Mortgage rates have finally dipped below 7% and with the Federal Reserve on pause, mortgage rates may continue to drift lower, paving the way for commercial real estate sales to open back up. John Worth, Nareit Economist and Head of Investor Outreach, joins Yahoo Finance to discuss the easing of rates and why REITs should be considered by investors to put on the top of their watch list for 2024.

Worth explains the upside for REITs here: "I think that even with the Fed easing, that's going to be easing to a higher rate environment. So I do think in 2024, we'll see some of that commercial real estate sales market open up and we'll see some of those prices start to reflect the reality of higher interest rates. I think there's a good reason for public REITs to be potentially winners in that because, again, they're coming in with low leverage, they have access to capital through both debt and equity and so they can potentially be the buyers in those cases."

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Video Transcript

JULIE HYMAN: One of the things we were talking about earlier in the show is residential mortgage rates coming down and at what level do you see the tipping point where demand really starts to loosen up. What's happening on the commercial side, right? What's happening with in terms of a freeze in the real estate market? And how low do rates need to go to unfreeze?

JOHN WORTH: Yeah. I think that's a great question, because the freeze is both in terms of some owners having difficulty getting bank lending. REITs luckily, do most of their lending in the unsecured markets. And so capital markets have been open for REITs. They came in as--

JULIE HYMAN: At a price, I imagine.

JOHN WORTH: At higher prices. But because they came in with low leverage, mostly fixed rate debt and a lengthy term structure, so today the weighted average term to maturity is about 6 and 1/2 years, they've been able to be a little selective and when they go to market and when they do refinancings.

But the real holdup that we've seen has been this lack of transactions. And I think that even with the Fed easing, that's going to be easing to a higher rate environment. So I do think in 2024, we'll see some-- we'll see that commercial real estate sales market open up. And we'll see some of those prices start to reflect the reality of higher interest rates. And I think there's a good reason for public REITs to be potentially winners in that, because, again, they're low leverage, they're coming in with low leverage. They have access to capital through both debt and equity. And so they can potentially be the buyers in those cases.