Commercial real estate in 2024 – what is the outlook?

Top economist looks into the future in what will be a year of transition

In unpredictable times when it’s anybody’s guess what the economy might do, one turns to pundits who study market cycles historically to envisage what might lie ahead in the coming year.

And so, Mortgage Professional America turned to Xander Snyder, senior CRE economist at First American, to gain insights into how the commercial market might perform in 2024.

“My general sense right now of the market is it still remains challenging,” he told MPA during a telephone interview. “Credit markets are still fairly frozen. I’ve heard anecdotal stories about some deal activity starting to be picked back up, but it’s not reflected in the data yet.”

He peeked into the future to assess what might happen in the first and second half of next year. “I imagine that deal activity remains slow for the first half of next year, and it’s possible that continues into the second half,” Snyder said. “But given what we know about rate expectations –that if we get lower rates next year – that will probably lubricate the credit markets a little bit and start to speed things back up. That would buoy transaction volume, and with more transaction volume price discovery would occur more quickly because there would be more comparable transactions to reference.”

The market is giddy about the Fed’s final meeting

At its final monthly meeting of the year earlier this month, the Federal Reserve opted to leave interest rates alone – signaling its tactic to raise rates to tame inflation is done and it may actually cut interest rates a handful of times next year. The announcement sent the Dow to historic high levels while spreading optimism of a better year ahead for the mortgage industry than this year has been.

While the Fed does not set mortgage rates – they move along with the 10-year Treasury yield – the body’s actions influence them as it makes changes to the federal funds rates – the rate by which banks charge each other for short-term loans.

Staying alive ‘til ‘25

“There’s this tongue-in-cheek reference about staying alive until ’25, and I think there’s some truth in that and the truth comes from, in part, where interest rate expectations are moving,” said Snyder. “There is great expectation of rate declines and also the pace of mortgage maturities. There’s a lot of debt coming due in 2024 and 2025. If you can get through that time, then I think things will begin to pick up maybe mid-2025 would be my best guess right now.”

Indeed, it’s been a year of transition, the First American economist said. One thing about 2023 was clear – the strength of the consumer. “Consumer strength has been quite strong lately,” Snyder said. “The third quarter of this year, GDP growth was driven largely by consumer spending. And a lot of that is due to fiscal stimulus, which has now been curtailed, obviously.”

But that was then: “There are now several trends indicating it’s beginning to run out,” he said. “Excess savings are still there but continuing to deplete. I imagine that will probably run out maybe mid next year, so that will impact consumers.”

Consumer savings will likely be further eroded as a result of other factors that have recently emerged: “Credit card debt is high this year,” Snyder said. “It’s higher than its ever been – over $1 trillion and interest rates are higher., so that will impact the consumer. Student loans – we’ve had to start paying those back. That will impact the consumer. Auto delinquencies are starting to rise. So, all of these things are going to start to impact the consumer next year and that will be another aspect of that transition we will see.”

For consumers, it seems they take positive steps forward only to take three back given the debt-laden scenario Synder described. But in these topsy-turvy times under which we’re living, that might actually turn out to be a good thing, Synder suggested.

“The screwy think about the world we’re in is that no news, in a way, is almost good news because if demand falls a little bit next year, it’s more ammunition for the Fed to say ‘OK, maybe rate cuts are warranted,’” Snyder said.

By Tony Cantu |

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