The Perfect Storm
1) Interest rates – Since March 2022, the Federal government has raised interest rates ten times to combat inflation. Rates climbed from 3% to over 7% during this period. As a result, new construction has subsided proportionately, slowing overall industry growth.
2) New Construction – In addition to the slower new construction growth, home construction has also slowed. Adding to this fact, the rapid rise in house prices, brought on by inflation, halted home sales nationwide. Home inventory decreased for the first time in years simply because buyers did not want to pay inflated prices at increased interest rates.
While 2023 may have been a reset year for self-storage, there are many positive indicators for 2024.
1) Lowering interest rates – the Fed announced a probable interest cut in March of this year with the rumored news of at least three cuts over the year. Redfin also predicts interest rates will continue to fall throughout 2024 and are at their lowest since May 2023. The article Housing Market Update: Mortgage Rates and Housing Payments Drop to Lowest Level Since Spring (redfin.com) states that a mid-6 % range is realistic in 2024. If accurate, this is a great indicator that paused construction jobs may move forward again in 2024 and allow self-storage to return to healthier (although not Covid-like) rates. In fact, mortgage rates have been dropping for the past nine consecutive weeks, and this trend is expected to continue.