Fed with a 50 bps drop🫢

Just when we thought this week wouldn’t have a major headline to report on, the Fed decided to bring the BOOM. This week we will unpack the major shift in interest rates and give more updates around the markets.

This newsletter is 787 words long, a 3.1 minute read.

On Wednesday, the Fed announced that they would cut interest rates for the first time since 2020. This marks the end of a 4-year era in the US economy that saw record-high inflation numbers with the Fed working to combat them and deliver a soft landing to the economy.

It has been long anticipated that this meeting would yield a rate cut but what was yet to be determined was the size of that cut. Economists were split between 25 bps and 50 bps. What is believed to have set the Fed over the edge and into enacting a 50-point cut was the cooling labor market and signs of economic strain. Also in this meeting, the Fed set an expectation of 50 more basis points worth of cuts to occur between now and the end of the year.

Outside of the early onset of Covid, the last rate cut by ½ a percent was in 2008 during the global financial crisis.

Mortgage Rates📈

The Transformation of Vegas🎰

“What happens in Vegas stays in Vegas” a popular ad term coined in 2003 used to describe the freedom, craziness, and escape that Las Vegas provides to its mere 40 million visitors a year who stay in 168,000 hotel rooms in the middle of the desert. link

Vegas was once known for its budget hotels and “Sin City” aura targeting gamblers has seen increasing investment in hotels offering wellness and luxury packages to tailor towards sports fans, concertgoers, and convention attendees.

The city expanded its traveler base first with the NHL Expansion team the Golden Nights in 2016 who won their conference their inaugural season and the Stanly Cup in 2023. They were followed by Allegiant Stadium home of the once-Oakland Raiders who moved to Vegas in 2020. Vegas then hosted the Super Bowl and Taylor Swift’s “Eras” tour in 2024. Vegas has also hosted Formula 1 for the first time in 2023 and is constructing a new $1.5 billion stadium on top of the Tropicana Hotel to move the Oakland A’s baseball team to Vegas.

Home Value and Stocks drive Household Net Worth Increases 🏠

In Q2 of 2024, Real Estate grew by $1.75 trillion and US stocks grew $662 billion. This largely contributed to the new record household wealth totaling $168.8 trillion.

Net Wealth which is a broad measure of the household sector’s financial well-being - has climbed 785%, the highest it’s been in 2 years. Household debt has also shrunk by 71%, the lowest level in 23 years.

However, this data should be taken into perspective in that 25% of assets are held by 1% of the population and almost 80% of assets are held by 20% of the population. This means that the vast majority of these wealth increases have benefited a smaller portion of the population.

Office Leasing Space to Continue Upwards 🏢

Office space has been a struggling asset class since Covid allowed companies to realize that work from home is completely feasible. Office buildings around the country have resorted to converting office space into apartments, retail spaces, hospitality, and medical offices.

However, more office leases are being signed today than before the pandemic signaling a reversal of this trend. Experts believe this will continue and even increase throughout the rest of 2024 and into 2025. These numbers aren’t all good, as the average lease size has dropped by 27% since uncertainty and lower demand surrounding hybrid work models persists.

These new leases are being driven by the legal, tech, and finance sectors who are favoring renewals rather than relocation. 59% of those who are moving are looking to upgrade space looking to cash-in on the forced decrease of leasing prices.

Warehouses 🏭

Warehouses have always been a stable investment with consistent demand from the logistics, retail, and e-commerce sectors. In Q2 Leasing volatility slowed and e-commerce and supply chain needs drove demand, increased rent rates, and cap rates on warehouses by 23 basis points.

The East experienced the highest rent growth while the West saw the lowest. Markets that experienced the increase most were Charlotte, Miami, Boise, and Phoenix. Some markets are experiencing higher vacancy rates due to increased speculative development such as Chicago, Indianapolis, Dallas, and Los Angeles. Areas with limited new construction have maintained low vacancy rates and limited price volatility, Cleveland and Detroit are both examples.

That wraps up this week’s episode. As always we greatly appreciate your continued support and interest in our community. The best way to support us beyond reading is to share our posts with family, friends, and colleagues interested in Real Estate!

pool.beehiiv.com/subscribe ← copy and paste this link to share!

The information provided in this newsletter is for informational and educational purposes only and does not constitute financial, investment, or real estate advice. The content is based on the opinions and research of the authors and may not reflect the most current market conditions or developments. The analysis of properties is done without consideration of each platform’s fees. Always conduct your own research and consult with a qualified financial advisor or real estate professional before making any investment decisions. The authors and publishers of this newsletter disclaim any responsibility for decisions made based on the information contained herein.