Real Estate Values Are ‘Bottoming,’ Blackstone Says

Economic Watch: Q4 2023 GDP Exceeds Expectations, Likely Signaling a Soft Landing link

• U.S. GDP grew by 3.3% in Q4 2023, surpassing the expected 2%. This strong growth, coupled with the Core Personal Expenditures Price Index meeting the Federal Reserve's 2% target, suggests a stable economic outlook.

• The Federal Reserve is likely to cut short-term interest rates by May 2024. A decrease in the 10-year Treasury yield to 3.6% by year-end is anticipated, fostering a recovery in investment activity in the latter half of the year.

• Despite global economic challenges and rising real interest rates, the U.S. economy is expected to slow down but avoid a full-blown recession. Healthy economic growth is predicted to sustain leasing demand throughout 2024.

Here are the top 10 hottest housing markets in 2024: CNBC  link

• The top 10 hottest housing markets in 2024 are spread across the South, Northeast, and Midwest, with Buffalo, New York, leading the list. This ranking is based on factors like job growth, home value appreciation, and the speed of home sales.

• A "hot" market indicates intense competition among buyers, but it doesn't always signify market health. For example, Florida's attractiveness to baby boomers is driven by its warm climate, tax benefits, and housing affordability, not necessarily by job market growth.

• In contrast, the "coolest markets" expected to see less competition and possibly declining home values include New Orleans, San Antonio, Denver, Houston, and Minneapolis. These trends are influenced by factors like affordability and market saturation.

"Housing affordability is reshaping migration trends," economist says. Here's where people are moving: CNBC link

• High mortgage rates and home prices are driving people to relocate for better housing deals. In 2023, people moving interstate chose metros with lower housing costs and less competition, where homes cost $7,500 less on average than their previous locations.

• Southern and Midwestern cities are gaining popularity due to their affordability and job creation. Cities like Charlotte, Providence, Indianapolis, Orlando, and Raleigh are seeing an influx of new residents, particularly from high-cost areas like New York City.

• These metros are not just affordable but also rapidly developing in sectors like tech and finance. This growth, combined with new housing constructions, is making these areas more attractive for relocation, balancing the demand and supply in the real estate market.

Home Selling Profits Drop in 2023 for First Time in Over a Decade Amid Modest Price Gains link

• In 2023, home sellers saw their profits decrease for the first time since 2011, with a typical sale generating a 56.5% return on investment. This decline occurred despite gross profits and profit margins remaining near record levels, indicating a notable shift in the housing market dynamics.

• The median home price in the U.S. rose to $335,000 in 2023, marking the smallest annual increase in over a decade. This slowdown in price growth reflects a complex interplay of factors, including fluctuating interest rates and a tight supply of homes.

• Cash sales of homes reached their highest level since 2014, accounting for 38% of all single-family home and condo sales in 2023. This trend highlights a significant shift in the home buying landscape, with a notable increase in cash transactions.

Real Estate Values Are ‘Bottoming,’ Blackstone Says link

• Blackstone, the world's largest commercial property owner, indicates a positive turn for real estate values in 2024. Inflation slowing and expected Federal Reserve rate cuts contribute to this optimistic outlook, despite recent challenges in the sector.

• The company's performance in real estate, its largest segment, has been the weakest for four consecutive quarters. However, Blackstone's opportunistic real estate investments declined by 3.8%, and its stable income-producing investments fell by 4.6%, showing signs of recovery.

• Blackstone's strategic moves, including a $31 billion investment in the last quarter and major transactions like the $3.5 billion Tricon Residential deal, signal confidence in the real estate market's recovery. Sectors like life science and multifamily, despite current slowdowns, are expected to improve, reflecting a long-term positive outlook.

Triple Net Lease Cap Rates Still on the Rise link

• The Lomuto Report from Northmarq indicates a continued increase in average closing cap rates for triple net leases. Factors like excess inventory, maturing loans, and tight spreads contribute to this trend.

• Challenges in the sector include difficulties in rolling over maturing loans and a lack of 1031 exchange buyers. These issues are not typically associated with stable or falling cap rates.

• The current market conditions, including developers needing to recycle capital and a dearth of 1031 buyers, suggest that rising cap rates are likely to persist. This situation is unusual for the triple net lease sector.