The Rise and Fall of the Residential Real Estate Market

Commercial real estate is melting down fast. Home values next.— Elon Musk (@elonmusk) May 29, 2023

That’s what Tesla and SpaceX founder Elon Musk tweeted last week in response to a stream of tweets from venture capitalist David Sacks.

In that series, Sacks claimed that Fed rate hikes and the increased borrowing costs they led to are causing a slew of problems in the financial world, including a soon-to-be crash in commercial real estate.

That latter part could certainly be possible. In fact, JPMorgan estimates that nearly $450 billion in commercial real estate debt could go into default this year. Meanwhile, Morgan Stanley Wealth Management forecasts a 40% peak-to-trough decline in CRE prices, increasing the risk of default even further.

Does that mean a similar drop in home values is coming, too? Let’s take a look.

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