It seems that the Federal Reserve is like that friend who promises to help you move and then suddenly remembers they have a yoga retreat that weekend. 'Oh, rate cuts in 2024? Sorry, I've got this thing with inflation I just can't miss.'

The real estate market awaiting rate cuts feels like dogs at the door when they hear the word 'walk.' And, to add insult to injury, China cut its key interest rate this week as we here in North America look on like…

We were supposed to have rate cuts this year…Right? RIGHT!?

Maybe. New economic data out of the U.S. dampens expectations of rate cuts, and the economy and jobs continue to show robust and sustained growth.

Just when we thought the Federal Reserve was ready to roll out the red carpet for interest rate cuts in 2024, the script got a major rewrite. Fed Chair Jerome Powell had us all tuning in for a potential three-cut series:

But, plot twist! Experts are now whispering that rate cuts this year are more "optional" than a guaranteed screening, leaving investors and the real estate sector on the edge of their seats.

How’d we get here? The Fed's been battling inflation like a superhero for 24 months, but mixed economic signals and a stock market refusing to bow down have us questioning: will they or won't they cut rates in 2024?

Currently, the odds for a March cut have dramatically dropped from a confident 77% to a mere 4.5%, according to CME's FedWatch Tool.

🏙️ Real Estate's Rocky Road Ahead: Now, onto the main act: real estate. This sector, especially the commercial side, might not get the rate relief it desperately needs. Imagine $2.1T of debt ready to explode by 2025 – it's a financial catastrophe waiting to happen.

According to the Financial Times, bad commercial real estate loans have surpassed loss reserves at major US banks due to a significant rise in late payments related to offices, shopping centers, and other properties.

The average reserves at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley have dropped from $1.60 to 90 cents for every dollar of commercial real estate debt that is at least 30 days overdue. This decline occurred in the past year as delinquent commercial property debt for these six banks nearly tripled to $9.3B.

🔍Inflation, Unemployment, and Economic Growth 🔍

Inflation rates are still above target, economic growth outperforms expectations, and the job market is stronger than ever. The price of a typical US home has skyrocketed by 47% since 2019, and there's no immediate sign of a real estate cooldown.

It seems the Fed's rate hike saga has yet to unveil its impact across the economy fully. Stubbornly high housing prices coupled with strong economic data mean that rate cuts may be canceled for the remainder of 2024.

As we anticipate the Fed’s next move, the storyline suggests rates might stay "higher for longer." The economy, robust in its current state, doesn't present a clear-cut case for immediate rate cuts.

Experts believe that any premature easing could reignite inflation, a scenario the Fed is keen to avoid. Yet, whispers of a potential cut still circulate, with some betting on a strategic move later in the year to ensure economic stability without stirring the inflation pot.

Reshoring: The US manufacturing base could grow by 10% over the next decade, driven by the ongoing reshoring of manufacturing jobs, according to a report. The US currently has less than 5 billion square feet of manufacturing inventory, and the predicted expansion could add up to 500 million square feet to this. The report also highlights the impact of federal initiatives totaling over $400 billion to catalyze industrial development. Since 2020, over 300 major manufacturing facilities have been announced, representing about $400 billion in anticipated investment and at least 210,000 proposed new jobs. The Midwest and Southeast have seen the most investment, and most new construction is expected to be in secondary or tertiary market locations. (CS)

Retail Fairytale: Retail is set to become the highest occupancy commercial real estate category in the US, according to a report by Marcus & Millichap. The report predicts a growth of over 4.8 million households from 2024 to 2028, with urban retail showing strong tenant demand, robust occupancy rates, and steady rent growth. In 2024, store openings surpassed closures by approximately 1,000 locations, with the retail sector's vacancy rate just ten basis points above its all-time low. The report also notes that 36 of 50 major markets are expected to expand stock by 0.5% or less in 2024. (Globe St)

Density Bonus: Los Angeles has introduced a density bonus program to encourage developers to build larger apartments for multi-generational families. The proposal would exempt the square footage of additional bedrooms and bathrooms from floor area calculations and allow for an extra story beyond current zoning restrictions. The move comes as a third of households in the city comprise four or more people, yet only 14% of rental housing has three or four bedrooms. An estimated 17% of renter households live in overcrowded apartments. The proposal is part of an eight-year housing plan approved in 2022, requiring zoning changes in 2024 to accommodate the construction of 255,000 new homes citywide. (Globe St)

265%: NVIDIA reported a record-breaking fourth quarter for fiscal 2024 on February 21, 2024, with a staggering $22.1 billion in revenue, marking a 22% increase from the previous quarter and a 265% surge from the previous year. This quarter also saw Data Center revenue reach an all-time high of $18.4 billion, reflecting growths of 27% from Q3 and 409% from the year before, contributing to an annual revenue of $60.9 billion, up by 126%. (NVIDIA)

$1.5B: The U.S. chip manufacturer GlobalFoundries receives $1.5 billion from the Biden administration to boost domestic microchip production. This is the third investment in the company and will support manufacturing on the East Coast. The federal government can invest over $52 billion in domestic microchip manufacturing under the Chips and Science Act, aiming to compete with countries like China. GlobalFoundries plans to build a new factory in Malta, New York, and upgrade an existing location in Burlington, Vermont. (AG)

10%: Foreclosure filings in the US increased both monthly and yearly, with 33,270 properties receiving a default notice, scheduled for auction, or undergoing bank repossession, a 10% increase from December and a 5% increase from the previous year. This equates to one in every 4,236 housing units. Completed foreclosures also increased by 1% from the previous year and 13% from the previous month, with 3,954 properties repossessed. The states with the highest foreclosure rates were Delaware, Nevada, and Indiana, while the cities with the most foreclosure starts were New York, Houston, Los Angeles, Miami, and Chicago. (HW)

25%: In the fourth quarter of 2023, borrowing for commercial and multifamily buildings fell sharply, with commercial and multifamily loan originations dropping 25% compared to the previous year, but increasing 13% from the previous quarter. Loans for office buildings specifically dropped 68% year over year and 32% quarter over quarter. For all of 2023, mortgage originations were 50% below 2022 levels, with every major property type experiencing a decline. (Inman)

Tiny Home Community: Lennar Homes might just have cracked the code to the affordable housing shortage with their tiny home development in San Antonio's East Side, near Converse. Imagine nearly 100 homes, each cozily spreading over just 660 square feet on dainty 20-foot lots. That's right, your backyard might be small, but your dreams don't have to be! Priced at a jaw-dropping $150,000 – a figure so low it practically does the limbo under the local market rates – these mini-mansions are making waves. Critics, however, are wagging their fingers, claiming it's still a hefty tag for such compact luxury. Launched as Lennar's answer to the prayers of affordability and housing shortage woes, Elm Trails has already welcomed 35 happy residents, with another 20 in the pipeline. The buzz is so loud that Lennar is eyeing expansions beyond the Alamo City, with tiny-home dreams possibly coming to South Carolina and Florida. (TRD)