The Federal Reserve Bank is expected to continue to raise interest rates this year and next.

NEW YORK CITY–What will it take to for the seemingly indefatigable multifamily asset class to lose steam? Slowing rent growth in many markets due to high supply hasn't had much of an impact so far this year. According to Real Capital Analytics, multifamily sales volume for the first half of 2018 was $69.8 billion, a 7.7% year-over-year increase. Meanwhile, some $250 billion has been earmarked for continued investment in the sector, according to an Real Capital Markets survey.

But while the asset class is navigating shifting supply-demand fundamentals with ease, a new challenge is looming that could prove to be harder to overcome: interest rate increases. Real Capital Markets' “Multifamily Investor Sentiment Report” says that nearly 70% of survey respondents said that the prospect of further increases is having and will have an impact on acquisition strategies.

Interest rates have moved up about 60 basis points over the past year and are edging close to 5%, according to Vic Clark, senior managing director for Hunt Real Estate Capital, who was quoted in the report. In response, lending agencies have found ways to reduce pricing to keep rates low despite the interest rate hikes, he says. However, he adds, “another 60 basis point rate hike will be difficult to absorb.”