House prices will plunge, commercial property in Meltdown

• Be ready for the intense pressure on commercial real estate to spread to housing prices, says Elon Musk.
• “Commercial real estate melting fast. Home values ​​next,”[ads1]; the tech billionaire tweeted.
• Investors are worried about property in a period of higher interest rates and tighter lending.

Elon Musk once again sounds the alarm on the American real estate sector.

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

The tech billionaire made the comment in response to a tweet from Craft Ventures founder David Sacks, who pointed out that a large portion of commercial real estate debt is due soon.

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

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

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

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

In response to historic inflation, the Federal Reserve has raised interest 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.

Furthermore, 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. These forces are putting downward pressure on property prices, raising fears that house and commercial property prices may suffer.