Please enjoy this comprehensive daily analysis of the real estate and mortgage markets prepared by our AI platform ALFReD. Know Better. Work Smarter. Be More Successful. Tim
Opening Summary
As we approach the end of October 2024, the U.S. real estate market continues to navigate a complex landscape characterized by divergent trends across various sectors. The residential market is experiencing a notable split between new and existing home sales, with new construction outperforming the resale market. Commercial real estate, particularly the office sector, grapples with changing work patterns and economic uncertainties, while multifamily and industrial sectors show resilience. Mortgage rates, though lower than their peaks, remain a concern for affordability. This newsletter delves into the latest data and trends across residential, commercial, and mortgage markets to provide a comprehensive view of the current real estate landscape.
Key Takeaways
- New home sales increased 6.3% year-over-year in September, while existing home sales hit a 14-year low.
- The 30-year fixed-rate mortgage averaged 6.91% as of October 24, marking a significant increase from earlier in the month.
- Multifamily rent growth has moderated to 2.1% year-over-year, with national occupancy rates stabilizing at 94.5%.
- Commercial and multifamily mortgage delinquency rates increased slightly in Q3 2024, with office properties facing the most significant challenges.
- The New York Fed warns that banks may be obscuring commercial real estate risks by extending loan terms.
Residential Real Estate Markets
- New Home Sales: Sales of new homes reached a seasonally adjusted annual rate of 738,000 in September, up 4.1% from August and 6.3% from a year ago [U.S. Census Bureau](https://www.realestatenews.com/2024/10/24/new-home-sales-take-off-market-remains-grounded-overall).
- Existing Home Sales: In stark contrast to new home sales, existing home sales hit a 14-year low in September, highlighting the ongoing inventory challenges in the resale market [Real Estate News](https://www.realestatenews.com/2024/10/24/new-home-sales-take-off-market-remains-grounded-overall).
- Housing Starts: Privately-owned housing starts in September were at a seasonally adjusted annual rate of 1,354,000, which is 0.5% below the revised August estimate and 0.7% below the September 2023 rate [Census.gov](https://www.census.gov/construction/nrc/current/index.html).
- Home Prices: The statewide median home price in California was $868,150 in September, representing a 2.3% decrease from August but a 2.9% increase compared to September 2023 [California Association of Realtors®](https://www.noradarealestate.com/blog/california-housing-market/).
- Regional Variations: Most regions outperformed their year-ago sales, with some exceptions like the Central Coast and Central Valley. The San Francisco Bay Area saw a slight decline in median price year-over-year [California Association of Realtors®](https://www.noradarealestate.com/blog/california-housing-market/).
Mortgage Markets
- Mortgage Rates: According to the latest data from MortgageNewsDaily, as of October 24, 2024, mortgage rates are as follows MortgageNewsDaily:
- Rate Trends: Mortgage rates have risen significantly since the beginning of October, with the 30-year fixed rate increasing by 0.72% since October 1st. This upward trend has been driven by various economic factors and Federal Reserve policies MortgageNewsDaily.
- Market Impact: The recent rise in mortgage rates is likely to further impact affordability and potentially dampen buyer demand in the coming months. This could exacerbate the challenges already faced in the existing home sales market MortgageNewsDaily.
- Mortgage Applications: With rates rising, applications for mortgages have continued to slow. The latest numbers from the Mortgage Bankers Association show application activity at its lowest level since July, with both purchase and refinance applications posting weekly declines Mortgage Bankers Association.
- Future Outlook: Despite the recent upward trend, some analysts still expect mortgage rates to potentially decline before the end of the year. However, predictions remain uncertain given the volatile economic environment and potential Federal Reserve actions MortgageNewsDaily.
Commercial Real Estate Markets (including Multifamily)
- Delinquency Rates: Commercial and multifamily mortgage delinquency rates increased slightly during the third quarter of 2024, according to the Mortgage Bankers Association’s latest Commercial Real Estate Finance (CREF) Loan Performance Survey [MBA](https://www.mba.org/news-and-research/newsroom/news/2024/10/22/commercial-and-multifamily-mortgage-delinquency-rates-increased-in-the-third-quarter-of-2024).
- Office Sector Challenges: Delinquency rates for commercial mortgages backed by office properties continued to increase during the third quarter. 7.8% of the balance of office property loan balances were 30 days or more delinquent, up from 7.1% at the end of the previous quarter [MBA](https://www.mba.org/news-and-research/newsroom/news/2024/10/22/commercial-and-multifamily-mortgage-delinquency-rates-increased-in-the-third-quarter-of-2024).
- Multifamily Performance: According to the SitusAMC RECAP report for September 2024, the multifamily sector is showing signs of stabilization [SitusAMC RECAP](https://go.situsamc.com/rs/962-QMP-613/images/The%20RECAP%20%28RRE%29%20-%20SEPTEMBER%202024.pdf?version=0):
- Rent Growth: Year-over-year rent growth for multifamily properties has moderated to 2.1% nationally, down from the peak of 15.7% in February 2022.
- Occupancy Rates: National occupancy rates have stabilized at 94.5%, showing resilience despite significant new supply.
- Regional Variations: Sun Belt markets are seeing the most significant moderation, with Phoenix and Las Vegas experiencing year-over-year rent declines of 1.5% and 1.2%, respectively.
- Investment Activity: Multifamily investment sales volume reached $47.5 billion in Q3 2024, down 35% year-over-year but showing signs of stabilization.
- Cap Rates: Average cap rates for multifamily properties have increased to 5.2%, up 70 basis points from a year ago.
Industrial Sector: The industrial real estate market continues to show strength, with vacancy rates remaining low at 4.1% nationally, although rent growth has moderated [SitusAMC RECAP](https://go.situsamc.com/rs/962-QMP-613/images/The%20RECAP%20%28RRE%29%20-%20SEPTEMBER%202024.pdf?version=0).
Retail Sector: Neighborhood and community shopping centers are outperforming other retail subtypes, with vacancy rates declining to 5.7% nationally. Power centers and regional malls continue to face challenges [SitusAMC RECAP](https://go.situsamc.com/rs/962-QMP-613/images/The%20RECAP%20%28RRE%29%20-%20SEPTEMBER%202024.pdf?version=0).
Office Sector Outlook: The office market continues to face significant headwinds, with national vacancy rates rising to 17.2%. Central business districts in major markets are experiencing the most significant challenges [SitusAMC RECAP](https://go.situsamc.com/rs/962-QMP-613/images/The%20RECAP%20%28RRE%29%20-%20SEPTEMBER%202024.pdf?version=0).
CMBS / REIT Markets
CMBS Delinquencies: Among capital sources, CMBS loan delinquency rates saw the highest levels but remained flat during the quarter. 4.8% of CMBS loan balances were 30 days or more delinquent, unchanged from the last quarter [MBA](https://www.mba.org/news-and-research/newsroom/news/2024/10/22/commercial-and-multifamily-mortgage-delinquency-rates-increased-in-the-third-quarter-of-2024).
Other Capital Sources: Non-current rates for other capital sources remained more moderate:
- 0.9% of FHA multifamily and health care loan balances were 30 days or more delinquent (unchanged)
- 0.9% of life company loan balances were delinquent (down from 1.0%)
- 0.5% of GSE loan balances were delinquent (up from 0.4%)
Risk Concerns: The New York Federal Reserve has warned that banks may be obscuring commercial real estate risks by extending loan terms. This practice, while delaying the day of reckoning, could potentially increase risks to the broader financial system [Reuters](https://www.reuters.com/markets/us/ny-fed-says-banks-obscuring-commercial-real-estate-risks-by-extending-loan-terms-2024-10-23/).
As we move through the final quarter of 2024, the real estate market continues to present a complex and nuanced picture. The divergence between new home sales and existing home sales highlights the ongoing inventory challenges in the residential market. Commercial real estate, particularly the office sector, faces persistent headwinds as the industry adapts to changing work patterns and economic uncertainties. The multifamily sector shows signs of stabilization, with moderating rent growth and steady occupancy rates suggesting a return to more sustainable long-term trends.
The mortgage market remains sensitive to economic indicators and Federal Reserve policies. While rates have increased in recent weeks, they are still lower than the peaks seen a year ago. However, affordability concerns persist, potentially impacting buyer demand in the coming months.
Looking ahead, industry participants should remain vigilant and adaptable. The potential for further interest rate adjustments, evolving work patterns, and ongoing economic uncertainties will continue to shape the real estate landscape. Opportunities may arise for those who can navigate these challenges effectively, particularly in sectors showing resilience such as industrial and multifamily properties. The coming months will be crucial in determining the trajectory of the real estate market as we head into 2025.