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Daily Dose of Real Estate: October 9, 2024
The U.S. real estate market is demonstrating resilience and adaptability as we enter the final quarter of 2024. A surprisingly strong jobs report has boosted economic confidence, but it may also influence the Federal Reserve’s future rate decisions, potentially affecting mortgage rates and housing affordability. Across various sectors, we’re seeing a mix of challenges and opportunities, with some property types thriving while others face ongoing hurdles. Here’s a comprehensive look at the latest trends and data shaping the real estate landscape:
Key Takeaways:
– The U.S. economy added a surprising 254,000 jobs in September, with unemployment dropping to 4.1%.
– Industrial production rose 0.8% in August, with manufacturing output increasing 0.9%.
– Housing inventory is increasing but remains tight, with months’ remaining supply at 3.8 months in August 2024.
– Mortgage rates have shown volatility, with the 30-year fixed rate averaging 6.12% as of October 3, 2024, according to Freddie Mac.
– Home Price Appreciation (HPA) remained strong at 6.2% year-over-year in August 2024.
– Commercial real estate construction spending reached $139.4 billion in August 2024, up 7.4% year-over-year.
– REITs continued to outperform broader markets in August, with the FTSE Nareit All Equity REITs Index posting a total return of 5.4%.
Economic News & Data
The U.S. labor market demonstrated unexpected strength in September, adding 254,000 jobs and surpassing economists’ expectations of 150,000 [U.S. Bureau of Labor Statistics](https://www.bls.gov/news.release/empsit.nr0.htm). The unemployment rate dropped to 4.1%, down from 4.2% in August. This robust job growth, coupled with wage increases, paints a picture of a resilient economy that may influence the Federal Reserve’s monetary policy decisions.
Key economic indicators include:
– Job gains were broad-based, with significant additions in leisure and hospitality (78,000), healthcare (71,700), and construction (25,000).
– Average hourly earnings rose 0.4% for the month, bringing the annual rate to 4%.
– The labor force participation rate remained steady at 62.7%.
The strong employment data has led to speculation about the Fed’s next moves. While the central bank cut rates by 0.5 percentage points in September, the robust job market may prompt a more cautious approach to future cuts. Economists now predict that the Fed is likely to make more modest 0.25 percentage point cuts in upcoming meetings [The New York Times](https://www.nytimes.com/2024/10/04/business/jobs-report-federal-reserve-rate-cuts.html).
Residential Real Estate Markets
The housing market continues to show signs of recovery, with inventory increasing and affordability improving due to lower mortgage rates earlier in the year. However, the strong jobs report may put upward pressure on rates, potentially affecting buyer demand.
According to Realtor.com‘s September 2024 housing data:
– The number of homes actively for sale grew by 34.0% year-over-year.
– The median price of homes for sale in September decreased by 1.0% compared with last year, at $425,000.
– Homes spent 55 days on the market, the slowest September in five years.
– The share of listings with price cuts increased by 0.9 percentage points compared with last year to 18.6%.
[September 2024 Monthly Housing Market Trends Report](https://www.realtor.com/research/september-2024-data/)
The S&P CoreLogic Case-Shiller U.S. National Home Price Index shows that home prices posted a 5% annual gain as of July 2024, indicating continued price growth despite affordability challenges [S&P CoreLogic Case-Shiller U.S. National Home Price Index](https://fred.stlouisfed.org/series/csushpinsa).
The latest data from the AEI Housing Center (September 2024) provides additional insights into the housing market:
– Purchase Volume: In 2024 week 39, purchase volume was down 8% year-over-year and down 38% from the same week in 2019.
– Home Price Appreciation: Preliminary Year-over-Year (YoY) Home Price Appreciation (HPA) in August 2024 remained strong at 6.2%, up from 5.9% a month ago and 4.8% a year ago.
– Market Conditions: Despite subdued purchase activity and relatively high rates, YoY HPA remains strong, largely due to buyers being well-qualified and continued competition in a strong sellers’ market.
– Supply: Months’ remaining supply was 3.8 months (not seasonally-adjusted) in August 2024, indicating a tight housing market.
– Mortgage Rates: The 30-year fixed rate mortgage averaged 7.31% for the week ending September 28, up from 7.19% the week prior.
[AEI Housing Market Indicators, September 2024](https://www.aei.org/research-products/report/aei-housing-market-indicators-september-2024/)
The National Association of Realtors reported that existing home sales dropped by 2.5% from July to a seasonally adjusted annual rate of 3.86 million. However, NAR’s chief economist, Lawrence Yun, noted that “the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months” [National Association of Realtors](https://www.nar.realtor/).
Mortgage Markets
Mortgage rates have shown volatility in recent weeks, influenced by economic data and Federal Reserve actions. As of October 3, 2024, Freddie Mac reported the average 30-year fixed mortgage rate at 6.12%, a slight increase from the previous week’s 6.08% [Freddie Mac](https://www.freddiemac.com/pmms).
Recent developments in the mortgage market include:
– The Mortgage Bankers Association (MBA) reported that mortgage applications increased by 1% for the week ending September 29, with purchase applications up 9% from a year ago [Mortgage Bankers Association](https://www.mba.org/).
– Refinance activity has shown a significant year-over-year increase, up 186% from 2023, although it decreased 3% week-over-week [MortgageNewsDaily](https://www.mortgagenewsdaily.com/markets/mbs-morning-10042024).
– Experts predict that mortgage rates could potentially drop below 6% by the end of 2024, which could further stimulate housing market activity [Fannie Mae](https://www.fanniemae.com/newsroom/fannie-mae-news/mortgage-rates-expected-dip-below-6-percent-2024-boosting-home-sales).
LendingTree reports that Americans owe $12.52 trillion on 85.35 million mortgages, representing 70.5% of U.S. consumer debt. The average interest rate for a 30-year fixed mortgage in 2024 is 6.79%, with rates ranging from a low of 6.20% to a high of 7.22% earlier in the year [Mortgage Statistics: 2024](https://www.lendingtree.com/home/mortgage/u-s-mortgage-market-statistics/).
The recent jobs report has led to speculation about future mortgage rate trends. While rates had been declining, the strong employment data may slow this trend as it could influence the Fed’s rate cut decisions.
Commercial Real Estate Markets
The commercial real estate sector continues to face mixed trends across different property types, with recent data from government sources and industry analysts providing insights into the market’s current state:
1. Industrial Production and Capacity Utilization: According to the Federal Reserve, industrial production rose 0.8% in August after falling 0.9% in July. Manufacturing output increased 0.9%, partly due to a recovery in the motor vehicles and parts index. Capacity utilization moved up to 78.0% in August, which is 1.7 percentage points below its long-run (1972–2023) average [Federal Reserve Board](https://www.federalreverse.gov/releases/g17/current/).
2. Construction Spending: The U.S. Census Bureau reported that total commercial construction spending reached $139.4 billion in August 2024, a 7.4% increase from the previous year. This growth indicates ongoing demand for commercial real estate development despite economic uncertainties [U.S. Census Bureau](https://www.census.gov/construction/c30/pdf/release.pdf).
3. Office Properties: Office vacancies remain high, with the national vacancy rate hitting 19.6% in Q4 2023, the highest on record. The ongoing shift to remote and hybrid work continues to impact this sector, with many companies reassessing their office space needs.
4. Industrial Properties: The industrial sector remains strong, with a 5.5% rental growth in 2024. The national industrial vacancy rate increased slightly to 6.4%, but demand for logistics and distribution spaces continues to drive growth in this sector.
5. Retail Properties: The retail sector is showing resilience, with vacancy rates expected to hold steady at around 4% due to limited supply. Neighborhood and strip centers are anticipated to experience steady performance.
6. Multifamily Properties: Multifamily properties maintain low vacancy rates, with B and C class units at 4.6% and luxury properties at 6.5%. Rents have increased by 0.7%, reflecting continued demand for rental housing.
7. Life Sciences: The life sciences sector continues to thrive, showing positive developments that enhance its attractiveness for investors. However, recent reports suggest that some key markets are experiencing a glut of lab space as life science funding slows down [CommercialEdge](https://www.commercialsearch.com/news/lab-space-oversupply-hits-key-markets/).
Analysts from Colliers note that having the right insights at the right time is crucial in commercial real estate. They emphasize the importance of digging deep into market trends to provide unique perspectives for clients making investment decisions [Colliers](https://www.colliers.com/en/countries/united-states/commercial-real-estate-research).
CMBS/REIT Markets
The CMBS (Commercial Mortgage-Backed Securities) market and REITs (Real Estate Investment Trusts) continue to reflect the broader trends in commercial real estate:
1. CMBS Market: According to recent data from the Federal Reserve, real estate loans for commercial real estate from all commercial banks totaled $2,114.4 billion in August 2024, showing a slight increase from the previous month [Federal Reserve Economic Data (FRED)](https://fred.stlouisfed.org/series/CREACBM027NBOG).
2. REIT Performance: The National Association of REITs (Nareit) reported that REITs continued to outperform broader markets in August. The FTSE Nareit All Equity REITs Index posted a total return of 5.4%, compared to 2.4% for the Russell 1000 and 2.1% for the Dow Jones U.S. Total Stock Market [Nareit](https://www.reit.com/news/blog/market-commentary/reits-continued-outperform-broader-markets-august).
3. Sector-Specific REIT Performance: Industrial and data center REITs have generally outperformed, while office and retail REITs have faced more significant challenges. The divergence in performance reflects the broader trends in the commercial real estate market.
4. REIT Outlook: Analysts from FS Investments suggest that the commercial real estate market may be poised for a rebound in Q4 2024. They note that while challenges persist, particularly in the office sector, other property types such as industrial and multifamily continue to show strength [FS Investments](https://fsinvestments.com/fs-insights/q4-2024-commercial-real-estate-outlook-recipe-for-a-rebound/).
5. CMBS Originations: The Mortgage Bankers Association reports that CMBS originations have declined due to higher interest rates and economic uncertainty. However, as interest rates stabilize and potentially decrease further, there may be opportunities for increased CMBS activity in the coming months.
In conclusion, the U.S. real estate market is showing signs of resilience and adaptation as we move through 2024. The surprisingly strong job market may influence Federal Reserve policy and mortgage rates, potentially affecting housing affordability and market activity. While challenges persist in certain sectors, particularly office properties, other areas such as industrial and multifamily continue to perform well. The strong performance of REITs relative to broader markets suggests that investors still see value in real estate assets. As economic conditions continue to evolve, investors and market participants should remain vigilant and adaptable to emerging trends and opportunities across both residential and commercial real estate landscapes.