Rent or Regret: Why Multifamily REITs Are the New Safe Haven in a High-Rate World

The U.S. housing market is at a crossroads. With mortgage rates hovering near 7% for the first time in decades and the Federal Reserve’s recent rate hike decisions casting a shadow over homeownership, the calculus of real estate investing has shifted decisively toward rental-backed assets. For investors, this is no time for hesitation—now is the moment to pivot toward multifamily real estate investment trusts (REITs), which are poised to thrive in this new landscape.

The Mortgage Rate Quagmire: Why Buying a Home Has Become a Luxury

The median 30-year fixed-rate mortgage now sits at 6.77%—a far cry from the 3.5% rates of 2021. For would-be buyers, this means a crushing affordability gap. Consider this: A $300,000 loan at 6.77% requires a monthly principal-and-interest payment of $1,950, compared to $1,266 at 4%. That’s a 54% increase in monthly costs—before taxes, insurance, or maintenance.

The Federal Reserve’s recent decision to hold rates steady at 4.25%–4.50%—the third consecutive pause—has done little to alleviate this pressure. While markets anticipate three 25-basis-point cuts by year-end, even a modest decline to 6% would still leave rates near their highest levels since the early 2000s. For adjustable-rate mortgages (ARMs), the pain is even worse. The 5/1 ARM, a popular product for risk-tolerant buyers, now averages 7.08%, locking borrowers into volatile reset risks as inflation remains stubbornly above 3%.

The Rental Market’s Golden Age: Demand Is Unshaken

While homeownership dreams falter, the rental market is roaring. Multifamily occupancy rates remain stubbornly high—94.4% nationally—despite a surge in new apartment deliveries. The math is simple: renting is now 25% cheaper than buying on average, with gaps widening to 2.8× in coastal markets like San Francisco.

Demographics are fueling this shift. Gen Z and millennials—35% of whom now believe they’ll never own a home—are forming households at record rates, but stagnant wage growth and soaring home prices (up 40% since 2020) have made renting the only viable option. Even the Federal Reserve’s own data shows that 75% of renters cite affordability as their primary reason for not buying.

Why Multifamily REITs Are the Play

The numbers scream opportunity for multifamily REITs. Consider Equity Residential (EQR), which reported 96.4% occupancy in its coastal markets in Q2 2024, or Mid-America Apartment Communities (MAA), which saw 95.5% occupancy in the Sun Belt. These REITs are benefiting from a trifecta of trends:
1. Supply discipline: New multifamily construction has plummeted 41% from its 2022 peak, easing oversupply fears.
2. Inflation hedge: Rents are projected to grow 2.6% in 2025, with fast-growing markets like Boston and Miami seeing 5%+ increases.
3. Debt flexibility: With $1.5 trillion in commercial real estate debt maturing by 2025, REITs with strong balance sheets (like UDR, with a 5.1% dividend yield) are snapping up distressed assets at 15–20% discounts.

The Fed’s Backstop: Rate Cuts Will Boost Valuations

Even a modest Fed cut to 6% by year-end could supercharge multifamily valuations. Lower rates compress cap rates—the key metric for property pricing—by making future cash flows more valuable. In fast-growing markets like Dallas and Atlanta, where cap rates have already tightened to 4.5%, a 25-basis-point rate cut could add 5–7% to property valuations.

The Bottom Line: Act Now or Pay Later

The writing is on the wall: homeownership is becoming a luxury for the wealthy, while the rental market’s fundamentals are bulletproof. Multifamily REITs offer a rare combination of income stability (averaging 4.5% dividends) and capital appreciation as interest rates retreat.

Investors who ignore this shift risk missing the next great opportunity. As the Fed’s rate cuts materialize and the rental boom accelerates, multifamily REITs like EQR, MAA, and UDR are the clearest path to outperformance. Don’t let the next decade pass you by—act now before the rally leaves you behind.

Data as of May 21, 2025. Past performance is not indicative of future results.