CRE Trends For H2, BoA Has Grim News for Homebuyers

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Households Bullish on Future Home Price Appreciation

Households have record-high expectations for how much home prices will be going up over the coming five years, see chart below.

Households are also very bullish on the equity market.

Looking ahead, extreme bullishness about home prices and stock prices makes the economy more vulnerable if asset price inflation stops or reverses.

CRE Trends For H2 link

• The U.S. commercial real estate market continues its expansion, with the 2024 Q1 GDP revised slightly upward to an annualized 1.4%. This supports healthy space market fundamentals across property types.

• High interest rates remain a significant challenge, causing frustration with the Fed and monetary policy. However, the overall balance of risks for CRE skews positive over the next 12-18 months.

• Multifamily properties have been demoted in priority, while the office sector remains troubled. Despite these challenges, there is optimism for CRE's general trajectory.

BoA Has Grim News for Homebuyers link

The US housing market is "stuck and we are not convinced it will become unstuck" until 2026 — or later, according to economists at Bank of America.

• Home prices are expected to remain high and may even increase, exacerbating affordability issues for prospective buyers. Limited inventory is a significant factor driving this trend.

• The scarcity of homes available for purchase is not expected to improve in the near future, making the market increasingly competitive. This situation is causing bidding wars and pushing prices even higher.

• Economic conditions and interest rates are not likely to provide relief for homebuyers anytime soon. High borrowing costs continue to be a barrier for many, further limiting their purchasing power.

Similarities to Global Financial Crisis link

• Deal volume has dropped by 60% in Q1 2024 compared to the 2022 peak. However, this decline is less severe than during the GFC, partly due to Blackstone’s 2007 flip of Equity Office Properties.

• The current market's suppressed deal volume is due to high interest rates and uncertainty about their future path, unlike the zero-interest-rate policy post-GFC. This has led to wide bid-ask spreads and less accommodative credit markets.

• Despite these challenges, most real estate sectors' fundamentals remain near historic norms due to unexpectedly sturdy economic growth. The worst of inflation appears over, and the Fed is likely done hiking rates, potentially stabilizing deal volume by early 2025.

(More insights, More details per insight, and more charts)

Here's where U.S. rents are rising — and falling — the fastest 

10 Cities Where Home Prices Are Rising Fast—With Some Surprises Leading the Pack

Top 5 Boston Submarkets for Office Construction

Best Cities for Renters to Live in 2024: This City Tops the Charts for Second Year in a Row

(Based on metrics — which include apartment quality, economic strength, traffic, air quality, natural amenities, cost of living; local economy, and quality of life)

Charted: U.S. Wealth by Generation

Tbh, kind of into it!

Link to the listing

That's all, folks.

Cheers,

Vidit

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