Headlines

What’s new in the world of Real Estate

• Mortgage rates jumped above 7%

• Commercial real estate’s struggles could bring down regional banks

• Santa Barbara is the country’s top emerging market

• Farmland values are staying steady

Plus: Adam Neumann is back, a $15 billion commercial real estate fund, and more.

Listing of the week: A runway as a backyard.

Performance

Market Updates

The average 30-year fixed mortgage rate topped 7% this week. After steadily decreasing the past few months, the benchmark rate saw the biggest single-day jump in nearly a year. This came after the Federal Reserve kept interest rates steady, and also indicated that a rate cut was unlikely to come in March. Prospective buyers and real estate investors will have to wait longer for mortgage rates to drop, and as a result, the real estate market is going to take longer to heat back up.

The falling value of commercial properties is hurting smaller banks. Shares in New York Community Bancorp fell almost 40% after a reported loss of over $250 million last quarter, driven in part by losses on office property loans. While all banks stand to lose money if borrowers cannot repay their loans, smaller and regional banks are at greater risk than their bigger rivals. Commercial real estate loans account for 13% of total exposure for banks with over $100 billion of assets, but that number balloons to 44% for smaller banks. With an estimated $1.2 trillion of commercial mortgages maturing in the next two years, a reckoning is coming as higher interest rates and falling property values are likely to lead to defaults. Fed chair Jerome Powell said that some small banks will close or merge as a result of the downturn, but that it is a “manageable problem” and there is not much risk of a 2008-style market crash.

The Wall Street Journal and Realtor.com released their rankings of the top emerging housing markets in the country. The list of the top 300 metro areas looks at the health of the real estate market as well as economic and quality of life measures. Ranking first is Santa Barbara, California, despite the median home price being nearly four times the national average, as demand for housing there far outstrips supply. Nearly all the other cities in the top ten are in the Midwest, and they all have median home prices below $370,000, with affordability as a main factor driving their ranking. The second-ranked city is Jefferson City, MO, followed by Canton, OH, Racine, WI, and Oshkosh, WI. Anyone considering buying a home, either for their own use or to rent, should peruse the rankings and use it as one data point of many in considering where to buy property.

Multiple recent sales are showing that farmland values are holding strong. Even with high interest rates and falling commodity prices, recent sales have been exceeding expectations, and overall, farmland prices were down just 1% from 2022 to 2023. Currently, Iowa’s market has remained the strongest, with Illinois and Indiana also showing promising sales numbers. However, across the country, there have been more price reductions and lots that don’t sell at auction, which may point towards a small correction coming in 2024.