Commercial real estate faces its biggest crash since 2008

Welcome to Zero Flux - A daily real estate newsletter of 5-10 market trends handpicked from > 100 sources, including paywalled articles.

No opinions, just data and facts.

Let’s begin

Immigration Stokes US Population Growth link

• Immigration is set to be the primary driver of U.S. population growth in the next decade, with significant impacts on local housing markets, particularly in California, Florida, Texas, Nevada, and the Northeast. This trend is expected to increase the demand for rental housing, as new immigrants typically rent homes, and necessitate more family-oriented and multigenerational homes with additional bedrooms and affordable prices.

• The U.S. population is projected to grow by over 1.8 million annually through 2033, which is 400,000 more per year than recent Census projections. This growth is attributed to an expected increase in immigration, resembling the levels of 2014-2017 rather than the lower levels of 2019-2021, which were influenced by the pandemic and restrictive government policies.

• Net immigration will account for 67% of U.S. population growth in the next 10 years, a significant increase from 54% since 2013. This shift is due to lower fertility rates, an aging population, and a tight job market attracting foreign workers, with low unemployment rates and a slower-growing working-age population drawing more foreign workers into the U.S.

Mortgage rates continue trending down before Christmas link

• Mortgage rates have fallen below 7% for the second consecutive week, marking a significant drop after a prolonged period of high rates. This week's average 30-year fixed mortgage rate is 6.67%, down from last week's 6.95% and a notable decrease from the 17-week streak of rates above 7%.

• The decline in mortgage rates is reviving interest among potential homebuyers and positively impacting the housing market. Homebuilder confidence is increasing, and new home construction has reached its highest level since May, responding to the heightened demand in a market with low current inventory.

• Despite the positive trend in mortgage rates, challenges such as limited housing inventory persist. The scarcity of available homes continues to keep prices high, affecting first-time homebuyers who often face delays and increased competition in their home-buying plans.

November 2023 Existing-Home Sales Rise After Five Months of Declines link

• November 2023 saw a slight increase in existing-home sales by 0.8% from October, reaching a seasonally adjusted annual rate of 3.80 million. However, this figure represents a 7.3% decrease from November 2022.

• The national median existing-home price rose to $387,600, marking a 4.0% increase from the previous year. All four regions in the U.S. experienced price growth, with the West leading at a 5.3% increase.

• Inventory challenges persist, with unsold listings down 1.7% from the previous month and only a 0.9% increase from November 2022. The current inventory level would take 2.8 months to deplete at the current sales pace, significantly below the desired 6-month pace.

16% of Home Listings Were Affordable for the Typical Household in 2023, Likely the Bottom for Housing Affordability link

• In 2023, only 16% of home listings were affordable for the typical U.S. household, a significant drop from 21% in 2022 and over 40% before the pandemic. This marks the lowest share on record, with the decline attributed to high mortgage rates and elevated home prices.

• Racial disparities in housing affordability were stark, with only 6.9% of homes affordable for the typical Black household, compared to 21.6% for white households. The affordability gap was evident across various U.S. metropolitan areas, highlighting the impact of income disparities and historical discrimination.

• Positive trends are emerging for 2024, as housing affordability is expected to improve with falling mortgage rates and an increase in home listings. This improvement is driven by slowing home price growth, lower mortgage rates, and overall cooling inflation, potentially leading to a surge in home purchases.

US banks could get slammed with another $160 billion in losses as commercial real estate faces its biggest crash since 2008 link

• The commercial real estate sector is on the brink of its most significant crash since 2008, potentially leading to $160 billion in losses for US banks. This situation arises from the Federal Reserve's rate hikes in 2022, which have negatively impacted assets like stocks, bonds, and commercial real estate.

• Researchers estimate that 14% of all loans and 44% of office loans are currently in negative equity, with property values being lower than outstanding loan balances. Consequently, 10%-20% of all commercial real estate loans might default, a rate comparable to the Great Financial Crisis.

• The study warns of a potential banking crisis, with 31 to 67 smaller regional banks facing insolvency if half of uninsured depositors withdraw their funds. This scenario is exacerbated by the 2022 monetary tightening, which has significantly reduced banks' ability to withstand adverse credit events.