Q1 2025 Interest Rate Review
In the third quarter of 2024, the 10-year U.S. Treasury yield averaged approximately 3.6%. By the fourth quarter, the 10-year had risen to around 4.5%, marking an increase of about 90 basis points. The 10-year Treasury yield was very volatile in Q1 2025. We saw a similar rate from Q4 2024, a spike downward to the high 3% range, but unfortunately it didn’t last long as the rates trended back up through March, reaching the low 4% range by the end of the quarter. Given this trajectory, the average yield for Q1 2025 was around 4.45%.
Looking Back
The 5-year Treasury yield was at 4.9% in October 2023, and it was approximately 4.60% around May 2024. The 5-year yield was 4.35% around January 2025, dropping to 3.95% by March 2025 and 3.75% by April 2025. This implies Q1 2025 saw a decline from approximately 4.35% to 3.95% over the quarter.
Looking Forward to Key Contextual Factors
Inflation
The Fed raised its 2025 core PCE inflation forecast to 2.8% (from 2.5% in December 2024), partly driven by tariff policies under the Trump administration. Inflation is expected to remain above the Fed’s 2% target through 2025, potentially delaying rate cuts.
Economic Growth
The Fed lowered its 2025 GDP growth forecast to 1.7% (from 2.1%), signaling concerns about a slowdown, possibly exacerbated by tariffs. Real GDP in Q1 2025 came in at -0.3%, the first negative print since Q1 2022. This comes during a time of a 5.1% pullback in government spending, which can be partly attributed to the Department of Government Efficiency.
Labor Market
Unemployment is projected at 4.4% by year-end 2025 (up from 4.3%), with solid but stabilizing conditions. A weakening job market could prompt rate cuts. The low unemployment rate doesn’t demonstrate the full picture as consumer sentiment is weakening. This can be partly attributed to the $3 trillion of U.S. household savings, which have been depleted since August 2021.
Tariff Uncertainty
President Trump’s proposed reciprocal tariffs are expected to increase inflation and slow growth, creating a “stagflation” risk. The Fed is in a “wait-and-see” mode, assessing these impacts. Markets have responded positively over the last couple of weeks, demonstrating confidence that trade deals will be favorably negotiated in the near term.
Sources like J.P. Morgan and U.S. Bank suggest the Fed will remain cautious, likely delivering one or two 0.25% cuts in 2025, with June as a potential starting point unless inflation cools significantly or the labor market weakens. Goldman Sachs (March 31, 2025) expects three rate cuts in 2025 (July, September, November), but this assumes tariffs cause a sharper economic slowdown, potentially pushing a cut into Q2 2025 if data weakens earlier. Citigroup (April 21, 2025) forecasts a June cut, maintaining 125 basis points (1.25%) of cuts for 2025, aligning with market expectations.
A June 2025 rate cut could further lower 5-year Treasury yields, potentially pushing them toward 3.5%–3.7% by Q3 2025, continuing the downward trend from Q1 2025 (~4.15%) and Q2 2025 (e.g., 3.81%–3.92% in early May). If the Fed holds rates steady through the second quarter, 5-year yields may stabilize or rise slightly, reflecting higher inflation expectations from tariffs, possibly hovering around 4.0%. It’s important to note that the Fed recently announced it would slow the average pace of quantitative tightening from $60 billion to $40 billion per month, which may cause some downward pressure in the treasury market.
LOCAL MULTIFAMILY METRICS
It’s interesting to look back at multifamily sales in the East side of the Atlanta MSA. Below are some market analytics:
Northeast Atlanta saw 9 sales in Q3 2024, 6 in Q4 2024, and 6 in Q1 2025.
} The average in-place cap rate for the submarket during Q3-Q4 2024 was 5.43%, 5.12% in Q1 2025. For the past three quarters, the average tax-adjusted cap rate in this submarket is 5.31%.
} The average price per unit for the past three quarters is $205,549, $187 per square foot, with average rent at $1,622.
Northeastern GA and Athens saw 4 sales in Q3 2024, 6 sales in Q4 2024, and no sales in Q1 2025.
} Average in-place cap rate for the market held at 6.76%.
} Average price per unit is $134,242, or $137 per square foot, with an average rent at $1,248.
In-Town Living Markets saw only 4 sales in Q3 2024, 9 sales in Q4 2024, and 4 in Q1 2025.
} The average in-place cap rate for the submarket during Q3-Q4 2024 was 5.43%, 4.42% in Q1 2025. For the past three quarters, the average tax-adjusted cap rate in this submarket is 5.18%.
} Average price per unit for the past three quarters is $216,919, $296 per square foot, with average rent at $1,591.
East Atlanta markets saw 6 sales in Q3 2024, 8 sales in Q4 2024, and 4 sales in Q1 2025.
} The average in-place cap rate for the market is now 5.77%, down from 5.82% in the second half of 2024.
} This was due to the Grove Parkview sale, which was on the Gwinnett (NE) side of the market.
} The average price per unit for the past three quarters is $163,658, $145 per square foot, with average rent at $1,544.
South Atlanta saw 3 sales in Q3, 4 sales in Q4, and 2 sales in Q1 2025.
} The average in-place cap rate for the submarket was 5.46% during Q3-Q4 2024, 6.76% in Q1 2025. For the past three quarters, the average tax-adjusted cap rate in this submarket is 5.83%.
} This average was slightly skewed due to two strong value-add deals that sold at very low cap rates because there was an opportunity to stabilize them at a 10%+ cap rate.
} The average price per unit for the past three quarters is $113,878, $118 per square foot, with average rent at $1,272.
} Notable upcoming sale data in Q2 2025: Legacy at Riverdale (615 units, 1973 built) – 8.34% in place tax-adjusted cap rate, $63,821/unit, around 85% occupied.
Middle Georgia: Macon/Warner Robins saw 4 sales in Q3 2024, 4 sales in Q4 2024, and 3 sales in Q1 2025.
} The average in-place cap rate for the submarket during Q3-Q4 2024 was 7%, 5.94% in Q1 2025. For the past three quarters, the average taxadjusted cap rate in this submarket is 6.88%.
} Note the Q1 sales comprise of a newer construction deal and a well-kept 80s deal, causing the current tax-adjusted cap rates to be lower than the market. The 80s deal had upside to stabilize closer to an 8% cap rate.
} The average price per unit for the past three quarters is $103,835, $103 per square foot, with average rent at $1,069.
South Georgia saw 1 sale in Q3 2024, 3 sales in Q4 2024, and 2 sales in Q1 2025.
} The average in-place cap rate for the submarket during Q3-Q4 2024 was 7.91%, 6.55% in Q1 2025. For the past three quarters, the average tax-adjusted cap rate in this submarket is 7.45%.
} Note the Q1 2025 sales comprise of a newer construction deal and a well-kept 80s deal, causing the current tax-adjusted cap rates to be lower than the market.
} The average price per unit for the past three quarters is $93,382, $99 per square foot, with average rent at $1,030.
IN TOTAL, THERE WERE 31 SALES IN Q3 2024, 39 IN Q4 2024, AND 21 SALES IN Q1 2025.
The difference in Q3 compared to Q4 was attributed to the slightly lower treasury yields in Q3 during the time that these Q4 closings were agreed upon and buyers were securing their debt component. Additionally, there’s motivation to close deals before the end of the year, which usually causes an uptick in transactional velocity before year-end.
Q1 2025 sales were down in Atlanta, primarily due to the uncertainty being pumped into the macroeconomic climate. There is still a lot of pricing exploration happening in the Atlanta metro and surrounding markets as there are a number of deals south of 90% occupancy.
