October 10th, 2023 - This Week in Real Estate
The average 30-year fixed mortgage rate has risen 150% in the past two years.
Freddie Mac 30 Year Fixed
(Weekly - 10/5)
7.49% (+.18 since last week)
Dow Jones Real Estate Index
(Daily - 10/10)
302.00 (+10.59 since last week)
What’s new in the world of Real Estate
Mortgage rates have reached their highest point since 2000. At nearly 7.5%, the average rate has risen 150% in two years.
Private equity firm KKR sold $560 million worth of industrial real estate. The sale included over 50 buildings and 5 million square feet of warehouse and distribution properties.
WeWork declined to make two interest payments. The struggling co-working company also saw its credit rating downgraded yet again.
Ongoing drought conditions are affecting the farmland market. However, overall land quality is still a bigger driver of demand than recent weather.
Listing of the week: An office conversion in downtown Dallas.
Research and Insights from the Vincent team
The average 30-year fixed mortgage rate hit a 23-year high. According to Freddie Mac, rates reached 7.49%, the highest since November 2000. It’s hard to believe, but just two years ago, that number was 2.99%, and the rise since then is largely responsible for the stagnant real estate market. Higher mortgage payments leads to less demand from buyers, and homeowners locked into low rates are less inclined to sell, leading to less supply. With the Fed continuing to keep rates high to fight inflation, it might be awhile before rates start to drop - the last time rates were this high, it took around two and a half years to drop back down to 5%.
KKR sold 5 million square feet of industrial real estate for more than $560 million. This comes as the industrial real estate market is finally starting to cool off, as slowing demand and increased new construction are likely to push vacancy rates up. The private equity giant could be trying to get ahead of this by selling, or they could have simply received attractive offers. Industrial real estate still remains KKR’s “largest exposure” across its U.S. real estate strategies, with the sales only representing around 11% of its industrial holdings.
Fitch downgraded WeWork’s rating to a “C”, the lowest non-default grade. This comes on the heels of WeWork electing not to make around $95 million of interest payments that were due earlier this month, avoiding a default only because of a 30-day grace period. While Fitch sees some improvement in the company’s performance, they say that “it is uncertain if improvements will be soon enough to avoid default.” The rating affects around $1.4 billion of WeWork’s debt. WeWork’s struggles have already hurt many of its landlords, and a default or bankruptcy would likely cause more pain.
In some areas, drought conditions are affecting the price of farmland. According to the Farmers National Company, farmland in drought areas is generally seeing limited demand despite limited supply. Still, the quality of the land is still driving most of the demand, with good quality land eliciting interest, but lower quality land struggling to find buyers. However, once an area sees dry conditions for three years or more, that can start affecting the long-term value of its farmland.
Listing of the Week
A property that caught our eye
“The Mayflower”, a ten-story former office building in downtown Dallas that was converted to apartments in 2016, has hit the market. There are 215 apartments and six ground floor retail spaces. According to the listing, the building is 81% leased with rents averaging over $1,500 a month and rent growth of 5.4% in the last year. Thus far in 2023, Dallas-Fort Worth has seen more apartment building sales than any other market in the U.S.
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