, the most significant gains will likely go to those who positioned themselves early. By focusing on preparation, maintaining discipline, and targeting markets with strong fundamentals, multifamily investors can enter the coming shift from a position of strength.

At Hammer & Hampel, we remain committed to leveraging our local market expertise and disciplined approach to help our portfolio, and our investors, thrive in changing market conditions. The opportunities created by the next phase of the interest rate cycle will reward readiness, and we are already laying the groundwork to take advantage of them.

Sources: Fannie Mae Economic and Strategic Research Group; U.S. Census Bureau Rental Vacancy Data; Freddie Mac Primary Mortgage Market Survey.