Buy now, or wait? That’s the question prospective homeowners have been struggling to answer in today’s housing market. Home prices have been skyrocketing since the pandemic, and the Federal Reserve’s work to tame inflation has sent mortgage rates soaring, too.
The combination has led many would-be buyers to pick the “wait” side of the equation. The volume of existing home sales was down more than 6 percent from December 2022 to December 2023, according to the National Association of Realtors. And, according to the Fannie Mae Home Purchase Sentiment Index released in January 2024, an overwhelming 83 percent of consumers believe it’s a bad time to buy a house.
However, after being at a constant disadvantage for the past few years, things have started to look better for buyers in many parts of the country. Days-on-market figures are way up, giving buyers more time to make an informed decision. Popular West Coast cities that had seen skyrocketing prices, like Seattle and San Francisco, saw double-digit year-over-year declines. And in December’s National Housing Report from RE/MAX, one of the biggest real estate brokerages in the country, CEO Nick Bailey declared that “There are many reasons to be encouraged about housing in 2024. If new construction starts increase along with mortgage rates dropping, move-up buyers may start to explore their options, making room for new buyers.”
So, is it time to buy a home? Or is it better to wait on the sidelines, in the hopes that either prices or rates see a significant drop soon? And what if there’s a recession? Here are some key considerations to help determine the way forward.
Mortgage rates have backed off from the 8 percent highs hit in October, but they’re still close to 7 percent. And home prices are high as well: According to the latest Case-Shiller U.S. National Home Price NSA Index, they’ve now increased for nine straight months. Together, these factors might dissuade you from buying right now, and that’s understandable.
No matter which way the real estate market is leaning, though, buying now means you can start building equity immediately. It also means avoiding the potential for additional mortgage rate increases later: Rising rates can spell serious trouble for your monthly budget, and they also result in paying more in interest over the life of the loan.
“If a buyer finds a property they would like to call home, they should not delay,” says Stacey Froelich, a broker with Compass in New York City. “You cannot time the market, and a home should be a long-term investment.”
“When mortgage rates drop and more buyers come back into the market, home prices will rise,” Melissa Cohn, regional vice president of William Raveis Mortgage in Connecticut recently told her newsletter subscribers. “Remember, you ‘Marry the house and date the rate.’” To put it another way, you can always refinance later.
In general, if you can answer yes to these three questions, now is a good time to buy.
Ultimately, the decision of when to buy a home is up to you. Life goes on, whether the timing is perfect or not. If you’re anxious to become a homeowner, you’ve met the criteria above and you’re financially stable, go ahead and start house-hunting.
While 1 percent might not sound like much, it can make a big difference in how much house you can afford over the long run. For example, Bankrate’s mortgage calculator shows that if you buy a $350,000 home with a 20 percent down payment, the monthly payment for principal and interest on a 30-year loan with a 7 percent interest rate is $1,862. The same loan at 8 percent brings those monthly payments up to $2,054 — $192 higher every month. That’s more than $2,300 each year.
Of course, it’s impossible to predict where rates will land by spring. But here are three instances in which it might make more sense to wait out the market until after this winter:
Deciding whether to buy a house now or wait depends a lot on where you want to call home. Regardless of national headlines, real estate is hyper-localized and can vary greatly from one market to another, even within the same state.
Consider this December Redfin data from Texas’ Dallas–Fort Worth metro area: In Fort Worth, the median sale price of a home had decreased by 3.2 percent year-over-year. In Dallas, just 30 or so miles away, the median shot up by 19.7 percent. That’s a massive difference, all within the same metro area. In today’s homebuying market, it’s more important than ever to find a real estate agent who really knows your local area — down to your specific neighborhood — and can help you successfully navigate its unique quirks.
The odds of a recession in 2024 now stand at 45 percent, according to Bankrate’s most recent survey. And as you might imagine, recessions are a risky time to buy a home. If you lose your job, for example, a lender will be much less likely to approve your loan application.
Even if the recession doesn’t affect you directly, if your area is hard-hit, that could have a serious effect on the local real estate market. Fewer local people with the means to buy means a lower chance of homes selling, which could keep people from listing and decrease your options as a buyer.
There are some potential upsides to buying a home during a recession, though, if you’re financially able to do so. Notably, there will be less competition, which could help you find a great property that you otherwise couldn’t and make a great investment in your future.
Trying to buy a house right now might feel overwhelming, but waiting too long can present challenges as well. Review your finances in detail, and think about how much you’re able to pay upfront as a down payment. Be sure to take the pulse of the town in which you’re hoping to live. Then, talk with an experienced local real estate agent to figure out whether you should buy now or wait until the market is a bit more friendly to your bank account.
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Buying or selling a home can be an extremely stressful and complicated process. In addition to combing through pages of listings and going to dozens of showings, buying or selling a home comes with a lot of lengthy and confusing paperwork. Even experienced buyers and sellers likely need some help when it comes to navigating the real estate market. That’s why so many people choose to work with a real estate agent.
While some home buyers and sellers might try and tackle the entire process on their own, many choose to enlist the help of a real estate agent to guide them through the home buying or selling process. In fact, according to the 2022 Zillow Group Consumer Housing Trends report, 88% of homeowners choose to list their homes with a real estate agent when the time comes to sell. There are many reasons why so many people choose to work with a real estate agent rather than go it alone.
First and foremost, real estate agents are incredibly knowledgeable about the real estate market. They must be licensed by their state and have to keep up with continuing education to ensure they stay up-to-date with housing trends and other important aspects of the home buying and selling process. Unless you are a licensed real estate agent, you won’t have the knowledge and experience that a real estate agent has.
Additionally, Zillow surveyed sellers who used a real estate agent to list their homes to determine which services their agent provided that were most important to them. The results showed that sellers’ number one priority is to find buyers and lead them through the home sale process, which their real estate agent did for them by listing their property on real estate listing sites, using professional photographs to help the property stand out, and guiding them through the paperwork and legal requirements of selling their home. Zillow’s full findings can be found in the chart below.
Listing a home for sale without the help of a real estate agent requires a lot more hands-on work from the seller. Without an agent, the seller will have to value their home, handle listings and marketing for the home, find potential sellers and guide showings or open houses, and handle all the paperwork and legal requirements themselves. While it’s certainly doable for a homeowner with the time, experience, and patience to manage the entire home selling process, most homeowners will likely benefit from using a real estate agent to help make the selling process go more smoothly.
While searching for a real estate agent, you may also come across the term “broker.” But what are brokers, and how are they different from real estate agents?
Although real estate agents are required by the state where they operate to take and pass a real estate license exam, brokers have gone a step further and undergone additional training. This allows them to sponsor and employ real estate agents or work independently. The benefit of this for the seller is the additional experience and education a broker can bring to the table. The most significant benefit for the broker is that they can take a percentage of a commission from an agent who works for them, which increases their earnings potential.
You might hear the terms “real estate agent” and “Realtor” used interchangeably, but there is a difference between the two. A real estate agent is licensed in their state to assist home buyers and sellers through the process. A Realtor, on the other hand, is a trademarked name for a professional who is a member of the National Association of Realtors (NAR).
In addition, a Realtor could be a real estate agent, but they could also be a salesperson, a broker, a property manager, or an appraiser. To become a Realtor, you must have a current real estate license, be actively working in the business, and meet specific legal and financial requirements. For example, you can’t become a Realtor if you have recently filed for bankruptcy or have a record of unprofessional conduct. Realtors can also take additional training to designate them as specialized in working with certain types of clients, such as the following:
With so many buyers and sellers choosing to work with a real estate agent, you might think it’s easy to find one to represent you. But according to Zillow, 18 percent of sellers said they had trouble finding the right agent. Luckily, it doesn’t have to be hard if you follow these seven simple steps.
Before you search online for real estate agents in your area, ask your local friends or family members whether they can recommend an agent they have worked with in the past. Asking those you trust for referrals can be the best way to find an agent. In fact, Zillow’s most recent research shows that 18% of sellers found their agent by asking friends and family for referrals.
Once you have a few names from friends or family members, it’s time to look them up online. Look at their current listings and check their social media accounts and website. Read online reviews to see what previous clients are saying about them. A few negative reviews are to be expected. Still, if there are more negative than positive reviews, or if the agent doesn’t reply to negative reviews (or worse, responds in a combative manner), you can cross them off your list and move on to the next candidate.
After you’ve vetted some agents online, pick the top three you think might be a good fit and make an appointment to meet with them. Meeting with multiple agents can help you compare and see if you like the communication style of one over another.
When you meet with your shortlisted contenders, ask them questions to get a sense of how they work and how they can help you buy or sell a home. The best real estate agents will welcome questions to help clients understand their process and see if they are a good fit. It’s a good idea to ask about their previous sales, experience working in your neighborhood, work style, and other factors that might come into play while you’re working together. A more detailed list of questions to ask can be found further down in this article.
The next step is to ask your shortlisted agents if they can provide you with references. This way, you can speak with former clients and ask them questions about what it was like actually working with the agent. Most agents will happily provide you with a list of references if requested.
If you have a weird feeling about an agent even after following all the previous steps, it’s best to follow your instincts. After all, you will be working closely with this individual, and if you aren’t entirely comfortable with them, it won’t be a very good working relationship. Crossing a contender that checks all the other boxes off your list is fine, if your gut tells you it’s not a good fit.
Once you’ve vetted potential real estate agents to work with and chosen the one you think will be the best fit, it’s essential to carefully read the contract before signing. The agreement will include the real estate commission, which is the percentage of the selling price the real estate agent will receive in exchange for their work with you.
In most cases, the seller pays the commission, but that may not always be the case, so it’s important for both buyers and sellers to understand the commission percentage. In addition, make sure you review the length of the contract. A contract over six months suggests the agent might not be confident they can sell your house or help you find a new house within that time frame. And if your home is still on the market half a year after being listed, it’s good to have the option to either sign a new contract with your agent or find a new agent to try and sell your home instead.
There are many things to look for when searching for a real estate agent, although some are more important than others. The following are some of the top things to check:
As part of the interview process, it’s essential to ask questions to determine whether or not an agent will be a good fit. Some questions will apply no matter whether you’re buying or selling, while others will only apply to one or the other situation.
The following questions are good for buyers and sellers to ask real estate agents when they are shopping around to find one to help them buy a house or sell a house:
If you’re looking for a real estate agent to help you find and purchase your dream home, the following questions can help you determine whether the agent you’re interviewing is a good fit:
When searching for a real estate agent to help sell your home, it’s important to ask the following questions:
Whether buying, selling, or investing in real estate, finding an agent who can represent your needs is vital. By following some simple steps, you can vet potential candidates to find one you trust to listen to and address your questions and concerns while helping you realize your real estate goals.
Finding the right real estate agent to help you buy or sell a home can be stressful. The following are some common questions about finding a real estate agent to help you get matched with someone who can help you reach your goals.
The main alternative to working with a real estate agent is to act as your own agent. The problem with this route is that most home buyers or sellers aren’t experienced with the process or the legal requirements when buying or selling a home. For many, selling a home is the largest transaction they will make in their lifetime, and it can take the burden off to have a professional in your corner to guide you through the process.
If you’re having trouble finding a real estate agent, try asking friends and family for referrals or searching for an agent using a tool like Zillow’s Agent Finder tool or Realtor.com’s Find a REALTOR. You can also contact local agencies and ask if they have an agent who could help you with your home sale. Finding a real estate agent who is a good fit can take time and energy, but it’s definitely worth it in the end.
The typical commission amount for a real estate agent is 6 percent split between the buyer’s agent and the seller’s agent. However, this percentage may be negotiable, so it’s vital to read the contract carefully before signing so you can negotiate. Generally, the seller pays the commission using part of their profit from the sale, but this can depend on what the buyer and seller agree upon in the offer.
It doesn’t really matter. All real estate agents need to be licensed in order to operate in their state. Some real estate agents are National Association of Realtors (NAR) members, which allows them to use the Realtor name. To become a member, an agent must not have a pending or recently filed bankruptcy and cannot have any official sanctions against them for professional misconduct, so choosing a Realtor can give you extra peace of mind about the professional you choose to work with.
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When you prepare your home for sale, it’s important to be able to detach from the house emotionally, so you can understand what buyers are looking for and what their potential concerns may be.
We consulted with experts and researched market conditions, buyer trends, and step-by-step guides to compile every touchpoint covered in this checklist on how to prepare your home for sale.
When you decide to prepare your home for sale, the first order of business is to start packing and purging immediately. To avoid feeling like your entire life and home are upside down, outline a strategy to keep you organized. Here’s a checklist of the most important things to tackle during the process:
Go through every room and collect items you want to donate, throw out, or sell: Do this before you start packing to save both money and time. Determining what you should get rid of or keep can be a painstaking task, but we’ve got some tips to guide you.
Take an inventory of all your belongings: Taking stock of your belongings will not only help you keep track of them during the move, but it’ll also be useful to have on hand for homeowners insurance purposes.
Label everything: Top real estate agent Carrie Buckett is a relocation specialist who serves Illinois and Wisconsin. She has seen too many clients leave boxes unlabeled and stick them in the basement, thinking, “Oh, we’ll go through these later.” And they end up collecting dust never to be opened again. “Label everything,” advises Buckett.
Pack a suitcase full of items you want to hold onto during the moving process: This includes everyday necessities plus valuable and sentimental items like family heirlooms and important documents.
Save time and keep your items safe and damage-free through the entire process: For tips and tricks to making sure your belongings don’t break, and other strategic packing advice, check out our guide to make moving easier.
Proper packing techniques will help you prepare your home for sale in more ways than you think. If it looks like you take good care of your possessions, buyers are likely to assume you have taken the same approach with the house.
Creating a neutral and inviting space allows potential buyers to envision themselves in your home. Start by minimizing personal items, streamlining decor, and giving every room a thorough cleaning to present your property in the best light.
When you prepare your home for sale, there needs to be enough room for buyers and agents to move around while viewing your home. Clutter can be visually unappealing and impede potential buyers from seeing themselves living in the house, so you’ll want to declutter as much as possible. For items you need to hold onto, find a few decorative boxes that can be kept out of sight yet still easily accessible. You may also consider renting a storage unit.
Depersonalizing goes a step further than decluttering, so the buyer can envision themselves and their own belongings in the home. When you prepare your home for sale, depersonalizing is important because it removes distractions that could keep the buyer from focusing on the house itself. You’ll want to make sure to remove your family photos and religious items and cover up patterned, bulky furniture that’s specific to your taste.
“A deep clean never fails to solicit buyer comments like the house feels solid, well-maintained, or meticulously cared for — even if the house is really outdated,” says Jessica Riphenburg, a top agent in Madison, Wisconsin who sells homes 65% faster than her peers.
You can hire a professional if you’d like, but that will cost you between $150 and $250, with most homeowners paying $221 on average for a one-time clean. This is one of those projects that you may want to take on yourself if you’re willing to put in a little elbow grease.
When cleaning, it’s best to tackle one task at a time (like washing windows) and perform that task through the entire house before moving on to the next thing. This means pulling out furniture to get rid of dust bunnies, removing carpet stains, scrubbing your appliances inside and out, and wiping down baseboards and door handles.
Working with a top agent can be one of the most important steps to take as you prepare your home for sale. HomeLight’s data shows that the top 5% of real estate agents across the U.S. sell homes for as much as 4.8% more than the average real estate agent.
An experienced agent can help you identify any issues when preparing your home for the market, and will often have a Rolodex of contacts for work that needs to be done by a professional. You can also utilize your agent’s network when it comes time to list your home to connect with stagers, landscapers, photographers, and beyond.
Curb appeal is extremely important because it determines a buyer’s first impression when they approach your home or see it in photographs online. To prepare your home for sale, clear your yard of debris (and any unwelcome surprises if you’re a pet owner), mow the lawn, and trim back bushes. If you choose to do some planting, apply mulch liberally and use low-maintenance flowers like perennials.
Good landscaping also increases home value. According to HomeLight’s Top Agent Insights Report for Spring 2023, landscaping adds $7,312 to your sale price on average, which amounts to a 112% return on investment.
If your exterior paint is faded or flaking or your house has cracks, wood rot, or other water damage, these are all signs to paint the exterior when you prepare your home for sale.
Obvious damages to your home are likely to be red flags for buyers, and the last thing you want is a buyer nitpicking problems they can use as bargaining chips to seek a lower price.
The most important repairs are the ones that pose a hazard or have a significant impact on everyday life. These range from plumbing and electrical problems to issues with your home’s foundation. Some of these can be easy and low-cost fixes, while others can be expensive but are necessary since they’re critical to the sturdiness and functionality of the home. Filling in a single foundation crack, for example, runs between $250 and $800, according to Angi.
To get ahead of appraisal-required repairs, you may want to consider getting a pre-listing home inspection to ensure that your home is up to par with needed repairs and maintenance. Expect to pay about $342 on average for a pre-listing home inspection.
When preparing your home for sale, some upgrades can increase the value of your home. According to HomeLight’s Top Agent Insights for End of Year 2023, the biggest home selling point was an updated kitchen with newer appliances, earning 67% of the vote. A minor kitchen remodel can yield a 72% return on investment when it comes time to sell but you can expect to pay between $25,000 to $40,000.
Energy-efficient upgrades like new insulated windows can also save buyers money over the long term, costing $200 to $1,300 per window with a 68% return on investment. In fact, 32% of agents surveyed by HomeLight said that energy-efficient or green home features were a top selling point for today’s buyers.
If you’re handy and have the skills to fix certain issues such as plumbing or landscaping, or if you want to do DIY projects like painting the walls in some key rooms, you can increase the value of your home in a cost-efficient way.
When you prepare your home for sale, staging can highlight its features without drowning them out — creating an attractive vision to help buyers see your house as their future home. While it might seem simple, staging is a skill, so you may want to hire a professional to ensure it’s done effectively.
In many cases, expert staging can allow sellers to forgo expensive updates and instead bring out the best in their home, as is. In a recent HomeLight Top Agent Insights report, the agents surveyed said that a professionally staged home can sell for up to 13% more than an unstaged home. At an average cost of $1,781, that makes professional staging a worthwhile investment.
With a top-producing real estate agent at your side and a solid game plan, you can successfully sell your home and make a seamless transition to the next chapter in your life. When you prepare your home for sale, just remember to do your research, buy the right supplies, take your time, and if you need an extra hand, don’t hesitate to call in the professionals.
MARTIN BARRAUD
After a year marked by volatile — and frequently high — mortgage rates, little inventory and affordability issues that sidelined many buyers, the 2024 housing market outlook offers more of the same, albeit with some relief.
Housing economists vary somewhat on their assessments of what’s to come in the for-sale market during the next 12 months, and predicting factors like where mortgage rates will end up can be difficult. Most, however, agree the conditions for housing will improve, even if only slightly, and that’s expected to unlock inventory, moderate home-price appreciation and make transactions easier to achieve.
Many groups that closely track the real estate industry are predicting a decline in mortgage rates, although not to the level seen during the depths of the Covid-19 pandemic. Redfin Corp., for example, anticipates the 30-year fixed-rate mortgage will fall to 6.6% next year, a prediction similar to that of the National Association of Realtors, which predicts an average mortgage rate of 6.3% in 2024. Next year’s rates will close around 6.5%, according to Realtor.com, but most of 2024 is expected to see an average of 6.8%.
Most housing economists say the Federal Reserve’s goal of taming inflation has proven to be successful. That could mean interest-rate cuts by mid-2024, though not everyone agrees that will occur. In fact, Ken Simonson, chief economist at the Associated General Contractors of America, said during an NAR forecast summit this week he thought the Fed wouldn’t make any rate cuts next year and, in fact, might actually keep increasing rates because of its persistent concern about inflation.
The Consumer Price Index was at a 3.1% annual rate in November, a slight decline from the CPI annual rate of 3.2% in October and the latest evidence of tempering inflation. The Fed has a stated goal of 2% inflation.
Danielle Hale, chief economist at Realtor.com, said recent weeks have seen a sharp drop in mortgage rates, the latest example of the rate volatility that’s been a hallmark of 2023. As the broader economy, specifically around inflation, begins to moderate, that should push mortgage rates downward — although slowly — and rates are likely to move up and down less rapidly than they did this year, Hale said.
In many ways, the mortgage-rate environment for 2024 could be a return to what was normal in pre-pandemic days, albeit at higher rates, Hale added.
This year saw constrained inventory among existing homes, making whatever inventory did hit the market competitive and, ultimately, keeping prices high in many markets.
The NAR this week said existing-home sales are projected to be down 18% from last year, the second year in a row in which the existing-home market has seen a double-digit decline in sales from the previous year. Existing-home sales slid 4.1% in October, the latest month available, to a seasonally adjusted annual rate of 3.79 million.
About two-thirds of current homeowners have a mortgage rate of 4% of less, Hale said, creating what many have termed the mortgage lock-in effect. With mortgage rates much higher now, it’s become more expensive to purchase a home, prompting many existing owners to stay in place.
Some economists are predicting a shift next year, with an expectation that more owners will put their homes on the market. That should boost existing-home inventory, even if only by a modest amount.
Daryl Fairweather, chief economist at Redfin, said she believes the mortgage lock-in effect will start to fade next year, especially for people who would’ve preferred to sell their home this year. A life event, such as a marriage, a divorce or a birth, may prompt those households to finally make a move in 2024, she said.
The NAR also is predicting home sales to increase next year, about 13% in the existing-home market and 17% in the new-construction market.
Orphe Divounguy, senior economist at Zillow Group Inc., said people are less likely to make a big purchase or life decision, including buying or selling a house, when there’s uncertainty. The mortgage-rate roller-coaster ride in 2023 and threat of a recession made a lot of households unwilling to make a big move.
“If mortgage rates and the broader economic outlook become more certain in 2024, that could then propel more activity in the housing market,” he said.
There’s evidence that inventory already has begun to increase. New listings bottomed out in April at almost 35% below pre-pandemic norms, according to Zillow. As of November, that shortfall had been reduced to 14%.
While the existing-home market this year has been challenging, the new-construction market has seen a rebound. Single-family housing starts in October, the latest month for which data was available, rose 0.2% to a seasonally adjusted annual rate of 970,000 units, according to U.S. Census data.
In fact, 2023 is on track to be the third- or fourth-best year for new single-family home construction since 2008, said Lawrence Yun, chief economist at the NAR, during its forecast summit. Many homebuilders have leveraged a competitive advantage over the existing-home market this year, with the ability to offer concessions like rate buydowns.
The National Association of Home Builders is forecasting 950,000 single-family housing starts next year. That’s not quite the estimated 1.5 million housing units the association believes is missing in the market, although there also are about 1 million apartments underway nationally right now.
Divounguy said a lot of builders are focused on finishing their current home construction — bringing that to market and selling it. The NAHB/Wells Fargo Housing Market Index, which measures builder confidence, has been slipping on a monthly basis since July.
“Builders are cautiously optimistic,” Divounguy said. “We still have population growth, new families moving from abroad, older homes that need to be torn down or fixed up. That all means new construction can’t sit idly by on the sidelines.”
If mortgage rates do moderate next year, and more inventory hits the market, does that mean the housing market will become more affordable in 2024?
Yes, albeit not by a significant margin, most housing economists say.
Realtor.com is predicting home prices will decline 1.7% in 2024 after a projected 0.2% growth in 2023 and a whopping 10.3% in 2022. A lack of home-price declines in many markets, paired with a higher mortgage rate, has locked out a significant pool of buyers.
In October, purchasing a typical for-sale home at a 30-year fixed mortgage rate would’ve required 39% of the typical household income, according to Realtor.com. That share is expected to average 36.7% for 2023, much higher than the historical average of 21%.
Because of the more expensive housing market, 40% of first-time homebuyers are making a down payment of 5% or less, according to NAR data.
Still, with a more optimistic mortgage-rate outlook and a greater amount of inventory, combined with strong wage growth in 2023, it’s possible buyers will have an easier time next year.
“It’s not going to completely reverse the trend in affordability — homes are still going to be pretty expensive — but it will be a baby step in the right direction for buyers, to start to bring home prices closer in line to incomes,” Hale said.
Migration trends and moves to more affordable metro areas are still having an influence on the broader housing market, too, although perhaps not at the levels observed during the Covid-19 pandemic.
Fairweather said she expects there will continue to be less migration than there was during the pandemic, adding the share of people moving to a new metro has leveled off. She said prices have corrected significantly in West Coast cities like Los Angeles and the San Francisco Bay Area, and there could be a boomerang effect for those markets.
That’s something Realtor.com also is predicting may happen in 2024, with southern California identified as a region to watch in 2024.
“Southern California has had a really difficult 2023, but we think sales will start to bounce back” there, Hale said during the NAR forecast event.
The markets Realtor.com is predicting will have the biggest home price and sales activity in 2024 are affordable Midwestern and Northeastern markets, including Toledo, Ohio, and Rochester, New York. Other economists also are bullish on Ohio, chiefly for that state’s affordability compared to other parts of the country — although Sun Belt superstar cities like Nashville, Tennessee, and Austin, Texas, will continue to see population migration, Divounguy said.
“Austin is building a ton of housing, and I wish we saw more of that across the country,” he said. “I think people are going to continue to move to where there’s a larger mix of affordable-housing options, and that’s probably going to be states that are building a lot, where you’re getting … a different mix of housing options.”
TADAMICHI VIA GETTY IMAGES
Commercial real estate transactions slowed considerably in 2023, amid high interest rates, declining values and pricing uncertainty.
Investment volume declined by 42% in 2023 from the prior year, according to CBRE Group Inc. (NYSE: CBRE). The Dallas-based commercial real estate firm is expecting deal volume to be down again in 2024, but by a more modest 5% year over year.
Richard Barkham, global chief economist and global head of research at CBRE, said there’s been “enormous excitement” since the 10-year Treasury yield recently dropped, to about 4%. Combined with the Federal Reserve’s signaling of some interest-rate cuts next year, that should propel more commercial real estate transactions in 2024.
“There are still some issues we will need to contend with,” Barkham said, adding the Fed still wants to see a lower rate of inflation, and economies in the rest of the world are also slowing. “We’ve found it very difficult to forecast and be accurate on inflation. It’s not impossible we’ll get another inflation upside surprise,” he added.
CBRE is forecasting an average 10-year Treasury yield of 3.3% between 2025 and 2028. That will likely result in more deal volume in the medium term rather than in 2024, though transactions are likely to start picking up in the second half of 2024, Barkham said.
CBRE isn’t predicting a recession in 2024 but expects the economy to slow, with a projected unemployment rate of 4.5% — up modestly from the rate of 3.7% last month — and the inflation rate to cool to about 2.7% by the end of 2024.
Next year will also have a closely watched U.S. presidential election. Barkham said he wasn’t sure what impact that will have on commercial real estate activity but, he added, during very contested elections, the market tends to slow about three months before Election Day.
Rebecca Rockey, deputy chief economist and global head of forecasting at Cushman & Wakefield plc (NYSE: CWK), in an email said last week’s Fed announcement was largely expected and doesn’t meaningfully shift the Chicago-based commercial real estate firm’s perspective for 2024. There’s also still uncertainty about inflation and no guaranteed path for the federal funds rate, she added.
“So, as the Fed stated, it is too soon to declare victory,” Rockey continued. “I think there is a temptation to place too much emphasis on the Fed pause and pivot. Certainly, it will add much needed clarity, but the fact remains that we are in the midst of a broader adjustment process to higher costs of capital, and that will persist well after the Fed’s pivot and throughout their cutting cycle.”
Still, she said, Cushman is predicting commercial real estate transaction momentum to gain steam through next year and into 2025 as the economy and interest-rate picture becomes clearer. That’ll allow for greater conviction in underwriting income and exit assumptions, Rockey said.
Tim Bodner, real estate deals leader at PricewaterhouseCoopers LLP, said there’s new optimism among real estate investors since the Fed’s announcement last week. The economy is also holding up fairly well, with inflation coming down and the consumer and labor market overall resilient, he added.
“All of these things provide a really nice backdrop for … the commercial real estate market,” Bodner said.
But it’s inevitable a looming wave of debt maturities will need to be addressed, and most who track the commercial real estate industry closely expect an uptick in distress and foreclosures in 2024. Moody’s Analytics Inc. estimates there will be $182 billion in commercial real estate debt maturing next year.
The office market will continue to be closely watched next year, in particular as debt matures on troubled properties.
Bodner said challenges observed in the office market right now are similar to what’s been seen in the mall sector in recent decades. There are also a number of properties that don’t have the right capital structure, Bodner added, which will trigger distress — and it won’t be immune to just office.
So far, loans facing issues at maturity in commercial real estate have largely been dealt with through loan extensions and modifications. Barkham said it’s likely banks are going to be a little more firm next year in how they handle financially strained properties after mostly soft pedaling in 2023.
“The banks always go easy in the periods of real uncertainty but, oddly enough, as (there is) greater certainty about the trajectory about the economy and about a soft landing, I think they’re going to want to deal with some of those loans that are very underwater,” Barkham said, adding a marked uptick in office building foreclosures is likely next year.
Rockey said office is likely to struggle because underwriting absorption or rents is very difficult for that sector in today’s market, and pricing is still disconnected from the higher rate environment.
“However, opportunistic capital is eager to see distressed or discounted sales even in this sector,” she added. “It just needs to be the right price.”
While more deals in the distressed space is expected among commercial real estate economists, there’s not likely to be an avalanche of transactions in that world, Bodner said.
Investors ‘look selectively’ at CRE deals
Some major commercial real estate players are sharpening their pencils to figure out which deals will make sense in 2024.
Alfonso Munk, Americas chief investment officer at Houston-based Hines, said during the recent economic and real estate turmoil, his firm has selectively continued to invest, particularly in property types like retail, medical office and student housing.
But Hines has historically been a major traditional office player, with Munk estimating the firm manages close to $30 billion in office assets. The firm has pulled back significantly on its investment in office, having only bought one office property in the U.S. in 2023, an 11-story building in downtown Washington, D.C., for nearly $60 million in April.
“I think you’ll see a re-shift, like we saw in retail, where the demand is going to be there, but it’s going to be focusing on the best office (buildings) and locations,” Munk said.
And despite the buzz last week around the Fed’s intention of cutting interest rates next year, Munk said Hines isn’t yet counting on rates going down in its underwriting assumptions, which means a lot of deals still won’t pencil.
He said he’s also closely tracking the labor market in 2024, as well as which markets are starting to get crowded and could be at risk of being oversupplied — places like south Florida; Austin, Texas; and Denver, according to Munk.
But metros like Tampa, St. Petersburg and Orlando in Florida; Charlotte, Raleigh and Durham in North Carolina; and Dallas are interesting because of their employment growth and infrastructure investments, such as the Brightline train that connects Miami and Orlando, Munk said.
“We look selectively at markets,” he continued. “You have to go where the barriers to supply are, (where there’s) not as much hype and you can still find value.”
Financial institutions still largely don’t want to own or manage a lot of real estate, and that might prompt lenders to continue to extend loans, even on troubled assets, he added.
KATHLEEN LAVINE, DENVER BUSINESS JOURNAL
As Denver’s final residential rental licensing deadline looms in front of landlords, the city has seen an uptick in applications to receive a license.
The City and County of Denver is taking the program seriously, as it has penalized delinquent landlords with approximately $82,000 in fines so far this year.
Jan. 1, 2024, is the final deadline for single-unit landlords to apply for a now-required license to run a rental property in the City of County of Denver. The Department of Excise and Licenses received a record number of license applications at 1,952 in November, but December has already surpassed that number with 2,415 applications so far.
Denver City Council voted in 2021 to require residential rental licenses; one of the goals of the program has been to make sure Denver renters live in safe and habitable spaces. In July, the program became the most licensed within Denver, with security guards and short-term rentals trailing it.
At least 144,000 rental units throughout the city of Denver now operate under the ownership of a correctly licensed individual or company. Currently, Denver has issued 12,580 active residential rental licenses to landlords. And 7,330 of those licenses belong to single-unit property owners, while 5,250 licenses belong to multi-unit rental properties, according to information provided by Eric Escudero, communications director for the Department of Excise and Licenses.
Single-unit landlords who still need to apply have until Jan. 1 to meet the deadline and pay only $25 of the $50 application fee. The process to get a license involves passing a rental inspection from a certified building inspector. Once obtained, the license is good for four years. If a property sells, the new owner must apply for a new license.
Meanwhile, landlords of multi-unit properties who have not received a license yet are approaching the one-year mark of delinquency, as multifamily landlords had until Jan. 1, 2023, to get a license. Denver continues to take action against those unlicensed property owners. The Department of Excise and Licenses has sent 1,755 warnings so far, followed by 317 $150 fines to different properties. The punishments have kept going for some landlords, with 47 $500 fines issued this past year, and a total of 11 $999 fines to landlords so far.
These properties have each received two $999 fines:
The city plans to begin warning single-unit landlords without pending applications at the beginning of the new year and will prioritize those with health complaints.
