Headlines

What’s new in the world of Real Estate

• U.S. median rent is falling

• The CRE slump hits bondholders

• Mortgage rates dip below 7%

• Existing-home sales declined

Plus: The rise of “rentvesting,” Starwood limits withdrawals, the top retirement towns, and more.

Listing of the week: A Carnegie castle.

Performance

_{*as of market close on May 24}

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Market Updates

The median rent for zero to two-bedroom properties in the U.S. fell by 0.7% year-over-year. This marks the ninth straight month of year-over-year declines, and rents are now down 1.9% from their August 2022 peak. However, it is still 22.5% higher than it was in 2019, before the pandemic. Austin saw the biggest drop, with rents falling by 11.5% from the peak, followed by Las Vegas and San Francisco. On the other hand, Indianapolis, Milwaukee and Minneapolis saw the biggest gains in the past year, driven by low inventory and robust job markets.

Investors in top-rated bonds backed by commercial real estate are facing losses. For the first time since 2008, buyers of a AAA-rated bond backed by a commercial mortgage saw a loss when an office building in Midtown Manhattan was sold at a severe loss by Blackstone. Originally purchased for $605 million in 2014, the building was sold a few weeks ago for $186 million, with a net $117 million left for bondholders. Those who bought into the top-rated tranche got back 74% of their initial investment, while those with lower-ranking positions received nothing. While this is the first loss seen by AAA-rated bondholders, there are likely to be more to come, with office buildings in New York, Chicago, San Francisco and Denver specifically at risk.

After a spike earlier this month, mortgage rates are trending downward. The average 30-year fixed mortgage fell to 6.94% according to Freddie Mac, and is now lower than it was six months ago. However, with the Fed unlikely to cut interest rates until later this year, both Freddie Mac and Fannie Mae now expect mortgage rates to hover in the 7% range for the rest of the year, before trending downward in 2025. When rates have decreased, activity in the market has generally increased, but most buyers and sellers are still sitting on the sidelines.

Existing-home sales fell by 1.9% in April. This is according to a report from the National Association of Realtors, which also found that the median sale price rose by 5.7% from 2023. However, housing supply is up 9% monthly and 16.3% year-over-year, and with inventory up and sales down, there could be a slowdown in price increases. For homes priced above $1 million, inventory is up 34% year-over-year and sales are up 40%, showing that the luxury market continues to operate independently of the rest of the market.

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