A year ago, Moody's research said expenses like insurance, utilities, and property taxes could experience inflation that exceeds revenue growth, straining net operating incomes.

The situation hasn't improved in 2024, according to Moody's latest analysis. Multifamily valuations are tied to revenue growth and management of operational expenses. Costs have become a critical factor for owners given that annual effective revenue growth is expected to stay below 2% this year. Growth of expenses over revenues puts pressure on NOI, which is key to valuations. And valuations support the ability to refinance. "On top of this, some property owners are struggling to get coverage or maintain the requisite coverage in their loan agreements, which leads to rippling implications for lenders," they wrote.

As expenses have increased, landlords have raised rents so revenue can balance out expenses and the average operating expense ratio has remained at about 45% in recent years, including pre-pandemic. That leaves renters to bear the burden, Moody's wrote. And when rents push up faster than in the past, so does the shelter portion of inflation, which then helps keep overall inflation higher than the Federal Reserve's target range, meaning that interest rates also remain elevated. With higher delivery of new multifamily inventory, expecting rent growth to continue with greater supply and less demand is unrealistic.