The Fed Raises Rates for the First Time Since 2023: What It Means for Multifamily

On September 16, the Federal Open Market Committee voted unanimously to raise the federal funds rate by 25 basis points to a target range of 3.75% to 4.00%, its first increase since 2023. A year ago, the conversation centered on the start of an easing cycle. After three rate cuts in late 2025 and a hold through the first half of 2026, persistent inflation, driven in large part by elevated energy prices, has pushed policy back toward tightening. Most officials now expect at least one more increase before year-end, with the median projection placing the federal funds rate at 4.1% at the end of 2026.

For multifamily, the Fed's short-term rate is only part of the story. Apartment values and long-term financing are priced primarily off the 10-year Treasury, and that is where the more significant move has occurred. The 10-year yield crossed 5% in mid-September and reached roughly 5.1% on September 23, its highest level in 19 years. Because agency and bank lenders price permanent loans at a spread over long-term Treasury yields, that increase has a more direct effect on acquisition and refinancing economics than the quarter-point change in the federal funds rate.

The impact varies considerably depending on how a property is financed. Many lenders and brokers noted that permanent, fixed-rate financing had largely priced in the Fed's decision ahead of time. Borrowers with floating-rate bridge debt are feeling the increase more directly, particularly value-add acquisitions and recently completed developments that are still in lease-up. Owners facing near-term maturities may also have fewer options, as lenders have become less willing to simply extend existing loans and are increasingly asking borrowers to contribute additional equity or restructure.

Higher long-term rates also continue to weigh on valuations. Apartment cap rates reached 5.79% in the second quarter, the highest level since 2015, and a sustained move in the 10-year above 5% is likely to keep upward pressure on cap rates as buyers require higher yields to offset more expensive debt. As a result, transaction activity is likely to remain selective, and the price discovery process that began in 2022 may take longer to fully play out.

What makes the current environment unusual is the gap between capital markets and property fundamentals. Even as borrowing costs have risen, apartment demand has improved and new supply continues to slow in many markets. In other words, the pressure on values today is coming primarily from the cost of capital rather than weakness in how well-run apartment communities are performing.

For investors, that reinforces the importance of focusing on what can be controlled. Properties with long-term fixed-rate debt, reasonable leverage, and steady occupancy are generally better positioned to navigate a higher-rate environment than those relying on short-term or floating-rate financing. At the property level, collections, expense discipline, resident retention, and consistent NOI growth remain the most reliable drivers of value while the rate outlook remains uncertain.

Looking ahead, the Fed's next meeting is scheduled for October 27 to 28, and upcoming inflation reports, particularly those tied to energy prices, will shape expectations for the rest of the year. Meaningful relief for multifamily borrowers will likely depend less on any single Fed decision and more on a sustained decline in long-term Treasury yields. Until then, disciplined operations and conservative capital structures should remain the foundation for navigating the market.

(Sources: Federal Reserve Board; CNBC; Charles Schwab; J.P. Morgan; Commercial Observer; Multifamily Dive; CRE Daily)