More bad news for renters.

Sales of multifamily housing units—which include duplexes, apartments, and condominiums—have plunged under the riptide of rising interest rates and stricter bank lending.

Just how bad is the situation, and how will it impact property investors and renters?

In the first quarter, multifamily home sales cratered 74% — the largest decline since the Great Recession, according to CoStar Group, a real estate analytics company.

Meanwhile, ballooning interest expenses have offset landlord income from higher rents. And with banks unwilling to lend, many developers can no longer borrow their way out.

But the worst may still be ahead as $1 trillion worth of multifamily housing debt is due over the next year.

Multifamily debt trap

In its latest quarterly survey of bank lending officers, the Fed found that 63% had tightened standards for new multifamily loans; none had loosened.

Few borrowers want loans under these conditions. Over half of the banks reported weaker demand for multifamily-related loans, and only 5% said demand was stronger.

Tightening conditions can be seen in both the volume of new loans and their cost.

CBRE, a commercial real estate services firm, recently said its CBRE Lending Momentum Index fell by 5.4% quarter-over-quarter and 52.2% year-over-year in Q2, “as lending conditions remained challenging.”

The lack of financing is not only a problem for buyers and sellers but also for those building owners with loans that need to be paid off or refinanced.

According to the Wall Street Journal, the Mortgage Bankers Association says multifamily mortgages more than doubled over the past decade to about $2 trillion, or twice the amount of outstanding office debt.

Over half of that comes due in the next 18 months.

“These headwinds coincide with more than $1 trillion of commercial and multifamily rental property loans coming due in the next 18 months, “ wrote Julian Salisbury, chief investment officer for Goldman Sachs.

“Absent a clear path to replacing these loans — which the bank, bond, and insurance markets do not have the capacity nor appetite to accommodate — prices can be expected to reset…”

The price reset sounds vaguely comforting, but if economic conditions do not improve—and quickly—it just means that apartment building owners could be in for a hard time.

Defaults may affect tenants, too

No matter your perspective, a spike in landlord defaults could significantly affect renters.

Landlords that fall behind on property taxes, insurance, or maintenance could see the conditions of their properties quickly deteriorate— leaving tenants without essential services and adequate building conditions.

A bank taking over the property doesn’t offer much reprieve, either.

Banks do not want these money-losing, complicated assets on their books. They usually try to recoup losses by wringing every penny out of the buildings—as in hiking rents or cutting maintenance budgets.

Under current market conditions, no default scenario is attractive for renters. And even if landlords can avoid the worst-case scenario, a lack of housing options will likely continue to pose affordability challenges for renters.