Peebles: Housing market headed for “crash landing”
Developer says condo projects will be “problematic” as buyers move to rentals
As interest-rate hikes slow the housing market, one developer believes the real estate industry could be in for years of pain.
“My concern is we’re in for a crash landing,” Peebles said, predicting that rate hikes will bring down home prices across the country as more buyers are priced out of the market, particularly in areas that saw rapid appreciation during the pandemic.
The developer singled out Los Angeles, where he said he “wouldn’t be surprised” to see home prices fall 15 to 20 percent in the next 18 months.
Home prices continue to rise, though the growth appears to be slowing. Meanwhile, the average rate for a 30-year fixed mortgage has more than doubled since the start of the year to well above 6 percent, according to Freddie Mac, making it more difficult for buyers to finance their purchases.
Last week, mortgage applications fell 14.2 percent from a week prior, grinding to their slowest pace in a quarter-century, according to the Mortgage Bankers Association.
As a result, Peebles said he expects multifamily projects to present more lucrative opportunities for residential developers, pointing to “unsustainable” rent hikes in markets like Miami.
“For-sale projects that would get delivered in the next two to three years will be problematic,” he said. “I think five years or so out, that will be a different story.”
Developers may have seen that coming. After a decade marked by excess supply, new condo inventory in Manhattan recently fell below 6,000 units for the first time since 2018, according to data from Brown Harris Stevens Development Marketing.
Peebles went on to criticize the Fed for not acting sooner to address inflation.
“Interest rates were too low for a long time,” he said. “The Fed should have moved interest rates a couple years ago, slowly. All these buyers were looking at it as free money, because it was.”
— Holden Walter-Warner