The end of the year is always a time for reflection on the year behind and peering into the prospects of the year ahead. So let’s take a short look at both as we come into the end of 2024…
2024 in the end turned out to be a lot like 2023. There were certainly come improvements on the sale side with volumes coming up slightly. But at the same time, the interest rate markets which looked poised to continue sliding at the end of 2023 actually turned the other direction.
In the beginning of the year, it appeared inflation might be coming back. However, no one bothered to notice that Q1 every year is the worst quarter for CPI and PPI. Once we were clear of Q1, magically the numbers got better. Once they did – despite no Fed cuts – rates began dropping and we started seeing activity again.
Sales began looking better over the summer as rates continued falling with the 10-year treasury below 3.7% having dipped below it’s low from December 2023. Happy days were here again… until they weren’t. The Fed began the easing cycle finally which should have helped, right? Wrong! Despite the Fed easing .75%, treasuries actually rose over .75% actually touching 4.5% on the 10-year.
Was it inflation data? Not likely. Q3 didn’t really show any economic data pointing to an economy overheating. It’s only speculation, but could it be the deficit and the amount of money being printed to support spending? Regardless of the cause, October saw momentum halt. But then came November and this first part of December during which we’ve seen at least a little softening in the interest rate markets with the 10-year back down to roughly 4.25%. The challenge in 2025 will be seeing whether or not we see treasuries back well under 4%. Regardless of rates, how does 2025 look?
It’s our opinion that 2025 will finally see the pickup in sale activity we have been waiting for! While it may only be anecdotal, we have had several conversations in the past few weeks with old clients preparing to sell in early 2025 to scale up. It appears there are a couple of reasons. First, all the 5-7 year fixed rate loans from 2018-2020 are either coming due or converting over to variables (generally in the 8%+ range). That necessitates either a refinance or sale. Despite the rise in cap rates over the past 12-18 months, many of those owners have still seen significant value gains over those years. And given they are trading from cap rate to cap rate, there’s no loss in selling and buying at a similar cap rate. In addition to conversations with our own clients, we have begun seeing higher quality listings and slightly higher cap rates. All of that in total means we are beginning to see the signs of equilibrium on the horizon for supply and demand. All of that bodes really well for 2025.
On the interest rate side, it’s a bit of a guessing game. To get treasuries well under 4% we need to see the inflation data get closer to the fed target of 2%. While that will likely happen during the year, expect to see the data over Q1 once again cause the markets to jitter. Remember, it does that every year, so no need to worry! By the time properties get under contract in Q1, rates will be back – hopefully! – on their downward march.
Most importantly in 2025, we all need to be resilient to whatever comes, always looking for opportunities, and jumping when those opportunities arise. We need to stay the course a bit longer and the brighter days will come!
