Daily Dose of Real Estate for September 9

Please enjoy this daily analysis prepared by our AI platform ALFReD. Know Better. Work Smarter. Be More Successful.?Tim

Welcome to the Daily Dose of Real Estate, your go-to source for the latest insights and trends in the real estate market.?In this edition, we cover the current state of residential, mortgage, commercial, multifamily, and CMBS/REIT markets as of September 2024. From home price growth forecasts to regulatory updates and the latest on commercial real estate distress rates, we've got you covered.

Key Takeaways

·????? Residential Real Estate: Home price growth is expected to decelerate in 2024 and 2025, with supply constraints continuing to impact the market.

·????? Regulatory Updates: The FHFA has announced tighter underwriting standards for Fannie Mae and Freddie Mac, which will affect closing times for deals.

·????? Mortgage Markets: Mortgage rates are showing mixed movements, with a slight decrease in some categories. The Federal Reserve's anticipated rate cut is expected to influence further drops.

·????? Commercial Real Estate: CRE distress rates are highest in Charlotte, Minneapolis, and San Francisco. The industry is adjusting to higher interest rates as the new normal.

·????? Multifamily Real Estate: Rent growth is decelerating due to an increase in available units, but demand remains strong.

·????? CMBS/REIT Markets: The CMBS delinquency rate has inched up, with the multifamily sector contributing significantly to this increase.

Residential Real Estate

Market Trends:

·????? Home Price Growth: According to the?Fannie Mae Home Price Expectations Survey, a panel of housing experts forecasts annual national home price growth of 4.7% in 2024 and 3.1% in 2025. This is a deceleration from the 6.0% growth seen in 2023.

·????? Freddie Mac House Price Index: The?Freddie Mac House Price Index?reported a slight increase of 0.05% month-over-month in July 2024, with a year-over-year increase of 4.4%. This is down from a 5.2% year-over-year increase in June 2024.

·????? Supply Constraints: The market continues to face supply constraints, with a fundamental lack of housing relative to demographic needs. The nation is estimated to be short by approximately 2.8 million homes, according to Fannie Mae's Vice President and Deputy Chief Economist, Mark Palim.

Regulatory Updates:

·????? The Federal Housing Finance Agency (FHFA) has announced tighter underwriting standards for Fannie Mae and Freddie Mac amid increased regulatory crackdowns on loan fraud. These changes are expected to add 45 to 90 days to the closing time for deals during the first six to nine months following the implementation of the new rules?Commercial Observer.

Mortgage Markets

·????? Interest Rates:

·????? Current Rates: The average rate for a 30-year fixed mortgage is currently 6.43%, slightly down from the previous week. The 15-year fixed mortgage rate is at 5.98%, and the 30-year jumbo mortgage rate is at 6.73%?Mortgage Bankers Association.

·????? Market Movements: Mortgage rates have shown mixed movements, with slight decreases in some categories. The Federal Reserve's anticipated rate cut in September 2024 is expected to influence further drops in mortgage rates throughout the fall and into 2025?Mortgage News Daily.

Market Outlook:

·????? Mortgage Applications: Mortgage applications increased by 1.6% from the previous week, with purchase applications rising by 3.0% on a seasonally adjusted basis. Refinance applications, however, decreased slightly by 0.3%?Mortgage Bankers Association.

·????? Economic Factors: The recent jobs report has not resolved the debate over the size of the upcoming Fed rate cut, with nonfarm payrolls coming in below expectations. This has led to volatility in rate cut expectations?Mortgage News Daily.

Commercial Real Estate Markets

Market Trends:

·????? New Paradigm: According to RXR CEO Scott Rechler, commercial real estate is facing a new paradigm with the prospect of rate cuts. The industry is adjusting to higher interest rates as the new normal, which is impacting values across all sectors?Bloomberg.

·????? CRE Distress Rates: According to?Commercial Observer, Charlotte, Minneapolis, and San Francisco lead the U.S. in commercial real estate distress rates. Charlotte logged the highest level of distress with 24.8% of its loans in distress, followed by Minneapolis (23.6%) and San Francisco (20.1%). The overall distress rate for all loans across every market was 8.8% as of July 2024.

Economic Factors:

·????? Bank Exposure: The St. Louis Fed highlights that U.S. banks hold roughly half of all commercial real estate (CRE) debt, which poses significant risks to the banking system. The CRE market, valued at $22.5 trillion, faces higher interest rates, weaker fundamentals, and declining valuations. The office sector, in particular, is under pressure due to increased hybrid and remote work, leading to rising vacancies and declining net operating income (NOI)?St. Louis Fed.

Multifamily Real Estate Markets

Market Trends:

·????? The multifamily real estate market is experiencing a deceleration in rent growth due to an increase in available units. Despite this, demand remains strong as many potential homebuyers are priced out of the market due to high mortgage rates. The sector continues to attract significant investment, accounting for more than one-third of commercial real estate investment in 2024?Statista.

Economic Factors:

·????? The multifamily sector is seeing a rise in delinquency rates, with the rate increasing by 67 basis points to 3.30% in August 2024. This is attributed to the high number of new units coming online and the financial strain on renters?Trepp.

CMBS/REIT Markets

Market Trends:

·????? The CMBS delinquency rate inched up to 5.44% in August 2024, with the multifamily sector contributing significantly to this increase. The office sector, however, saw a reduction in delinquent loans?Trepp.

Economic Factors:

·????? The net lease REIT sector has seen some adjustments in price targets due to better-than-expected performance by companies like National Retail Properties. However, challenges remain due to high interest rates and property valuation risks?TalkMarkets.

This comprehensive analysis provides a snapshot of the current state of various real estate markets as of September 2024, highlighting key trends, regulatory updates, and economic factors influencing each sector. Please check out Impact Capitol and ALFReD for yourself at www.impactcapitoldc.com.

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