Five predictions for 2024’s real estate market

Five predictions for 2024’s real estate market

Prediction 1: CRE debt will take center stage as the financing market remains shaky

– In 2024, an estimated $182 billion is expected to mature among major commercial real estate property types, according to Moody’s Analytics Inc. Among that, an expected $47 billion is forecast to mature in the office loan world — the property type where the most distress is expected to be.

Multifamily, long a darling of the commercial real estate world, also is going to face a critical test next year, especially projects and properties financed with floating-rate, short-term debt. That concern extends to multifamily construction loans.

Prediction 2: The housing market will loosen, but many 2023 patterns will remain

-Most housing economists and experts are forecasting a decline in mortgage rates next year — which will improve affordability somewhat. But inventory, one of the biggest levers of housing affordability, is still expected to be a challenge, although many are predicting existing-home listings and sales to be up next year and new construction to hit nearly 1 million starts, which will ease some of the inventory issues.

About two-thirds of current homeowners have a mortgage rate of 4% of less, creating what many have termed the mortgage lock-in effect. With mortgage rates much higher now, it’s become more expensive to purchase a home, prompting many current homeowners to stay in place.

Redfin Corp. anticipates the 30-year fixed-rate mortgage will fall to 6.6% by the end of the year.

Prediction 3: Fed’s signal of cutting interest rates will unlock some CRE deal activity

-Investment volume was down 42% in 2023 from the prior year, according to CBRE Group Inc., which is predicting transactions to be down again in 2024 but by a more modest 5% year over year.

Two levers economists and investors are watching are what the Federal Reserve does with interest rates next year and the 10-year Treasury yield, , but there remains uncertainty about inflation, which means there is no guaranteed path for the federal funds rate.

Prediction 4: Cities will refine policies and strategies to reuse offices, revive downtowns

-Return-to-office is happening but it’s still sluggish and inconsistent in many markets. There’s no single answer that’ll resolve all of the difficulties facing downtowns — and every downtown has its own nuanced set of challenges. It might sound obvious, but experts stress that every initiative aimed at revitalizing a downtown should start with making downtown a place where people want to be.

Prediction 5: Apartment sector will slow, rents will soften in high-supply markets

-The for-rent sector is ending 2023 with signs of slowing, as a record amount of apartments and rental units deliver, especially in high-growth Sun Belt markets.

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