Cracks in Commercial Real Estate Market

 

 

Good morning. Welcome to the Orlando Real Estate Buzz. We come to you each week, bringing you market update news that affects the overall real estate market. And right now, the big thing that a lot of people aren't talking about is the defaults in the commercial mortgage-backed commercial mortgages.

One of the big ones that happened this week was a Hilton hotel in San Francisco. The owner walked away from a $725 million note and abandoned the hotel. This is the second hotel in San Francisco that has been shuttered and the owners have just walked away. In fact, many buildings in San Francisco are being sold at 30% or less from their original highest values.

This is important because the commercial real estate market usually predicts any fall that will happen in the housing market. Commercial real estate is usually about a year or a year and a half ahead of that. Additionally, the people who underwrite these loans are generally regional banks, and many of them have recently closed or shuttered. This exposes the market to potential risks.

The commercial mortgage market is the biggest exposure and could be what brings the house of cards tumbling down. So it is crucial to keep an eye on this situation, especially because what happens in California tends to have an impact on the rest of the country.

Another topic of interest this week is the debt ceiling. With the debt ceiling taken care of, the government can now spend as much money as they want for the next two years. Janet Yellen has already erased close to $359 billion the day after the debt ceiling was signed. People are wondering why mortgage rates haven't come back down. The reason is simple economics - the money supply (M2) is continuing to decrease as the Fed tightens the money supply. This tightening leads to less dollars chasing more debt, resulting in higher interest rates.

The Fed is also selling off assets, further tightening the money supply. This tightening, along with the increasing debt, leads to higher interest rates. Despite predictions, mortgage rates haven't significantly decreased, and the yield curve is showing signs of a recession.

Opinions about the Fed's actions are divided. While some believe they will pause, 29% of people think there will be a quarter-point increase. Australia and Canada's central banks recently increased their rates, which suggests that the Fed may follow suit to remain competitive.

In terms of the housing market, Orlando is experiencing some softness, but not a significant expansion. Builders like Toll Brothers, Taylor Morrison, and D.R. Horton are cutting prices and providing incentives to attract buyers. Nationally, there have been price increases due to the summer season, but the market is expected to slow down in the fall.

Looking at the numbers, Orlando's real estate market had a good week with increasing sales, average prices, and inventory. Condos also showed consistent sales, and the average price saw a significant jump.

The original list versus final list comparison shows that sellers are making minor price adjustments to attract buyers. The three hundred to four hundred thousand dollar range has the highest number of days on the market, indicating buyers' cautious approach.

Overall, the market in Orlando remains steady, but buyers are taking their time due to increasing interest rates. Inventory levels have shown a slight upward trend, providing more options for buyers. In the condo market, sellers are adjusting prices accordingly, resulting in successful sales.

To conclude, Orlando's real estate market is still active, but caution is advised as economic indicators and commercial real estate defaults pose potential risks. It is essential to monitor market trends and adjust strategies accordingly.