The recent CPI report, which caused a decline in the stock market and an increase in the 10-year Treasury Rate, has not changed our outlook for 2024 according to Ivy Zelman on this week’s Walker Webcast. Zelman, EVP of research and securities at Walker & Dunlop, stated that she believes the reaction to the CPI print was exaggerated and that real-time surveys show a slowdown in rent growth.
Additionally, Zelman noted that new move-in rent growth for both multifamily and single-family rental properties declined during Q4 of 2023. She also pointed out that this is not reflected in CPI data as it is based on outdated information. According to her observations from speaking with owners and operators in the industry, she believes that even though shelter costs make up 40% of CPI calculations, they are being modeled by the Federal Reserve using backward-looking data.
Zelman was joined on Feb.14th’s webcast by two other experts from Walker & Dunlop: Kris Mikkelsen (EVP of investment sales) and Aaron Appel (senior managing director). Both agreed with Zelman’s assessment stating there have been no significant changes since their initial predictions at beginning of year.
Mikkelsen added his belief about timing when he said “if there is something you need to do over next eighteen months then sooner would be better than later.” He also mentioned how everyone had forgotten about potential speed bumps along pathway back towards normalcy after getting rate relief last December following Fed pivot November; however what happened yesterday could be considered one such bump.”
He went further saying late-December rate relief resulted widening bid/ask spread due many sellers thinking we’re reverting back quickly possible mean but equity deployed today recognizes scarcity still exists so risk premium must paid transacting environment filled question marks.”
One major concern raised during discussion was $929 billion commercial real estate debt coming due end-of-2023 according latest Mortgage Bankers Association estimates. When asked if capital available from banks, CMBS, debt funds and life insurance companies will be enough to refinance all that debt Appel answered “no.”
He went on say there is plenty of capital in the market but it’s looking for specific types assets transactions loan-to-value covenants service coverage ratios yields which don’t work majority credit.
The hour-long conversation also touched upon other topics such as CRE financing options for investors interested in multifamily or build-for-rent/single-family rental properties and whether we’ll see another wave of regional bank failures. On-demand replays are available through Walker Webcast channels on YouTube , Spotify and Apple.
