House Prices Will Plunge, Commercial Property in Meltdown

• Brace for the intense pressure on commercial real estate to spread to house prices, Elon Musk says. 
• “Commercial real estate is melting down fast. Home values next,” the tech billionaire tweeted.
• Investors are worried about real estate in a period of higher interest rates and tighter lending.

Elon Musk is once again ringing the alarm on the US real estate sector. 

“Commercial real estate is melting down fast. Home values next,” the Tesla and SpaceX chief tweeted on Monday. 

The tech billionaire made the comment in response to a tweet by Craft Ventures founder David Sacks, who pointed out a big chunk of commercial real estate debt is due to mature soon. 

Musk has previously warned that cracks could appear in property markets following turmoil in the banking sector. For example, the clean-energy pioneer said commercial real estate is “by far the most serious looming issue,” and cautioned regional banks could experience a wave of defaults due to their huge exposure to the sector. 

The debt-fueled industry has kept investors on edge in recent months, given it faces a raft of headwinds. These include higher interest rates, tighter credit conditions, and work-from-home trends. 

JPMorgan has estimated that about of the $450 billion in commercial real estate loans due to expire this year could default. Meanwhile, Morgan Stanley Wealth Management said commercial property prices could tumble 40% from their peak in light of the sector’s troubles. 

The US housing market is also dealing with similar problems, which likely explains Musk’s view that prices are set to topple. Per Morgan Stanley, home sales have bottomed as higher borrowing costs cripple demand, with experts warning of a potential 15% to 20% plunge in prices.

In response to historic inflation, the Federal Reserve has hiked rates from virtually zero to upwards of 5% since last spring. While the pace of price increases has slowed, the painful combination of higher borrowing costs and steeper prices threatens to weigh on demand and economic growth.

Moreover, lenders are pulling back in preparation for further bank runs after a wave of deposit withdrawals toppled Silicon Valley Bank and Signature Bank in March. Those forces are putting downward pressure on asset prices, fanning fears that the prices of houses and commercial spaces could suffer.