Strategy

2024 Real Estate: Crash Or Boom? Here Are My Predictions!

By Matt Picheny

We’re going to deep-dive into exactly what my predictions are for this crazy 2024 real estate market, specifically interest rates, rent forecasts, distressed mortgages, and foreclosures! 

Will it be a good time to buy with Powell’s recent rate announcements, the upcoming election, with both parties’ front-runners in legal battles, and all the rapidly changing consumer demands?

Or are we in for the worst housing collapses of the 21st century?

Stick around and find out what I think and what I’m doing to get ahead of the 2024 real estate market.

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Whether you’re a seasoned real estate vet or a newbie looking to jump in on their first deal, this is crucial news heading your way! We’re talking about the real estate market in 2024. Looking at the charts from the last couple of years to now, one thing is evident. The rental market has definitely cooled down. 

National rent growth has been in decline, plummeting from the 17% peak we had in 2022 ALL the way down to negative 1.1%. Big yikes! And there is one main culprit to blame for the decline in rent growth: Mass Multifamily Construction.

 

Construction & Rent Growth

Let’s face it, just about every developer and their mothers are constructing some type of housing structure, causing a softening in demand for rentals and obviously – increasing the supply. Vacancy rates steadily increased from an all-time low of 5% in 2021 to 7.8% as of the third quarter of 2023. And according to Cushman & Wakefield, the national vacancy rate will increase to 9% by the end of 2024 before retreating to historical norms.

Keep in mind, there are currently 800,000 units still under construction – that’s more than 5% of the nation’s inventory. But construction starts are down 60% over the past year, especially in hotspots in the sunbelt, so this won’t last long and it will be localized.

All this new supply will impact rents, and analysts believe we will see a decline in rental prices of about 2% in 2024, but then there will be an increase of almost 2% in 2025 and an over 5% increase in 2026. These numbers are nationwide; different markets will see this impact differently.

Looking at rents from the affordability perspective, home purchasing is out of reach for most, renting is the sensible option. Based on national averages, it’s $400 per month more to own – but that doesn’t include the cost of upkeep, taxes & insurance. When you factor that in, the gap increases to nearly $1,000 per month. Overall, the math is simple and there is still strong demand for rentals. My long-term prognosis is very positive, but we may be enduring a little short-term pain over the next 12 to 18 months.

 

Distressed Mortgages

A ton of people have been looking at the data when it comes to distressed mortgages. I hear lots of talk about fire-sales galore and banks foreclosing on everything in sight. That multifamily investors will be able to snatch up great deals for pennies on the dollar.

The amount of distressed mortgages has undoubtedly been on a dramatic rise and led to a lot of foreclosures. However, I do not see this presenting a fantastic buying opportunity that so many people are saying. Most of these distressed mortgages are underwater. They have loan balances that are higher than what the properties can sell for. 

In order for these properties to be sold for an amount lower than the loan balance, the lender has to agree to that, and I’m just not sure the banks are going to simply take billions of dollars of losses so easily. And if they don’t agree to a short sale, the other option is to foreclose on the property. 

The banks are not in the business of owning properties and understand the mess that is a foreclosure. Plus, the negative PR that would come from a foreclosure crisis could cause their stock prices to fall and public trust would tumble.

Banks aim for a mutually beneficial resolution and seek to recoup their investments over the long term. It’s in the lender’s best interest to work directly with the property owners to restructure loans that allow properties to survive longer term, creating a win-win scenario for the bank and for the property owner.

And if the banks were to foreclose on a property, they aren’t going to be selling them to you or me or any other random investors. They will be selling them to those that have deep connections and deeper pockets.

The myths in the multifamily sector asserting 2024 as this incredible buying opportunity. Well, I don’t think that’s entirely accurate. Not to say it’s impossible; undoubtedly, opportunities will arise, but they won’t be as widespread as purported.

Interest Rates

Now let’s talk about my predictions for interest rates for multifamily loans in 2024. Depending on the type of financing you are pursuing, the rates are determined based on one of two benchmarks: The 10-year treasury or SOFR, which is the Secured Overnight Financing Rate.

The Fed Funds rate has a significant impact on these two benchmarks. The Federal Reserve will tread cautiously in implementing adjustments, but have already signaled likely reductions in 2024. The initial half of the year is anticipated to maintain relative stability. But I believe that even a marginal rate reduction will trigger a positive trend in the financing realm by bringing much-needed stability to the market.

Let’s consider the SOFR forward curve, which, if unfamiliar, showcases the market implications for 1-month and 3-month Term SOFR rates. Presently, the curve suggests a 1.5% decline through the length of 2024.

Now, if we turn our attention to the 10-year treasury, we saw a recent peak of 5% in mid-October and at the time of this recording it’s down to 3.8%. We dropped over 1.2% in less than three months! While the Treasury rates are beginning to descend, it won’t be a direct linear decline; but overall, I think there will be an easing process that will extend through all of 2024. However, the initial two quarters of the year are expected to remain relatively tight.

My predictions for interest rates in 2024 lean towards this simple conclusion: The likelihood of rates descending back to below 3% seems improbable, perhaps for decades, maybe forever, who knows? But a steady and stabilizing market is foreseeable. I believe we will end 2024 with interest rates in the 5% to 6% range, depending on the type of loan and the strength of the buyer.

Remember, Interest Rates aren’t the only factor to keep in mind. Everyone understands how the prevailing rapid inflation amplified expenses, especially insurance costs, and escalating taxes, have collectively hurt numerous deals throughout this past year. This trend is likely to continue in 2024, and with that knowledge, we need to be aware of how we are entering multifamily deals.

 

What Should You Do?

Now the moment you’ve been waiting for, what should you do as a multifamily investor in 2024? I never give advice. Everything I share about real estate is for educational purposes. You need to make decisions based on your own circumstances and risk tolerance.

Now, with that in mind, I will say this. Don’t believe the hype. That amazing buying opportunity that people have been talking about since before COVID isn’t coming. Even a broken clock is right twice a day, and I could be wrong here, but for all the reasons I’ve discussed already – I don’t think a crash is coming.

Besides timing, the market is a fool’s errand; it’s not about timing the market, it’s about time in the market. 2024 won’t likely yield a landscape where properties can be acquired for mere pennies like in 2008. Acquiring strong cash-flowing assets in stable markets with a long-term horizon is often a winning game plan.

 

My Approach

Now let’s discuss how I’m approaching 2024! It involves a meticulous analysis of each prospective deal that comes across my desk. I will prioritize assessing if the property aligns with the prerequisites of a robust investment: situated in an area with consistent job and population growth and meeting the specific criteria outlined in my investment parameters. I’m going to be laser-focused on the structure of deals, especially the financing terms.

I take a pragmatic approach and I don’t rush into deals. But I also won’t engage in a passive waiting game, idly anticipating the arrival of a mythical incredible bargain-price deal. I’m committed to an active pursuit, continually seeking out and evaluating deals. I will continue cultivating and expanding our portfolio of successful passive investments, steering clear of the futile wait for an improbable ‘perfect deal’.

By remaining proactive scouting for viable investments, and adhering to a stringent set of criteria, I aim to fortify our investment endeavors in 2024 and beyond.

 

Conclusion

So there you have it, folks! My predictions for the 2024 real estate market. It’s going to be a wild ride that, quite frankly, no one really knows where it will take us.

What are you doing to prep for your 2024 investments?


The information provided on this website is not advice and does not purport to be a substitute for professional adviceYou should seek out the services of professionals who are experts in the fields of investment, legal, and accounting concerning your specific situation. The author disclaims any responsibility or any liability, loss, or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any contents of this website.