Amidst the anticipation of the Fed’s gradual cuts in interest rates, the market is awakening and sentiment is changing. Investors are now poised to take decisive action, foreseeing a scenario of diminished inflation and interest rates unfolding in 2024. 

Here are the key trends to watch for in the coming months.

Interest rates cuts anticipated throughout the year

The Fed has signaled it expects to cut interest rates by 75 basis points (0.75%) in the year ahead, and as it has recently moved in 25 basis point increments this suggests interest rates will be cut three times throughout 2024. (Bloomberg)¹

These rate reductions would lower the target interest rate to approximately 4.6%, as compared to the current range of 5.25% to 5.50%. (Bloomberg)¹

CRE activity expected to pick up momentum in 2024

An estimated $250B in dry capital is sitting on the sidelines as we enter the new year, and it is projected that CRE investment activity will pick up significantly as the year progresses. (CBRE)²

Real Estate fundamentals are anticipated to remain strong, in part due to the shortage of new construction deliveries in recent years.

Continued opportunities will be seen in senior, distressed debt

The biggest US banks are expected to increase write offs of non-performing loans, exceeding the number written off at the start of the Covid-19 pandemic. (Bloomberg)³

Banks’ appetite for lending will remain muted (CBRE)² and savvy private lenders will continue pursuing these opportunities as traditional lenders pull back.

Advantageous conditions for well-capitalized buyers

Stricter credit standards have resulted in a scarcity of buyers, while the recent high interest rate environment has left some owners of premium real estate compelled to sell because of the convergence of mortgage repayments and debt costs. This can create an opening for investors to take part in the purchase of long-held properties.

Sustained shift to rental market 

Per industry experts, supply of existing homes for sale nationally is forecast to drop in 2024, amounting to a 14% decrease as compared to 2023. (Realtor.com)⁴

One in five millennials believe homeownership may never be within reach, (Redfin)⁵ fueling demand for multifamily rentals that has resulted in most US markets seeing rent growth top 20% since 2019. (Deloitte)⁶

Nearly half of millennials and one-third of Gen Z are unable to save for a down payment as a reason to continue renting, while 19% said they simply favored renting for reasons including a reluctance to maintain their own residence. (Redfin)⁵

Moderate deceleration expected in inflation  

Inflation rates on both a headline and core basis have slowed down after reaching a forty-year high in 2022. The Fed’s preferred inflation metric of core PCE prices are forecasted to see a 1% reduction in 2024, with a rate of 2.4% in 2024, down from 3.4% in 2023. (JP Morgan)⁷

iintoo remains confident in the potential of commercial real estate and alternative assets as a strategy for diversifying portfolios, hedging against inflation, and mitigating risks. If you are considering new investment opportunities, log into our platform now for more information.

(1) Bloomberg: Fed pivots to rate cuts as inflation heads towards 2% goal

(2) CBRE: US Real Estate Market Outlook 2024

(3) Bloomberg: Largest US banks grapple with worst write offs in three years 

(4) Realtor.com: 2024 Housing market forecast and predictions

(5) Redfin: Homeownership Survey: 1 in 5 millennial respondents believe they’ll never own a home 

(6) Deloitte: 2024 commercial real estate outlook

(7) JP Morgan: 2024 economic outlook