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1、2024 Single-Family Housing and Commercial Real Estate OutlookMark J.Eppli,Ph.D.Director,Graaskamp Center for Real EstateWisconsin School of Business,University of WisconsinOctober 2,2023I.Single-family Housing MarketA.Sales Volume and Months of InventoryB.Home PricesII.Single-Family Mortgage Rates a
2、nd InflationA.Mortgage RatesB.InflationIII.Housing Demand and SupplyIV.Commercial Real Estate2024 Single-Family Housing and Commercial Real Estate OutlookREALTOR data on home sales is a difficult place to start.REALTOR data on home sales is a difficult place to start.Source:National Association of R
3、EALTORS,Real Estate Market Outlook,August 2023.total housing sales are expected to stabilize to 2022 levels in 2024.Sources:Urban Institute,“Housing Finance at a Glance,”August 2023 and Graaskamp Center.YearFannie Mae EstimatesMortgage Bankers Assoc.Estimates Association of Home Builders Estimates20
4、216,891 6,896 6,189 20225,671 5,099 5,167 20234,915 4,990 4,524 20244,889 5,360 5,043 2023-2024 Change-0.5%7.4%11.5%Total Housing Sales in the U.S.(thousands).Wisconsin residential sales are down 23%in 2023.Source:WRA and Graaskamp Center.limited U.S.for-sale housing supply is hurting sales volume.S
5、ource:Urban Institute,“Housing Finance ata Glance,”August 2023,p.21.Wisconsins listing inventory is down 74%from 2016 levels.Source:Federal Reserve Economic Data.while tight,Wisconsins supply of housing has loosened up over the past year.Source:Wisconsin REALTORS Association,July 2023Wisconsin Real
6、Estate Report and the Graaskamp Center.PriceMonths Supply$0-$124,9992.8$125,000-$199,9992.3$200,000-$349,0002.6$350,000-$499,9993.8$500,000+6.2 State3.3 Region Months Supply Central3.5 North5.0 Northeast3.2 South Central3.1 Southeast2.9 West3.6 State3.3 Urban-Rural Classification Months Supply Metro
7、politan Counties2.9 Micropolitan Counties3.4 Rural4.8 State3.3 Home Prices National home prices have maintained increases for the last six months.Source:Selma Hepp,Corelogic,Selma Hepp,US CoreLogic S&P Case-Shiller Index Switches Gears in July,Increases 1%Year Over Year,September 26,2023.and the Mid
8、west is leading home price increases in the U.S.Source:Corelogic,US Home Price Insights,September 2023.Wisconsin is leading the Midwest in home price growth.Source:WRA and Graaskamp Center.YearWisconsinCentralNorthNortheastSouth CentralSoutheastWest2013$158,000$120,000$125,000$135,000$184,000$170,00
9、0$154,0002014$159,500$120,000$130,000$129,700$182,000$172,750$154,7002015$168,000$130,000$139,000$141,500$192,000$184,900$162,0002016$174,350$133,000$145,000$145,000$208,200$184,500$169,6922017$185,000$135,500$150,000$154,458$225,000$200,250$185,5002018$195,900$149,450$169,450$161,000$240,000$215,00
10、0$189,7502019$214,950$155,250$179,000$173,040$260,000$231,000$205,0002020$222,500$165,000$190,000$184,250$262,000$240,000$210,0002021$256,000$194,000$225,500$219,900$315,000$267,000$256,0002022$279,000$212,500$260,000$239,900$330,000$290,000$289,9002023$300,000$220,000$260,000$275,000$350,000$310,00
11、0$287,500One-year Growth Rate7.5%3.5%0.0%14.6%6.1%6.9%-0.8%10-year Growth Rate6.6%6.2%7.6%7.4%6.6%6.2%6.4%Wisconsin and Wisconsin Regional Median House Prices(July y-o-y).Wisconsin home prices were stable as interest rates doubled in 2022.Source:Federal Reserve Economic Data and Graaskamp Center.3-y
12、ear House Price Growth and InflationNational11.59%Wisconsin 10.75%CPI5.20%.over the past 5-years,Wisconsin home prices doubled inflation.Source:Federal Reserve Economic Data and Graaskamp Center.5-year House Price Growth and InflationNational8.91%Wisconsin 8.28%CPI3.95%.over the past 10-years,ditto
13、the five-year inflation comments.Source:Federal Reserve Economic Data and Graaskamp Center.10-year House Price Growth and InflationNational7.06%Wisconsin 5.95%CPI2.72%.over 40-years housing is still a great investment.Source:Federal Reserve Economic Data and Graaskamp Center.40-year House Price Grow
14、th and InflationNational4.33%Wisconsin 4.03%CPI2.84%Single-Family Mortgage Rates and Inflation Source:Federal Reserve Economic Data.Current mortgage rates exceed the average 6.62%rate the decade before Great Recession.30-Year Mortgage Interest Rate.the Fed stopped purchasing MBS in March 2022 and ra
15、tes soared.Source:Urban Institute,“Housing Finance ata Glance,”June 2023,p.35.the Fed usually reverses course quickly,dont expect so this time.Source:Federal Reserve Economic Data.7 Weeks14 Weeks30 Weeks60 Weeks33 Weeks.Fed monetary tightening is working,but they will be cautious.Source:Wall Street
16、Journal,September 11,2023.why the Fed caution low unemployment rates creating wage inflation.Source:Federal Reserve Economic Data.Wisconsin Unemployment Rate U.S.Unemployment Rate Mortgage market Context:slide#1 of 3 Mortgage StatisticsPercent of Homes with a MortgageAverage FICO Credit ScoreAverage
17、 Mortgage PaymentUnited States62%739$1,358Wisconsin63%750$1,058Source:Federal Housing Finance Agency,National Mortgage Database,Mortgages Outstanding on June 30,2022 and the Graaskamp Center.Mortgage market context slide#2 of 3.Mark-to-Market Loan to Value(all mortgages in the U.S.)Average LTVRPerce
18、nt less than 60%Percent 60-70%Percent 70-80%Percent greater than 80%United States48%78%19%10%1%Wisconsin45%70%9%7%0%Source:Federal Housing Finance Agency,National Mortgage Database,Mortgages Outstanding on June 30,2022 and the Graaskamp Center.Mortgage market context slide#3 of 3Source:Federal Housi
19、ng Finance Agency,National Mortgage Database,Mortgages Outstanding on June 30,2022 and the Graaskamp Center.Interest Rate at Origination(all mortgages in the U.S.)Average Interest RatePercent less than 3.0%Percent 3.0-4.0%Percent 4.0-5.0%Percent greater than 5.0%United States3.6%28%44%19%10%Wisconsi
20、n3.7%28%43%19%11%Housing Demand and SupplyHousing demand wildly exceeded expectations for the period 2019-2021.Source:Daniel McCue,Joint Center for Housing Studies,“The Surge in Household Growth and What it Suggests about the future of Housing Demand,”January 17,2023.Source:Federal Reserve Economic
21、Data.from 2000-2007 housing was overbuilt by 2.5 million units and since underbuilt by 5.6 million units.Average=1.433 million.new household formation(demand)in Wisconsin averages 15,494 per year for the period 2010-2021.Source:WRA,Census and Graaskamp Center.2,150,000 2,200,000 2,250,000 2,300,000
22、2,350,000 2,400,000 2,450,000 2,500,000200001920202021Households in Wisconsin.limited new platted lots is hurting new home construction.Source:WRA and Graaskamp Center.1994-2007 average=14,2292008-2022 average=3,584.housing demand outpaced lot supply by 6,300 units p
23、er year since 2011.Source:WRA,Census and Graaskamp Center.The Fed will keep short-term interest rates high through mid 2024 Long-term mortgage interest rates will fall to the mid-6%range by mid-year and to the upper-5%to low-6%range at year end 2024 High rates will hurt buyer demand for the next six
24、 months Buyer demand will return in second half of 2024 with the market acceptance of 6%mortgage rates Mortgage credit markets are in great shape Long-term housing demand remains robust Inventory of for-sale homes will remain tightSummary:Transaction volume will remain weak at roughly current levels
25、,with flat home prices through mid-2024 and increase 2-3%in the second half of 2024The single-family housing market in 2024Commercial Real EstateCommercial real estate transaction volume is down 60%YOY.Source:Real Capital Analytics,“The Big Picture,”August 2023.$612 billion in equity“dry powder”awai
26、ts opportunity,which is focused on residential and industrial property.Source:Newmark Research,“The National Industrial Market:Trends and Conditions,”p.58.Dry Power Dry Power Real Estate Equity RaisedReal Estate Equity Raised.however.Source:Economist,March 16,2023.banks are dramatically tightening l
27、ending standards.Source:Federal Reserve Economic Data.Percent of Banks tightening CRE lending standardsPercent of Banks tightening C&I lending standardsPercent of Banks tightening C&I lending standardsPercent of Banks tightening CRE lending standards.refinance activity is crowding out new constructi
28、on lending market.property values have declined broadly over the past year.Source:Green Street,August 4,2023.property values fell in late 2022/early 2023 but have stabilized.Source:Green Street,data through August 4,2023.property income growth has favored industrial and apartment.Source:Real Capital
29、 Analytics and Graaskamp Center.cap rates compressed from 2010-2022Q2 but have expanded since.Source:Real Capital Analytics and Graaskamp Center.negative leverage is limiting transaction volume.Source:NCREIF,Federal Reserve Economic Dataand Graaskamp Center.Spread Average=1.02%Current Spread=-0.38%C
30、ommercial Real Estate Transaction VolumeNegative leverage will limit transaction volume through mid-2024Debt availability will limit transaction volume through mid-2024Price discovery around normalized cap rates and interest rates will spur transaction volume in the second half of 2024We do not have
31、 a systemic banking crisis emergingEquity remains plentiful for multifamily and industrial however,retail and especially office will remain equity capital constrained.Commercial Real Estate Prices(a story of haves and have-notsApartment and industrial fundamentals remain strongLimited retail supply
32、will create great investment opportunitiesOffice fundamentals and capital flows are very difficultCommercial Real Estate Outlook 2024 Single-Family Housing and Commercial Real Estate OutlookMark J.Eppli,Ph.D.Director,Graaskamp Center for Real EstateWisconsin School of Business,University of WisconsinOctober 2,2023