{"id":153936,"date":"2023-06-12T11:36:19","date_gmt":"2023-06-12T17:36:19","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=153936"},"modified":"2024-02-27T11:26:55","modified_gmt":"2024-02-27T18:26:55","slug":"elon-musk-says-home-prices-will-drop","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/elon-musk-says-home-prices-will-drop","title":{"rendered":"Elon Musk Says Home Prices Are Going To Fall\u2014Is The World\u2019s Richest Person Right?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC7594004077\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">Commercial real estate is melting down fast. Home values next.<\/p>\n<p>\u2014 Elon Musk (@elonmusk) <a href=\"https:\/\/twitter.com\/elonmusk\/status\/1663238551406772245?ref_src=twsrc%5Etfw\" target=\"_blank\" rel=\"noopener\">May 29, 2023<\/a><\/p><\/blockquote>\n<p> <script async=\"\" src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">That\u2019s what Tesla and SpaceX founder&nbsp;Elon Musk tweeted last week&nbsp;in response to a stream of tweets from venture capitalist David Sacks.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In that series, Sacks claimed that Fed rate hikes and the increased borrowing costs they led to are causing a slew of problems in the financial world, including a <a href=\"https:\/\/www.biggerpockets.com\/blog\/the-biggest-crash-imaginable-is-coming-for-commercial-assets\" target=\"_blank\" rel=\"noreferrer noopener\">soon-to-be crash in commercial real estate<\/a>.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">That latter part could certainly be possible. In fact, JPMorgan estimates that nearly $450 billion in commercial real estate debt could go into default this year. Meanwhile, Morgan Stanley Wealth Management forecasts a 40% peak-to-trough decline in CRE prices, increasing the risk of default even further.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Does that mean a similar drop in home values is coming, too? Let\u2019s take a look.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Is There a Link Between Commercial and Residential Real Estate?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">On its face, CRE and residential real estate seem to be experiencing many of the same issues\u2014high borrowing costs and waning demand chief among them. But that\u2019s about where the similarities end.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In CRE, loans are much shorter than the typical 30-year mortgage that most homeowners get. This means most borrowers need to either pay off the debt or refinance within just a few years of buying a property.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">That\u2019s a problem, as interest rates are now significantly higher than a few years ago. Throw in that regional banks\u2014who have their own struggles to deal with right now\u2014are often one of the bigger lenders in this space, and the risk for property owners only magnifies as those debts come due.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1093\" height=\"702\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-12-at-1.16.42-PM.jpg\" alt=\"Share of Office Space Originations by Lender Type (2015-2022) - MSCI, First American\" class=\"wp-image-153940\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-12-at-1.16.42-PM.jpg 1093w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-12-at-1.16.42-PM-300x193.jpg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-12-at-1.16.42-PM-1024x658.jpg 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-12-at-1.16.42-PM-768x493.jpg 768w\" sizes=\"auto, (max-width: 1093px) 100vw, 1093px\" \/><figcaption class=\"wp-element-caption\"><em>Share of Office Space Originations by Lender Type (2015-2022) &#8211; <a href=\"https:\/\/www.msci.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">MSCI, First American<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<p><span data-preserver-spaces=\"true\">Residential borrowers, on the other hand, can often hold on to their loans for decades with no need for refinancing. And considering about 85% of mortgage holders have an interest rate of 5% or less right now, it\u2019s a real possibility that they will stick around for a few decades.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There\u2019s also the demand factor to consider. Since the pandemic, demand for commercial real estate has plummeted, largely thanks to remote work arrangements. Nearly 13% of offices sat vacant as of Q2 2023\u2014an all-time high, according to CoStar. In some metros like Houston, Texas, and San Rafael, California, the rate\u2019s almost 20%.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">That dip in demand just isn\u2019t there in the residential sector. Housing is a necessity, and while higher mortgage rates have resulted in a slight pullback from those with tight budgets, there\u2019s always built-in demand for homes\u2014even with today\u2019s affordability issues.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">You could even argue that when CRE demand drops, residential demand increases. As Redfin CEO Glenn Kelman tweeted at Musk himself last week, \u201cThe loss in demand for commercial real estate is what\u2019s driving demand for residential real estate. People who work from home need more space at home.\u201d<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There\u2019s also the residential market\u2019s ultra-low supply to think about. NAR\u2019s recent data shows just a 2.9-month supply of homes for sale in the U.S. (A balanced market is considered 6.5 months, meaning supply and demand are matched). By these numbers, it\u2019d take either a massive fall in buyer interest or a sudden glut of supply to cause any sort of fallout price-wise.&nbsp;<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1075\" height=\"817\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-12-at-1.16.54-PM.jpg\" alt=\"Active Listing Count YoY (2017-2023) - Realtor.com\" class=\"wp-image-153941\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-12-at-1.16.54-PM.jpg 1075w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-12-at-1.16.54-PM-300x228.jpg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-12-at-1.16.54-PM-1024x778.jpg 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-12-at-1.16.54-PM-768x584.jpg 768w\" sizes=\"auto, (max-width: 1075px) 100vw, 1075px\" \/><figcaption class=\"wp-element-caption\"><em>Active Listing Count YoY (2017-2023) &#8211; <a href=\"https:\/\/www.realtor.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Realtor.com<\/a><\/em><\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Where Home Price Predictions Stand<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">While many of Musk\u2019s followers agreed with his sentiments on Twitter, the bulk of housing experts aren\u2019t predicting a big dip in home prices anytime soon.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The last&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.fhfa.gov\/DataTools\/Downloads\/Pages\/House-Price-Index.aspx\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Federal Housing Finance Agency House Price Index<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;showed home prices up 4.3% between March 2022 and March 2023, while the CoreLogic S&amp;P Case-Shiller Index notched smaller gains\u2014just 0.7% annually.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Still, the long-term forecasts are positive. CoreLogic projects a 4.6% bump in prices by April of next year. Zillow expects a 3.9% increase across 2023.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There\u2019s no telling how accurate these are\u2014and things can certainly change, especially with a possible recession and more potential Fed rate hikes on the horizon. For now, though, the data appears poised in residential real estate\u2019s (and in homeowners\u2019) favor.&nbsp;<\/span><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_5cd986083447d956d4bff3c361807adf\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_e3874ee9039153d359c3314a27cae3c6\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_0ef4e332d69428f1064a3336761dea3c class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Lender Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/elon-musk-says-home-prices-will-drop&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/elon-musk-says-home-prices-will-drop&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>That\u2019s what Tesla and SpaceX founder&nbsp;Elon Musk tweeted last week&nbsp;in response to a stream of tweets from venture capitalist David Sacks. In that series, Sacks claimed that Fed rate hikes [&hellip;]<\/p>\n","protected":false},"author":613679,"featured_media":153945,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7381],"tags":[],"class_list":["post-153936","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-housing-prices"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/153936","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613679"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=153936"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/153936\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/153945"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=153936"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=153936"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=153936"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}