Grading 2024 Predictions: How Clear Was The Crystal Ball?

Even the top real estate players knew 2024 would be a bit painful. 

This year was transitional, with many executives attempting to buy time. With enough of it, the hope was that interest rates would fall, companies would beckon employees back to their offices and capital would come flowing back into the market. 

Well, ticktock. The end of 2024 has arrived, and many of those dreams have yet to become reality.

To get an idea of what the coming years may bring, we took a look back. Here are some expectations that we, alongside experts, had for the year — and whether they came true.

PREDICTION: Interest Rates Come Down

RESULT: Partly True

Years of rising interest rates constraining capital made the industry anxious for cuts. The predictions about the size of those cuts turned out to be optimistic.

At the beginning of this year, experts from CBRE and Newmark told us that 10-year Treasury yields could fall as low as 3.3% and the Federal Reserve's benchmark rate could hit 4.25%. The Mortgage Bankers Association projected a 30-year mortgage rate closer to 6% by the end of 2024, down from rates that clocked in just below 7% as of the end of December 2023.

Relief did come in September when the Fed slashed interest rates by 50 basis points, sparking a psychological shift toward optimism. That was followed by another 25 bps shaved off in November.

But that leaves the target range for the federal funds rate between 4.5% and 4.75% going into the new year. At the end of November, the 30-year fixed mortgage rate was 6.86%, according to the MBA, with little change in the past year. The 10-year Treasury was just under 4.2% after trading Monday. 

Between October and November, the MBA withdrew its optimism for the coming year, according to HousingWire. In October, the trade organization forecast mortgage rates to fall between 5.9% and 6.2% in 2025, hitting 5.9% in 2026.

But just one month — and a decided election — later, it changed that prediction to between 6.4% and 6.6% in 2025 and 6.3% in 2026.

Fannie Mae similarly revised its expectations for mortgage rates in the coming year from below 6% to 6.3%.

PREDICTION: The Sun Belt Is Where It's At

RESULT: Too Good To Be True

When Americans rushed out of large coastal cities like New York and Los Angeles, they found a pandemic haven in suburbs, small towns and the Sun Belt. 

Developers followed, with the largest multifamily REITs betting that land from Florida to Arizona would surge in attraction and value. Cranes rose across the South, as developers expected demand to hold steady or grow just as projects were delivered.

Now, those markets face a major glut.

Of the top 15 markets for positive net absorption tracked by CBRE, all but three — New York, Washington, D.C., and LA — have grown their inventory by more than 3% in the past year, above the national average. That includes Houston, Austin, Dallas, Atlanta, Miami, Phoenix, Nashville, Charlotte and Raleigh, North Carolina, and Jacksonville, Florida. 

Most of the cities on that list also have construction pipelines greater than 5% of their existing inventory, according to the third-quarter report by CBRE. And rents are now falling amid all the competition.

Rents were down roughly 2% year-over-year in the Sun Belt in the third quarter, with Austin rents 8% lower than they were in the prior year and Jacksonville rents down 5%, according to CBRE. 

The multifamily REITs that rushed into those markets are now expressing some hesitancy. In earnings calls this year, they admitted to investors that oversupply in the Sun Belt is weighing down their earnings.

“[We are] in the midst of clearly record levels of new supply coming into our market,” Memphis, Tennessee-based Mid-America Apartment Communities CEO Eric Bolton said during a second-quarter conference call. “And we feel like we're in the worst of the storm right now.”

PREDICTION: It’ll Be Time To Take Advantage Of Trophy Property Coming To The Market

RESULT: False, Thanks To Extend-And-Pretend

It hasn't been a pretty year for the owners of some of the prettiest properties in the country. 

After a legal battle, RFR Holding was forced to hand over control of the Chrysler Building. RXR Realty is attempting to avoid foreclosure at the Helmsley Building, for which it paid $1.2B. M-M Properties had to negotiate a complicated loan agreement to hold on to the TC Energy Center, which has become a signature of Houston’s skyline. And the loan backing Hollywood’s largest retail center has moved to special servicing.

Opportunity investors have been sitting on the sidelines, waiting for the possibility of scooping up some of these iconic properties, but it doesn’t seem like that time is coming anytime soon. 

Since the second half of 2021, 594 real estate opportunity funds have been established, raising more than $210B in aggregate capital, according to a Bisnow analysis of Preqin data. Thirty-three distress funds raised $6B over the same time frame.

As debt maturity deadlines have been repeatedly pushed back, funds haven't been deployed and investors have grown impatient. As a result, funding has slowed and investors have switched focus toward direct lending.

PREDICTION: Conversions Won’t Save The Office Sector

RESULT: True, But They Are Making A Dent

Developers have long warned that office-to-residential conversions can't be the solution for the real estate distress caused by remote work. It is true that conversions are difficult — and pricey — especially for large, midblock buildings.

But office values have continued to plunge. As acquisition costs drop, the economics needed to surpass those challenges are finally penciling out.

In 2023, 63 conversions were completed across the country, followed by 73 this year. Now, 309 projects are in the pipeline, approximately three-quarters of which are office-to-residential, and 94 are expected to be completed next year.

That could deliver as many as 38,000 housing units, according to a Wall Street Journal analysis of CBRE data.

Cities leading the way include Cleveland, where 12% of the office inventory is undergoing or planned for conversion. In others, new subsidies and zoning efforts are being launched. 

That includes New York City’s City of Yes proposal, which could pass by the end of the year and would make conversions easier across all five boroughs.

And while office vacancy is still at all-time highs, the third quarter was the first time in five years that available office space decreased, according to JLL.