Surging mortgage rates have suppressed demand for home purchases by reducing affordability, which has prevented many renters from transitioning to homeownership. As a result, rental demand has remained strong and real estate investor interest in multifamily properties has remained high. Multifamily transaction volume broke records in 2021, and preliminary third quarter 2022 data indicates continued strength.

 
According to the data released today, the strong investor demand has kept multifamily capitalization (cap) rates near all-time lows. Through First American's new First American Multifamily Potential Cap Rate model, an asset-class specific version of the All-Asset Potential Cap Rate (PCR) model, Snyder looks at the data to answer two key questions:

• What’s driving the persistent demand to own multifamily properties? 
• What might prompt a softening that could lead cap rates to swing upward?