Did This Shocking Real Estate Prediction From Musk Come True In 2024?

On any given day, Elon Musk is vocal about issues and things he finds "interesting" or "concerning." Yet, he rarely chimes in on real estate or the housing crisis. That’s why his response to a tweet posted by well-known entrepreneur and investor David Sacks on May 29, 2023, caused some commotion. 

Sacks’ tweet stated that Los Angeles office towers are selling for less than the amount of debt on them in San Francisco and other big cities. The tweet itself was a response to information that Brookfield, L.A.’s largest landlord from Canada, has defaulted on loans exceeding a billion dollars in 2023.

Here’s what Musk had to say in response:

"Commercial real estate is melting down fast. Home values next."

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Did Elon Musk’s Real Estate Prediction Come True In 2024?

To find out if Musk’s forecast about commercial real estate and home values "melting" came true, we need to examine the performance across the major commercial real estate sectors during the first quarter of 2024.

According to the April report from the National Association of Realtors, the office sector has had a tough time in early 2024. More empty office spaces and more people are missing payments, even though construction hasn’t changed much. In March, the office vacancy rate was 13.7%, which is more than double the number of empty office spaces compared to a year ago.

Their forecast also predicts that more office spaces will become available because the demand for leasing is about 30% lower than it was before the pandemic.

Even though interest rates are higher, commercial real estate debt has increased in 2024. Small banks have issued over $2.0 trillion in loans, up from $1.9 trillion in April 2023. Large banks have issued around $876 billion in loans, which is less than the amount at the end of last year.

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While fewer people are falling behind on their home loans, more people are missing payments on commercial real estate loans. The delinquency rate increased from 0.69% in late 2022 to 1.17% in early 2024. However, this rate is still low compared to historical standards, staying below 3.5%.

Unlike the office sector, the multifamily sector has been strong. High mortgage rates, around 7%, have increased demand for apartment buildings. The sector bounced back from last year’s low point, with activity in early 2024 more than doubling compared to the same time last year. However, even with the higher demand, the vacancy rate increased to 7.8% in March because many new apartments became available.

Conversely, Musk’s prediction regarding home values hasn’t hit the nail on the head. Per the Zillow Home Value Index, U.S. home value is $358,734, up 4.3% between May 2023 and May 2024. The real estate marketplace also published a forecast that predicts home prices will rise 0.6% over the next 12 months. That is down from last month's projection for 1.9% growth and much slower than the pre-pandemic growth rate of around 5%.

While Elon Musk’s prediction about the commercial real estate market facing a meltdown was fairly accurate, his forecast about dropping home values hasn't come true yet. In fact, home values have continued to rise, a trend that is likely to continue for the next period. The office sector has indeed struggled, with higher vacancy rates and more people missing loan payments. However, the demand for apartment buildings actually increased, and overall, the multifamily sector showed resilience. 

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