Demand for Retail Real Estate Space Hits Record High

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Mortgage rates edge up on surprisingly strong jobs report link

• November's jobs report exceeded expectations with 199,000 nonfarm jobs added, indicating a potential "soft landing" for the economy. This contrasts with October's addition of 150,000 jobs and surpasses economists' prediction of 180,000 for November.

• The unemployment rate decreased from 3.9% in October to 3.7% in November, but the overall trend shows a rise from 3.4% in April. This suggests a cooling U.S. economy, with a modest increase in the unemployment rate expected in the coming year.

• The strong jobs report has led to uncertainty about the Federal Reserve cutting interest rates in spring. Mortgage rates, closely tied to bond market trends, saw a slight increase, with 30-year fixed rates rising to 7.09%.

Demand for Retail Space Hits Record High in the US link

• The US retail space market is experiencing unprecedented demand, with freestanding and local properties leading the surge. This trend indicates a significant shift in the retail landscape, moving away from traditional mall-centric models.

• Underperforming malls are losing ground rapidly, highlighting a change in consumer preferences and shopping habits. This shift suggests a growing emphasis on convenience and accessibility, as well as a potential reevaluation of large-scale retail spaces.

Property Insurance Rate Increases Are Finally Softening link

• Recent trends indicate a potential easing of the sharp increases in property insurance rates. Woodruff Sawyer forecasts single-digit hikes in property and casualty insurance rates for the upcoming year, a shift from the more substantial increases seen previously.

• Ivans Insurance Services reported a slight decrease in the rate of increase for property insurance in November, with a 9.9% rise compared to 10.4% in October. This change suggests a slowing momentum in the rate of insurance cost escalation.

• Overall, insurance rates have risen this year, but at a slower pace than in the past two years. This trend indicates a possible stabilization in the insurance market, providing some relief to property owners facing escalating costs.

Moody’s 2024: Expect Low Transactions, Wave of Maturity Defaults link

• The 2024 outlook for commercial real estate (CRE) and commercial mortgage-backed securities (CMBS) appears challenging due to high interest rates. High rates are expected to continue impacting property values across CMBS sectors, particularly in the office segment, although economic growth in the U.S. might offset some risks.

• The CMBS market has been inefficient and unreliable as a financing source, but it maintains a constant flow of deals and a functioning ecosystem. Transaction volumes have slowed to levels last seen in 2013, with a significant bid-ask spread causing a transaction stalemate.

• Elevated yields on CMBS bonds are increasing property value risks in almost all asset classes except industrial. The report predicts a rise in CMBS issuance volume in 2024 as banks tighten lending standards, but also anticipates increased maturity default risks, especially in office buildings, over the next 12 to 24 months.

Good News for Home Buyers: FHA and GSE Loan Limits Rise in 2024 link

• FHA and GSE loan limits have increased for 2024, making home buying more accessible. FHA loans are now available up to $498,257 nationwide and up to $1,149,825 in expensive markets, while GSE loans are available up to $766,550 nationwide and also up to $1,149,825 in costly areas.

• These loans primarily aid entry-level buyers with low down payments or lower credit scores (FHA loans) and entry-level to move-up buyers with higher credit scores (GSE loans). The increase in loan limits varies by market, with some areas seeing no increase and others up to a $63K rise.

• The loan limit adjustments are based on home price appreciation from the previous year. Markets with no price appreciation, like Austin, saw no increase in loan limits. This change is expected to positively impact new home sales and closings in 2024, especially in markets with significant limit increases.