Headlines

What’s new in the world of Real Estate

• Luxury real estate hits an all-time high

• Multifamily metrics are improving

• Farmland keeps its streak going

• Reversing the doom loop

• Mortgage rates keep rising

Plus: Commercial foreclosures are up, eco-friendly cities, build-to-rent construction booms, and more.

Listing of the week: A desert glamping compound owned by the singer of the B-52s.

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Performance

Market Updates

Luxury home prices rose nearly twice as fast as non-luxury home prices in Q1. A report from Redfin, which defines “luxury homes” as those in the top 5% of market value in a metro area, showed the median luxury home price in the U.S. to be $1.225 million, an all-time record. Prices rose by 8.7% year-over-year in Q1, compared to a 4.6% gain for all other homes. Sales of luxury homes rose by 2.1% year over year, while sales of all other homes fell by 4.2%. This data shows that the luxury market behaves somewhat independently from the rest of the market, due to the prevalence of all-cash buyers who are insulated from rising mortgage rates, and the steady demand for high-end houses.

Metrics for multifamily properties improved for the first time since early 2022. This is according to a report from commercial real estate giant CBRE, which showed that targets for going-in cap rates, exit cap rates and unlevered internal rate of return (IRR) improved slightly in Q1. Going-in cap rates, meaning the cap rate upon purchase, improved from 5.06% to 5.00%, while exit cap rates, meaning the cap rate upon sale, improved from 5.18% to 5.12%. Because price is inversely correlated with cap rate, a lower target cap rate is preferable as it means buyers are willing to pay higher prices. Finally, the target unlevered IRR improved from 7.68% to 7.59%, meaning investors are targeting a lower rate of return when underwriting properties. While the improvements are marginal, it is a sign that the market is heading in the right direction, although this data is from before interest rates rose again.

Midwestern farmland prices rose for the 53rd straight month. The Rural Mainstreet farmland price index went from 56.0 to 56.5, showing continued growth even as there was overall pessimism about the economy. High interest rates, weak commodity prices and higher grain storage costs pushed the overall index, which measures bankers’ attitudes about economic growth, to its lowest level since June 2020. However, even with difficult conditions, farm loan delinquencies remain low, and with inflation continuing to persist, the outlook for the value of farmland remains strong.

Detroit’s resurgence is giving hope to other cities facing the “doom loop.” The “doom loop” is the idea that population decline leads to a decline in services which leads to further population decline and so on. Detroit has been a prime example of a doom loop in the past decade, as its residential and commercial populations fell, but a recent turnaround has laid a blueprint for other cities that have struggled in the post-pandemic landscape. By investing in a mix of residential, retail and high-end office developments, the formerly struggling downtown is recovering. Property values are up 40% since 2020 and the number of apartments downtown has doubled since 2010. What Detroit is showing is that by starting the process of development, it can reverse the “doom-loop” cycle, by bringing back people and businesses, which improves the tax base and city services, which in turn attracts people and businesses, and so on.