Navigating Interest Rates, Tariffs, and Uncertainty

Interest rates and tariffs are central concerns for Pacific Northwest apartment investors as we navigate the second half of this year. While interest rates have stabilized since March, hovering between 4.25% and 4.5%, recent downward momentum provides a timely window for investors looking to secure favorable financing terms.

However, it's uncertainty—particularly surrounding tariffs—that has kept investors cautious. Following the April implementation of the Liberation Day tariffs, uncertainty soared to unprecedented levels. While the market has adapted to the higher tariff environment, significant volatility may return as the current 90-day pause on tariffs concludes.

Currently, effective tariffs remain historically elevated, with China at nearly 28%, Mexico at 10.7%, and Canada at 11.2%. These tariffs could be altered quickly, depending on political negotiations and strategic leverage, posing ongoing uncertainty for the cost and availability of construction materials, fixtures, and other imports critical to apartment development and renovation projects.

The newly passed tax bill further complicates the investment landscape. Positively, it offers substantial advantages such as 100% bonus depreciation on new acquisitions, significantly boosting first-year returns. Conversely, rapid legislative passage and cuts to Medicaid funding could introduce complexities, especially regarding regulatory interpretations and their broader economic implications.

Moreover, the $3.3 trillion increase in the federal budget deficit over the next decade and the recent $5 trillion debt ceiling hike signal greater treasury issuance in coming months. If issuance surpasses expectations and buyer appetite from foreign entities and the Fed diminishes, this could place upward pressure on interest rates, affecting both acquisition financing and refinancing decisions.

Despite these headwinds, the Pacific Northwest remains fundamentally robust, driven by healthy demographics and resilient economic fundamentals. Investors should see the current moment as the "eye of the storm," presenting a compelling window for acquisition. According to CoStar, recent Portland MSA data highlights opportunities for active buyers: in the past 12 months, apartments aged between 1960-2010 trading in the $2-$20 million range have averaged an 11.8-month time on market, selling at a 4.8% discount. Notably, the data indicates that sellers have adjusted to current market conditions, becoming more receptive to meeting market values and demonstrating greater motivation to close transactions. Buyers willing to write offers now can leverage these favorable market conditions to position themselves strategically for sustained long-term growth.

Ready to explore ways to grow your portfolio? Just reply with your question or give me a call at 503-200-2058 — I’d be happy to chat.

Warm Regards,

Georgie Christensen

Managing Director Investments

Christensen Group

(503) 200-2058

GChristensen@Marcusmillichap.com