Looking back at 2023 – Slowdown or Meltdown?

by Ron Holmes – 

Slowdown or Meltdown?

It comes as no news to those in the real estate marketplace that the real estate market in general (from single-family residential to office) has slowed down. The question is: will it meltdown?

Looking Back at Cycles

I am no economist and have no expert credentials as a real estate market forecaster, but I have been a real estate lawyer for almost 50 years. During that time, I have witnessed the rollercoaster ride of real estate with its ups and downs cycling about every 18 years or so.
The last big bust was in 2008 caused by the rapid demise of commercial mortgage-backed securities loans, which melted two of the largest investment houses and shook Wall Street to its core.

Looking Back at 2023

The combination of COVID and rising interest rates account for the current slowdown, but there does not appear to be an underlying malignancy. As we approach the end of 2023, large real estate backed loans (over $50,000,000) are sparse to non-existent and smaller loans (particularly for development) have become more difficult to secure.

My colleagues on the real estate lending side lament the sparsity of even the smaller real estate backed loans. As loan maturities face real estate owners, the higher interest rates are significantly impacting loan renewals as witnessed by two significant office building foreclosures in the Dallas area in the last month or so.

It makes sense office buildings are the first to be negatively impacted given the remote work environment resulting from the COVID mandates. Multi-family, industrial and retail may be next.

Looking forward to 2024

Fortunately, it appears employers are encouraging employees to return to the workplace and interest rates have peaked, at least for the near term (most likely through the November 2024 elections). As a result, I am of the belief we will ease into 2024 relatively stable, at least in the Dallas area where high in-migration continues to fuel the economy.

What more will 2024 bring?

Stay tuned! I will address that question in the next edition, “What to Expect in 2024“.