The tech billionaire has warned of a massive meltdown in the country’s real estate sector
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The US commercial real estate sector is under intense pressure, which is soon likely to spread to the residential property market, billionaire Tesla, SpaceX and Twitter owner Elon Musk said on Monday.
“Commercial real estate is melting down fast. Home values next,” Musk tweeted in response to a comment by Craft Ventures founder David Sacks, who said that much of the country’s commercial real estate debt was due to mature soon.
Commercial real estate has been struggling due to bank failures, tighter lending regulations, and rising interest rates. The trend of working from home, which gained momentum during the Covid-19 lockdowns, has made the situation even more difficult, industry experts say.
JPMorgan recently estimated that it could default on about $450 billion of its commercial real estate loans maturing this year, while Morgan Stanley predicted that commercial real estate prices may plunge by about 40% in the near future.
Musk has already warned of the impact of the recent banking sector turmoil in US property markets. He tweeted last month that commercial real estate was “by far the most serious looming issue,” along with mortgages, and warned regional banks of defaults because of their exposure to the sector. His comments at the time were in response to research by the Kobeissi Letter, which found that a record $2.5 trillion in US commercial real estate debt was due to expire over the next five years.
“This is the real problem. Many cities have high office vacancy rates. Mortgage portfolios are at risk too if housing prices drop significantly,” Musk wrote at the time. According to Morgan Stanley, small and medium-sized US banks hold 80% of US commercial real estate debt outstanding.
Some, however, argue that the situation in the US residential real estate market is not as dire as Musk says. In response to his tweet on Monday, Glenn Kelman, the CEO of Redfin, a Seattle-based operator of a residential real estate brokerage, tweeted: “The loss in demand for commercial real estate is what’s driving demand for residential real estate. People who work from home need more space at home. Sales volume is down because inventory is down. Today, home prices increased for a second straight month.”
According to the seasonally adjusted Case-Shiller National Home Price Index, US home prices have fallen 2.2% from June 2022. However, the situation differs from state to state, with cities across the Midwest and the East Coast recording prices near all-time highs.
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