Elon Musk has sounded the alarm over fears the US housing sector is heading for a meltdown.
On Monday he tweeted, “Commercial real estate is melting down fast. Home values next.”
The tweet was a response to a tweet by Craft Ventures founder David Sacks, who noted a large portion of commercial real estate debts will be maturing soon.
Previously during the financial turmoil, Musk was quick to warn that property markets could begin to show strain in response to the banking sector issues which were unfolding. At the time he noted, commercial real estate would be, “by far the most serious looming issue,” since regional banks were so exposed to the sector, and a wave of defaults was not out of the realm of possibilities.
In the last few months, the debt-fueled commercial real estate industry has drawn the attention of analysts, given all the headwinds it faces. From higher interest rates to tighter credit rules by lending institutions, to work-from-home trends, the terrain for the industry has become decidedly unfriendly.
According to JPMorgan, there is roughly $450 billion in commercial real estate debt which will expire this year that could default. At the same time, Morgan Stanley has noted that commercial real estate prices may fall as much as 40% off their peak, due to the risks in the sector.
Many of the same concerns in commercial real estate afflict the US housing market, which explains Musk’s concerns. As higher borrowing costs have quashed demand, homes sales are bottoming out, with experts predicting there could be a 15% to 20% fall in prices.
Since last spring, as the Federal Reserve has attempted to reign in a persistent inflation, the central bank’s key rate has gone from almost zero, to over 5%. Although the speed of the rate hikes has slowed, borrowing costs are still high, weighing on demand and economic growth.
Making matters worse, after a wave of deposit runs which collapsed lenders like Silicon Valley Bank and Signature Bank in March, lenders have begun to pull back on issuing lending. That is driving asset prices down, which is only exacerbating fears that prices are set to tumble even more.
