The Small Balance Intersection Update - July 20, 2024

The latest financial data from the WSJ at the close of business yesterday indicates mixed trends in major stock indexes and rising long-term U.S. Treasury yields. The Dow Jones Industrial Average (DJIA) decreased by 377.49 points (0.93%) to 40,287.53. The Nasdaq Composite dropped by 144.28 points (0.81%) to 17,726.94, and the S&P 500 decreased by 39.59 points (0.71%) to 5,505.00. The Russell 2000 fell by 13.94 points (0.63%) to 2,184.35. The CBOE Volatility Index (VIX) saw an increase of 0.59 points (3.70%) to 16.52, indicating higher market volatility.

In the U.S. Treasuries market, the 30-Year Bond's yield rose by 0.030 basis points to 4.452%, while the 10-Year Note's yield increased by 0.034 basis points to 4.245%. The yields for the 7-Year, 5-Year, 3-Year, and 2-Year Notes also saw minor changes, with slight increases observed across shorter-term bills.

Stats Of The Day:

Goldman Sachs Research analysts estimate that data center power demand?will grow 165% by 2030. That adds to the increasing demand for power from electric vehicles and the onshoring of manufacturing and supply chains.

Fannie Mae and Freddie Mac - Combined hold $919.9 billion of multifamily loans.

The CMBS market holds $51.84 billion of loans against multifamily properties

SFR new lease asking rent growth rose +3.9% year over year (YOY) in May 2024, according to the Burns Single-Family Rent Index?

Market Trends Way

U.S. Rental Market Shows Moderate Growth Amid Regional Variations

In June 2024, the U.S. rental market showed signs of moderate growth, with the median rent reaching $1,995, representing a 1.6% increase from the previous year. This growth, while slower than in previous years, indicates a trend toward stabilization after the dramatic fluctuations caused by the pandemic. Sun Belt cities, such as Miami and Phoenix, continued to exhibit strong demand, with Miami's median rent rising by 3.9% year-over-year. In contrast, major metropolitan areas like New York and San Francisco saw a slight decline in rental prices, reflecting a shift in tenant preferences towards more affordable and spacious living options.

The rental vacancy rate increased slightly to 6.8%, suggesting that the market is balancing out with enough supply to meet the current demand. Additionally, the average duration of rental listings increased to 28 days, indicating that renters are taking more time to find suitable properties. The report also highlighted that single-family rentals experienced a 2.3% year-over-year increase, outperforming multifamily units, which grew by only 1.1%. This trend underscores the growing preference for more spacious living arrangements, likely influenced by the pandemic's impact on housing preferences.

Furthermore, the data revealed that regions with a higher influx of new residents, such as the Southeast and Southwest, are seeing stronger rental growth compared to the Northeast and West Coast. The shift in population dynamics is driving demand in these areas, contributing to higher rent increases. For a detailed analysis and further insights, you can read the full report here.

CRE Avenue

Navigating the New CRE Landscape: Steady Improvements Amid Caution

The commercial real estate (CRE) sector is adjusting to the reality that the Federal Reserve may lower interest rates only once this year—or possibly, not at all—according to LightBox, New York. The latest LightBox Monthly Index Report reveals a modest yet steady improvement in the LightBox CRE Activity Index, signaling cautious optimism within the industry. June 2024 marked the fourth month of modest improvement in CRE activity, with the index rising to 93.9 from May’s 87.2, significantly above December’s three-year low of 48.2. Despite dire news headlines, the market is moving forward slowly and cautiously, with no massive defaults from loan maturities thus far. Assets in the office and multifamily sectors have started to change hands, leading to a potential significant transfer of ownership in major metros like New York City, Chicago, and San Francisco. Active developers are repurposing struggling properties, such as Class B and C office spaces or outdated shopping centers, into more desirable uses. Market participants may soon sense that prices are approaching the bottom, prompting them to shop around for deals even without interest rate cuts. The gradual rise in transaction volume is bringing clarity to property pricing, and encouraging investment. For further details, you can read the full report here. Additionally, the MBA Newslink provides more insights on this topic, which you can access here.

CRE Foreclosure Avenue

June 2024 Commercial Foreclosure Report Highlights Economic Challenges and Market Shifts

ATTOM's June 2024 Commercial Foreclosure Report reveals a significant increase in commercial foreclosures, marking a 35% rise from the previous quarter and a 55% surge compared to the same period last year. The report highlights that retail and office spaces are the most affected sectors, accounting for 40% and 35% of the foreclosures, respectively. This surge is particularly notable as it underscores the continuing struggles within these property types, likely driven by shifts in consumer behavior and remote work trends. Among the states, California, Texas, and Florida lead in foreclosure filings, with California experiencing a 45% increase year-over-year, indicating regional economic pressures. The rise in foreclosures is attributed to persistent economic challenges, high interest rates, and reduced consumer spending, creating a challenging environment for property owners. Notably, smaller metropolitan areas are seeing faster growth in foreclosure rates compared to larger cities, suggesting that economic recovery is uneven across different regions. The report emphasizes the need for property owners and investors to reassess their portfolios and strategies amidst these market shifts, as the growing foreclosure rates could impact property values and investment returns. It also suggests that lenders may tighten their lending criteria in response to the growing risk, potentially making it harder for borrowers to secure financing. For a detailed analysis, read the full report here.

HUD Development Block Grant Drive

HUD commits $3 billion in community development block grant disaster recovery funds

The Department of Housing and Urban Development (HUD) announced the allocation of over $3 billion in community development block grant disaster recovery funds to 14 states and Puerto Rico to assist in the recovery from disasters occurring in 2022 and 2023. These funds aim to support the reconstruction of housing, infrastructure, and economic revitalization in the affected areas. HUD Secretary Marcia L. Fudge emphasized the importance of timely aid to ensure resilient and equitable recovery efforts. This initiative underscores HUD's commitment to addressing the impacts of climate change and providing resources to rebuild stronger communities. Read more here.

Public Service Announcement Drive

Health Alert: Understanding the Risks of Moderate Alcohol Consumption

As we head into the weekend, it's vital to stay informed about health and safety issues. This week, we focus on the health risks of moderate alcohol consumption. A recent Wall Street Journal article reveals that drinking just three alcoholic beverages per week can increase the risk of certain cancers and heart disease. The study challenges the previously held belief that light to moderate drinking could have health benefits. Experts now emphasize the importance of re-evaluating alcohol consumption guidelines in light of these findings. Individual tolerance and health conditions play a significant role in the impact of alcohol, underscoring the need for personalized recommendations from healthcare providers. Public health policies may need to adapt to these new insights to better guide individuals on safe drinking practices. Staying informed and making conscious choices about alcohol consumption can significantly impact our long-term health and well-being. For more detailed information, read the full article here here.