August 14, 2024
Welcome to the Daily Dose of Real Estate, your go-to source for the latest updates and insights in the real estate market. In today's edition, we cover the latest trends and data points across residential, commercial, and multifamily sectors. We also delve into recent transactions, economic indicators, and market dynamics that are shaping the landscape. Stay informed and ahead of the curve with our comprehensive analysis.
Key Takeaways
- Residential Market: Home price appreciation remains strong despite higher mortgage rates and limited inventory. Mortgage rates have shown a slight increase, reflecting a trend of rising rates over the past month.
- Commercial Market: Interest rates for commercial real estate loans have stabilized, with a slight decrease from earlier in the year. The office sector continues to face challenges, with record-high vacancy rates.
- Recent Transactions: Notable transactions include a sale-leaseback in Georgia, the sale of an industrial complex in Arizona, and a construction loan for luxury residences in Colorado.
- Multifamily Market: Rent growth remains steady, supported by consistent economic growth and demographics. Occupancy rates have slightly declined, indicating a more competitive rental market.
- Economic Indicators: The Federal Reserve is expected to cut the federal funds rate in September, which could positively impact borrowing costs. GDP growth and job additions reflect a steady economy.
- CMBS and REIT Markets: The CMBS market faces challenges with high interest rates, but economic growth mitigates some risks. REITs have underperformed compared to the S&P 500, reflecting varying investor sentiment.
Residential Real Estate Market
Key Updates from AEI’s Housing Finance Watch (August 13, 2024)
- Home Price Appreciation (HPA): Year-over-Year (YoY) HPA in July 2024 remains strong at 5.9%, down from 6.4% in June. Despite subdued purchase activity and relatively high rates, YoY HPA remains robust due to well-qualified buyers and continued competition (AEI).
- Purchase Volume: Purchase volume in the first week of August 2024 was down 8% YoY and down 41% from the same week in 2019. This decline is attributed to higher mortgage rates and limited inventory.
- Inventory Levels: Inventory remains historically low, contributing to sustained home price appreciation. The months’ remaining supply was 4.1 months (not seasonally adjusted) in July 2024.
Mortgage Update
- Current Rates: As of August 13, 2024, the average 30-year fixed mortgage rate is 6.52%, the 15-year fixed mortgage rate is 5.91%, and the 5/1 ARM rate is 5.99% (Bankrate). These rates have shown a slight increase from the previous week, indicating a trend of rising mortgage rates over the past month.
- Rate Volatility: Mortgage rates have been highly volatile, with significant drops followed by quick rebounds. For instance, rates dropped to the lowest levels of 2024 on August 5, only to bounce back up significantly by August 6 (MortgageNewsDaily).
- Regulatory Updates: The Federal Reserve is expected to cut the federal funds rate in September, as inflation cools down towards the Fed’s 2% target. This potential rate cut is anticipated to further impact mortgage rates positively (Forbes).
Commercial Real Estate Market
Key Updates
- Interest Rates: Commercial mortgage rates have seen some stabilization. As of August 10, 2024, rates for commercial real estate loans in California start as low as 5.03% (Select Commercial). This represents a slight decrease from earlier in the year, reflecting a trend towards more favorable borrowing conditions for commercial real estate investors.
- Loan Standards: Banks reported tighter standards for both commercial and industrial loans and commercial real estate loans during the second quarter of 2024. Demand for CRE loans weakened, according to the Federal Reserve’s senior loan officer opinion survey (ABA Banking Journal).
Office Sector
- Market Insights: The office sector continues to face challenges, with net absorption remaining negative. However, there are geographic variations, with Southern metros like Miami and Dallas showing resilience, while tech-heavy regions like San Francisco and Seattle are struggling due to shifting work patterns (Fortune).
- Vacancy Rates: Office vacancies set a new all-time high at 20.1% in Q2 2024, breaking the 20% barrier for the first time in history. This is attributed to the permanent shifts in working behavior post-pandemic (Moody's).
Recent Transactions and Trends
- Sale-Leaseback in Georgia: JLL Capital Markets announced the sale-leaseback of a 333,250-square-foot Class A industrial property in Rincon, Georgia. The property, built in 2023, was sold to L&B Realty Advisors and is strategically located near the Port of Savannah. This transaction highlights the growing trend of sale-leasebacks as a strategy for companies to unlock capital while retaining operational control (JLL).
- KV Buckeye 10 in Arizona: JLL Capital Markets facilitated the $51 million sale of KV Buckeye 10, a 249,600-square-foot industrial complex in Buckeye, Arizona. The project is 60% leased and offers spaces below 50,000 square feet, catering to small and mid-bay tenants. This reflects the increasing demand for flexible industrial spaces to accommodate diverse tenant needs (JLL).
- Luxury Residences in Colorado: JLL arranged a $72.359 million construction loan for The Amble, a 42-unit luxury residential project at the base of Steamboat Springs Ski Resort. The project is set to be completed in Spring 2026 and aims to be net zero operating carbon. This transaction underscores the growing emphasis on sustainability and luxury in new residential developments (JLL).
Multifamily Real Estate Market
Key Updates
- Rent Growth: The average U.S. advertised asking rent rose $4 to $1,743 in July, up 0.8% year-over-year. Rent growth is sustained by steady demand due to consistent economic growth and demographics (Yardi Matrix). This trend indicates a stable increase in rental prices, reflecting ongoing demand in the multifamily sector.
- Occupancy Rates: National occupancy decreased 0.4% year-over-year in June, to 94.6%. The rate increased only in Las Vegas and Twin Cities (Yardi Matrix). This slight decline in occupancy rates suggests a more competitive rental market.
Market Data
- New Multifamily Construction: According to a recent report by CBRE, new multifamily construction starts have increased by 5% in the first half of 2024 compared to the same period last year. This growth is driven by strong demand in urban areas and the need for more affordable housing options (CBRE). This trend highlights the ongoing expansion in the multifamily sector to meet rising demand.
Economic News Impacting Real Estate Markets
Key Updates
- Federal Reserve: Experts are hopeful that the Federal Reserve will cut the federal funds rate in September, as inflation is cooling down towards the Fed’s 2% target (Forbes). This anticipated rate cut could further influence borrowing costs and investment decisions in the real estate market.
- Economic Indicators: GDP grew by 2.8% in the second quarter, and 1.3 million jobs were added during the first half of the year. These indicators reflect a steady economy, which although pointing to a cooldown, will likely lead to a soft landing rather than a hard recession (Yardi Matrix). This economic stability supports continued investment in real estate.
CMBS Market
Key Updates
- Wells Fargo Commercial Mortgage Trust 2024-C63: The pool's total credit opinion percentage is significantly greater than both the 2024 YTD average of 14.0% and the 2023 average of 17.8% (Fitch Ratings). This indicates a higher level of confidence in the credit quality of the underlying assets.
- Market Challenges: High interest rates will make refinancing difficult and restrict leverage on new deals. However, economic growth will mitigate some valuation risk, and new issuance is expected to steadily increase (GlobeSt). This trend suggests a cautious but optimistic outlook for the CMBS market.
REIT Market
Key Updates
- Performance: The FTSE NAREIT All REITs Index gained 0.46% in August, while the FTSE NAREIT All Equity REITs Index gained 0.12%. However, REITs were outperformed by the S&P 500, which rose 2.25% (GlobeSt). This performance disparity highlights the varying investor sentiment towards REITs compared to broader equities.
- Recent Announcements: Cherry Hill Mortgage Investment Corporation and Invesco Mortgage Capital Inc. announced their second-quarter 2024 results, reflecting ongoing adjustments in the REIT market (REITNotes). These announcements provide insights into the operational and financial strategies of major REIT players.
Conclusion
The real estate market is experiencing significant changes across residential, commercial, and multifamily sectors. Regulatory updates, economic indicators, and market dynamics are shaping the landscape, with notable impacts from the NAR settlement, interest rate fluctuations, and ongoing economic growth. Investors and stakeholders should stay informed and adapt to these evolving conditions to navigate the market effectively.
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