Headlines

What’s new in the world of Real Estate

• Private credit expanding into real estate

• Underwater mortgages on the rise

• Rents continue to tick up

• Global investors cutting RE exposure

Plus: April’s hottest markets, luxury market trends, rising commercial delinquencies, and more.

Listing of the week: Muhammad Ali’s L.A. mansion.

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Market Updates

Major investment firms are increasing their exposure to real estate debt. As the struggling commercial real estate market has pushed traditional banks away from lending to buyers and developers, private lenders are stepping in to fill the gaps. Firms like PGIM, Brookfield, Apollo Global Management and many others are betting that the market has hit bottom and that loans originated now will see attractive returns. Many are still avoiding the struggling office sector, focusing on loans to industrial and multifamily properties. Goldman Sachs also just raised $3.6 billion for its latest real estate credit fund, in another bullish sign for the market.

The number of mortgages that are “seriously underwater” rose slightly in Q1. A new report from ATTOM found that 2.7% of all mortgages have balances at least 25% higher than the market value of the property securing it, a slight increase from 2.6% last quarter, but still down significantly from 2020, when it hit 6.6%. The biggest increases were in Southern states like Kentucky and West Virginia, and Louisiana has the highest total proportion (11.3%) of “seriously underwater” mortgages. On the flipside, the Northeast and West have the highest levels of “equity-rich” homeowners, where the mortgage is less than 50% of the property’s market value.

Renters now need to make almost $80,000 to afford the typical U.S. rental. Zillow’s rent report showed a 0.6% gain month-to-month as the average U.S. rent hit $1,997. In order to afford the average rental by spending no more than 30% of their income, a renter would need to make $79,889 a year, significantly more than the $58,692 figure just five years ago. Since 2019, rent growth has largely outpaced wage growth, with rents growing 1.5x faster than wages on average. However, last year saw a 4.3% increase in wages and a 3.4% increase in rents nationwide, a step in the right direction for renters.

Real estate allocations by fund managers are at a 15-year low. Bank of America’s latest global survey found that money managers are moving away from the sector and into stocks, bonds and cash. The change in sentiment is largely due to the interest rate environment, with lower rates needed for the real estate market to improve. Overall, those surveyed are also at their most bullish since late 2021, with 64% saying they do not expect a recession in the next twelve months. This indicates that managers are not down on the economy overall, but specifically are pulling back from real estate.

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