Mortgage rates have gone up 3.5% since the beginning of 2022. This is having a huge impact on the demand for multifamily investment properties.

For example, we listed and sold a fourplex in University Place earlier this Spring. The sales price was $996,000. The purchaser obtained a mortgage with 25% down, with an interest rate of 4.25% At the time of purchase, their monthly cash flow was around $720 with a cash-on-cash return of 3.4% for the first year.

At the current interest rate (7.15%), this same purchase would have had a negative cash flow of -$700 per month, with a cash-on-cash return of negative -3.25% for the first year. In order to accomplish the same $720 cash flow / 3.4% cash-on-cash return at today’s current mortgage rate, the property would need to sell for around $775,000.

This is only one of a few factors that go into market values. Values haven’t dropped by 22% like in this example; probably more like 10%. However it is almost certain that we will see an overall 15-20% decrease in values over the coming months.

For context; this market downturn should not be anywhere near as bad as 2008-2012, but using that timeframe as an example, it took almost 10 years for Pierce County multifamily property values to get back up to the values they were at during the previous peak of 2007 (see graph below).

That said, it could take several years for values to get back up to where they are today. “Waiting for the market to turn round” may not be the best option for anyone planning on selling in the next couple of years.

We are still very close to the top of the market! Multifamily values in Puget Sound Region more than doubled over the last 5 years. If you purchased your property more than 3 years ago, selling today would still be a huge win!