Elon Musk expects home values to tank in the coming year, spurned by weakness in the commercial real estate market.
The tech billionaire tweeted “Commercial real estate is melting down fast. Home values next,” in response to a tweet about the market from Craft Ventures founder David Sacks.
Commercial real estate is having a tough moment in a high-rate, high-price environment. The Federal Reserve has called CRE weakness a possible risk to the U.S. financial systems.
“[T]he magnitude of a correction in property values could be sizable and therefore lead to credit losses,” officials wrote in a report.
JPMorgan has estimated that around $450 billion in commercial real estate loans due to expire this year could default, while Morgan Stanley Wealth Management insists that property prices could fall 40% from their peak.
“I do think you will see banks pull back on commercial real estate commitments more rapidly in a world [where] they’re more focused on liquidity,” Goldman Sachs Research’s Richard Ramsden wrote in a note. “And I do think that is going to be something that will be important to watch over the coming months and quarters.”
Office demand has fallen dramatically as work-from-home culture has taken the country by storm.
Previously bustling downtown office buildings where companies used to pay top dollar are sitting empty. Some are targeted for renovation, but it’s often expensive to turn offices into apartments.
“Office buildings are sometimes hard to convert to residential… they’re wedged between other buildings and don’t have enough street exposure,” architect and structural engineer Charles F. Bloszies told Fast Company.
He noted that when architects build office buildings, they prioritize different things than those building apartments. The resulting buildings lack many key ingredients for residential living.
“It’s simple, straightforward stuff, like you need light and air,” Bloszies said.
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