Market Updates

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.