Commercial Real Estate and Housing Sector 2024
Will the housing crash in 2024?
For the housing market in Los Angeles to experience a crash in 2024, a high inventory of available homes would be necessary. However, we are currently facing a situation where we're underbuilt, and the population is growing. This increasing demand, coupled with insufficient housing supply, suggests that the issue of limited inventory is not likely to be resolved anytime soon. Therefore, the conditions are not conducive to a market crash, given the persistent demand and the ongoing challenge of needing more homes.
Will the housing Market Improve in 2024 in Los Angeles?
Anticipated further decreases in mortgage rates are likely to uplift the confidence of both buyers and sellers, encouraging them to engage actively in the housing market.
Will Mortgage Rates Fall in 2024?
Mortgage rates have decreased from 8% in October to 6.6% today; reduced rates are making it more affordable for people to buy homes. Recently, mortgage rates have been falling a lot; even a 1% point in mortgage rate translates to more purchasing power and increases affordability. HPES survey predicts that the average rate for a 30-year fixed mortgage will stabilize around 5.7% in 2024. They've noticed that mortgage rates and Treasury yields, which usually move together, had a more significant difference between them for a while, but now they're getting closer again. However, rates are unlikely to be as low as those between 2020 and 2022. Experts also believe other things will affect long-term interest rates, like population changes, growing government debt, advancements in artificial intelligence, and the shift to green energy.
Will there be more inventory in 2024 in Los Angeles?
We can expect to see more houses available, and the availability of homes on the market will increase.
With a decline in mortgage rates, the housing market is poised for increased activity. Both buyers and sellers who have been on the sidelines, waiting for more favorable conditions, are now more likely to engage in the market. Life events, such as the need for relocation, expanding families requiring larger homes, or personal changes, also drive market participation. Consequently, as mortgage rates shift from a high of 8% to a more appealing range in the high of 5%, we anticipate a surge in seller activity. This increase in sellers entering the market is expected to boost the availability of homes for sale, continuing a trend that has been taking shape throughout the year.
Lisa Sturtevant, Chief Economist at Bright MLS, stays:
“Supply will loosen up in 2024. Even homeowners characterized as being ‘locked in’ to low rates will increasingly find that changing family and financial circumstances will lead to more moves and new listings over the year, particularly as rates move closer to 6.5%.”
Are Home prices falling or dropping in 2024 Los Angeles?
This all depends on where you live in the country. A group of housing experts predicts that national home prices will grow by 2.4% in 2024 and 2.7% in 2025. This forecast comes from the Q4 2023 Fannie Mae Home Price Expectations Survey, where over 100 experts give their views.
In Los Angeles, the demand for homes is high. For example, two homes I recently put on the market, given they were well-priced, received multiple offers before I could even hold an open house. Home prices in Los Angeles will likely increase by 5% or more depending on where you are, especially with the expected spring increase in activity. The home prices will not come down.
As Mike Simonsen, President and Founder of Altos Research:
“We’re going into 2024 with slight home-price gains, somewhat easing inventory constraints, slightly increasing transaction volume . . . All in all, things are looking up for the U.S. housing market in 2024.”
As mortgage rates drop, expect to face competition from numerous buyers waiting for this moment. This could lead to bidding wars, often resulting in homes selling for more than their asking prices. Sellers may also request an appraisal addendum, requiring buyers to cover any difference between the appraised value and the contract price. It's a wise move to buy now! And if rates fall later, you can always consider refinancing to avoid high competition in the coming months.
The Commercial Real Estate Market Forecast 2024 Los Angeles
The commercial real estate landscape in 2024 is set to navigate through various challenges and opportunities across its different sectors:
Office Space: The future of office real estate is somewhat uncertain. Changes in central business districts and the ongoing trend of hybrid work will likely restrain its growth. It's projected that the U.S. office vacancy rate will reach its highest at 19.8% in 2024, an increase from 18.4% in the third quarter of 2023 and a notable rise from 12.1% at the end of 2019. Although there will be a slight recovery in office leasing in 2024, it is still expected to be considerably lower compared to the activity seen before the pandemic
Retail: Despite a limited number of new projects, retail real estate is expected to stay robust. Growth in retail space demand may come more from consolidations rather than an overall market expansion. Rent Growth is Strongest in Industrial and Weakest in Office space.
Industrial: The industrial sector is predicted to maintain its health, with new space (net absorption) expected to be similar to 2023. The industrial space will lead the market in the strongest rent growth in 2024.
Multifamily Housing: Multifamily properties are experiencing strong rent increases and rising property values. This is fueled by high demand for apartments and a shortage of low-income housing.
Data Centers: The data center sector is anticipated to draw more institutional investment in 2024 as investors shift their focus from office spaces to alternative real estate options.
Hotel Industry: Hotels may face challenges in increasing their revenue per available room due to competition from alternative lodging and a slower economy. However, reduced international travel by Americans could boost domestic tourism.
Tightening Loan Criteria: Banks and lenders are now implementing tougher rules for loan approvals in the commercial real estate sector to reduce risks. This may involve more thorough checks on borrowers' financial health, demanding better credit scores or extra security, charging higher interest rates, offering loans that cover a smaller portion of the property's value, needing higher income to cover loan payments, and reducing the duration for interest-only payments. Such stringent criteria could make it harder for businesses to get loans, which might impact the demand for commercial properties.
Green Street's analysis shows a 15% reduction in property values in commercial real estate compared to the previous year. This decline is largely due to more rigorous lending and underwriting standards, which particularly impact small businesses. Moreover, the tightening of credit conditions might initiate a self-reinforcing cycle. However, with mortgage rates decreasing the conditions will improve. Rent Growth Strongest in Industrial. Industrial emerges as a standout performer, followed by retail and multi-family, and weakest in the office sector. As the demand for housing grows, more people are looking to rent, increasing the value of multifamily properties.
The 2024 commercial real estate market forecast hinges on Federal Reserve policies, with the potential for multiple interest rate cuts. According to the National Association of Realtors, these changes could lead to:
A decrease in rental rates, contributing to a lower Consumer Price Index (CPI). This shift might encourage the Federal Reserve to move from increasing rates to a neutral stance and eventually reduce them.
Challenges for community banks due to the current high interest rates, especially as special funding swaps conclude in March.
Fluctuations in price determination and capital access.
Stabilization in commercial property prices, except the office sector.
Growth in Gross Domestic Product (GDP) bolstering net leasing and investment sales.
Conclusion:
As we look ahead to 2024, the Los Angeles housing market shows signs of dynamic change. With mortgage rates expected to decrease, the market is set for a resurgence in activity. Buyers and sellers can benefit from more favorable conditions driven by life changes and economic shifts. The commercial sector faces challenges and opportunities, with trends varying across office, retail, industrial, multifamily, and data center spaces. The overarching theme for 2024 is adaptation and response to evolving market conditions, influenced heavily by Federal Reserve policies and a recovering economy. For those engaged in the Los Angeles real estate market, staying informed and adaptable will be key to navigating the year ahead.