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Mortgage rates to drop to 5.5% in 2024: Bloomberg

Pending Home Sales Up whopping 8.3% in December and 5 more Real Estate Insights

Macro Trends

Mortgage rates poised to drop to 5.5% in 2024: Bloomberg link

  • Economists predict a decline in mortgage rates to 5.5% by the end of 2024, sparking renewed optimism in the housing market. The forecast suggests a shift from the 6% to 7% range expected earlier, marking a significant change after three years of increasing rates.

  • The high mortgage rates of 2023 led to a dramatic drop in existing home sales, reaching their lowest since 1995 with only 4.09 million homes sold. This situation was exacerbated by high borrowing costs, which sidelined potential buyers and locked current homeowners into their low rates, contributing to a national inventory shortage and a surge in home prices.

  • Federal Reserve officials anticipate at least three rate cuts in 2024, offering a brighter outlook for the housing market. The U.S. economy's improvement in 2024 makes real estate a more attractive investment, with 57% of Bloomberg survey respondents viewing it more favorably than last year.

Pending Home Sales Up 8.3% in December link

  • December 2023 saw a significant 8.3% rise in pending home sales, as reported by the National Association of Realtors (NAR). The NAR's Pending Home Sales Index, a forward-looking indicator based on contract signings, reached 77.3.

  • The NAR forecasts a 13% increase in existing-home sales for 2024, indicating a positive trend in the housing market. This optimism is fueled by falling mortgage rates, stable home prices, job additions, and income growth.

  • Lawrence Yun, NAR's chief economist, emphasizes the need for increased supply to meet the potential demand. He notes that while the market benefits from favorable economic conditions, satisfying all potential demand requires a boost in housing supply.

Real Estate Trends

Rent Growth in Smaller Apartment Markets Outperforms Larger Metros link

  • In 2023, smaller apartment markets outperformed larger ones in rent growth. While the largest 50 markets saw a 0.1% decrease in effective asking rents, the next 100 markets experienced a 1.6% increase.

  • This trend reflects the resilience of smaller markets during economic downturns. They don't experience as significant gains as larger markets in prosperous times, but they also suffer less during challenging periods.

  • The performance of these smaller markets varies more than in larger ones due to their diverse sizes. Despite this variability, overall, they show less volatility compared to major markets.

Risks

Q4 2023 U.S. Office Figures: Negative Office Demand Continues to Ease link

  • The U.S. office market experienced its fifth consecutive quarter of negative net absorption in Q4 2023, totaling -2.9 million sq. ft. However, the pace of negative demand slowed down in the latter half of the year.

  • Office vacancy rates reached a 30-year high at 18.6%, increasing by 20 basis points quarter-over-quarter. This rise was influenced by negative net absorption and the addition of 5 million sq. ft. of new office supply.

  • Despite high vacancy rates, certain submarkets and newer buildings are defying the trend. Sun Belt markets showed positive absorption, and buildings constructed post-2010 had vacancy rates 3.4 percentage points lower than the U.S. average.

Something I found Interesting

Will a Silver Tsunami Change the 2024 Housing Market? link

  • The "Silver Tsunami" refers to the potential impact of aging baby boomers on the housing market. However, experts suggest this demographic shift won't drastically affect the market in 2024.

  • Many baby boomers prefer to age in place, with over half surveyed by AARP planning to stay in their current homes. This preference reduces the likelihood of a sudden influx of larger homes on the market.

  • Demographic changes are gradual, not sudden. Mark Fleming, Chief Economist at First American, emphasizes that demographic trends trickle rather than tsunami, indicating a slow, steady change over years.

Location Specific

Cary, North Carolina, Leads Nation in Percentage of Remote Workers; link

  • Cary, North Carolina, has emerged as a leader in remote work, with a significant percentage of its workforce operating remotely. This trend reflects the growing flexibility in work environments and the appeal of Cary for tech professionals.

  • The rise in remote work has implications for office space demand. In areas with a high concentration of remote workers, like Cary, there's an increased availability of office spaces, altering the landscape of commercial real estate.

Four Florida Cities in the Top 10 for Relocating Baby Boomers link

  • Baby boomers are increasingly choosing Florida for relocation, impacting the housing market. Florida's warm climate, affordable living, and tax benefits are major attractions.

  • This trend is significantly influencing the demand for apartments in Florida. As baby boomers downsize or seek retirement homes, the multifamily housing sector is experiencing a boost.

  • The shift in housing preferences among baby boomers could have long-term effects on real estate trends. It's not just about climate but also about the cost of living and lifestyle choices that are driving this demographic shift.

Proptech

Even With Troubles, Money Flows Into Proptech link

  • The proptech industry has faced significant challenges recently, with venture funding dropping by 42.4% year over year by the end of 2023. This downturn has led to the collapse of a once-promising unicorn startup, which laid off all its workers and was sold off.

  • These troubles raise concerns for CRE companies relying on proptech software and hardware. There's uncertainty about the longevity and support for these products, as companies worry if their tech providers will suddenly vanish or fail to deliver promised advancements.

  • Despite these issues, investment in proptech remains active. The industry's resilience suggests a continued belief in its potential, indicating that, while some companies may struggle, the sector as a whole still attracts financial interest and optimism.

That's all, folks. If you enjoyed today's issue, please reply (it helps with deliverability)

Cheers,

Vidit

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