5 Things to Know About Real Estate Today
1. Where are the Rate Cuts?
Heading into 2024, everyone anticipated a minimum of 3 cuts that would begin around May. So far we have not seen any and we may not get any. There is 1 potential cut on the horizon, but for now rates are hovering around 6.75%.
2. Development Slowdown
With elevated construction costs, increased debt costs and more bureaucracy to circumvent, developers have taken a pause on new projects. Because projects take 3-5 years to come online, we should see limited new supply down the road which will support rents and property values for existing multifamily properties.
3. It’s a Renter’s Market
COVID shook up the rental market. The recovery was quick and exceeded rental growth from previous years, but the past 8 months have seen a tremendous slowdown. Rents have dropped across the board, staying more stable in highly desirable neighborhoods and less so in oversupplied ones. It has become a renter’s market, where tenants are more picky.
4. Insurance is a Nightmare
Insurance premiums have gone up 2-3x with many carriers leaving the state of CA altogether. They are tired of the lawsuits with big payouts that sit on top of the natural fire and earthquake risks
5. Transactions are Slow, but Picking Up
It wasn’t so long ago that buildings were selling around 4% cap rates, but that’s when interest rates were ~3% and operating costs were predictable. Prices have dropped to offset higher rates and expenses, but it has taken a while for sellers to accept the new environment. Sales comps have been set, foreclosures are on the rise and owners are getting tired of the problems that come with managing tenants, which is all leading to more opportunities and more deals.
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