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🔑 Key Takeaways
- Mortgage rates average 6.89% (for third consecutive week as home sales reach 16-year low) 1
- 49% of new apartments vacant after three months, marking fifth straight quarter below 50% occupancy 2
- Large builders pivot to first-time buyers with 51.2% of sales going to first-timers in 2024, up from 38.6% in 2014 3
- Consumer financial complaints surge to record 396,466 in May 2025, with credit reporting issues dominating at 92% of all complaints 5
- Federal Reserve Bank of St. Louis reports CRE lending growth reached its lowest rate in 11 years in Q4 2024
- Commercial real estate sentiment plummets 14 points to 54 amid policy uncertainty and rising costs 4
- Despite overall distress decline, office sector distress rates reached a new high of 19.3%, with Class A and A+ properties seeing rent growth while Class B and C properties reported rent drops 6
🏠 Residential Real Estate Markets
Housing inventory recovery accelerates dramatically while sales activity collapses to 16-year lows. Despite improved supply, buyers face record pricing gaps and affordability challenges as mortgage rates surge.
Inventory & Supply:
- National housing deficit improves to -20% vs. pre-pandemic levels, up from -38% last year
- New listings jumped 10% year-over-year in March, just 12% below 2017-2019 averages
- Inventory projected to normalize nationally by mid-to-late 2026
- One-third of major markets already achieved pre-pandemic inventory levels
Sales Activity:
- April sales hit slowest pace for any April since 2009 1
- Contract signings fell 6.3% in April, signaling further weakness ahead
- 4 million annual sales pace below 2024’s already-weak 4.06 million rate
- Sellers now outnumber buyers, creating buyer’s market conditions in many markets
Pricing Dynamics:
- Typical home listed for record $469,729 but sells for $431,057—9% pricing gap 1
- National price appreciation cooled to 1.9% in April, slowest in nearly two years
- 99 of 100 largest metros experienced slower price growth YoY
- Regional range: -10.0% (Cape Coral, FL) to +7.8% (Louisville, KY) 6
Builder Strategy Shift:
- Top 20 builders now direct 51.2% of sales to first-time buyers vs. 38.6% in 2014 3
- Builder production tripled: 323,000 homes in 2024 vs. 114,000 in 2012 (historically low)
- Price premium narrowed from 28% above local median (2014) to just 6% (2024)
- Median new home size reduced from 2,750 sq ft to 2,350 sq ft, saving $60K-$100K
- DR Horton and Lennar offer rates 90-120 basis points below market
Rental Market Crisis:
- 49% of Q4 2024 apartment completions remain vacant after three months 2
- Fifth consecutive quarter with rental adoption below 50%
- 125,000 new apartments completed in Q4, near all-time high of 142,900
- Vacancy rate hit 8.2% in Q1 2025, highest since 2021
- Year-over-year rents fell 1% in April 2025
💰 Mortgage Markets
Mortgage rates surge for the third consecutive week while lending shifts toward government-backed programs. First-time buyers increasingly rely on FHA loans as affordability pressures mount.
Interest Rate Trends:
- 30-year fixed rates avg 6.89% in week ending May 29, up from 6.86% 1
- Third consecutive week of rate increases
- Financial market volatility dampening both refinance and purchase applications
- Rates moving in high-6% range throughout 2025
First-Time Buyer Activity:
- Record 58% of agency purchase loans went to first-time buyers in Q1 2025
- 43% of all agency loans (including refis) were first-time buyer purchases, up from 39% in Q4
- 35% of first-time buyer agency loans were FHA—highest share since 2017
- GSE loans dropped to 50% of first-time buyer lending, lowest since early 2020
Regulatory Changes:
- FHA published Mortgagee Letter 2025-12 sunsetting COVID-era loss mitigation 7
- Non-QM loans reached 5% of total originations in 2024 8
- Non-QM projected to reach 30% of non-agency MBS by 2025
📊 Economic & Political News
Commercial real estate sentiment deteriorates sharply while consumer financial complaints reach record levels. Treasury Department initiatives and regulatory changes signal major shifts in federal payment systems.
May 29-30 Economic Indicators:
- Treasury Department issued RFI on modernizing federal payments to electronic systems 9
- Consumer complaints surged to record 396,466 in May 2025, up from previous monthly averages 5
- Credit reporting issues dominated at 364,161 complaints (92% of total), primarily incorrect information claims
Commercial Real Estate Sentiment:
- Real Estate Roundtable Index dropped 14 points to 54 in Q2 2025 4
- Current Index fell 15 points to 50; Future Index down 12 points to 58
- 37% believe market conditions worse than last year
- Executives report “driving in fog” environment due to policy uncertainty
- Development “nearly impossible” due to rising costs
Consumer Financial Health:
- Philadelphia Fed LIFE Survey shows record-low net sentiment 11
- Net income optimism declined by largest amount since survey inception
- 50% cut discretionary spending; 25% reduced essential spending over 12 months
- Personal savings rate dipped to 3.9% as consumers deplete savings
Capital Markets:
- 43% report improved debt capital availability vs. last year 4
- 45% expect equity capital improvement within one year
- International capital flows stepping backward
- Economic Uncertainty Index hit all-time high in May 12
🎯 Commercial Real Estate Markets
Commercial real estate markets continue to show mixed signals in early 2025, with multifamily demand surging while office sectors face ongoing challenges. Economic uncertainty and tariff concerns are creating headwinds despite some positive momentum in transaction volumes.
Recent Market Developments:
- Multifamily Demand Surge: Renting remains $1,210 per month more affordable than buying, driving multifamily demand to outpace supply by over 130,000 units in the past year despite record-high new deliveries 1
- Investment Volume Rebound: Q1 2025 saw $30 billion in multifamily sales volume, representing a 35.5% year-over-year increase, with total sales reaching nearly $158 billion over the trailing 12 months 1
- Vacancy Rates Declining: National multifamily vacancy fell to 5% in Q1, down 50 basis points from a year earlier and now below the long-term average, with all top 50 US markets reporting lower vacancy rates 1
- Tariff Uncertainty Impact: CBRE reported strong Q1 results with revenue up 12% and earnings per share up 32%, but CEO Bob Sulentic flagged growing concerns about tariff uncertainty affecting future business and project pipelines 2
- Economic Conditions: Despite minor GDP contraction in Q1 2025, consumer and investment strength remains robust with forecasts suggesting 1.3% GDP growth for the year, while Federal Reserve rate cuts are expected to ease CRE financing conditions 3
Commercial Real Estate Financing
CRE lending presents a complex picture with growth rates hitting 11-year lows while transaction volumes show strong year-over-year gains. Mixed signals reflect different measurement perspectives and evolving market conditions.
Recent Financing News:
- Lending Growth Slowdown: Federal Reserve Bank of St. Louis reports CRE lending growth reached its lowest rate in 11 years in Q4 2024, slowing from 13.2% in early 2023 to just 0.32% by April 2025 4
- Transaction Volume Surge: Despite growth rate slowdown, CBRE’s Lending Momentum Index jumped 13% quarter-over-quarter and 90% year-over-year in Q1 2025, with banks accounting for 34% of non-agency closings 4
- Debt Origination Rebound: Newmark’s Q1 Capital Markets report showed CRE debt origination up 42% year-over-year, indicating strong lending activity despite overall growth concerns 4
- Lending Standards Tightening: Fed’s April 2025 Senior Loan Officer Survey showed most banks reported unchanged or tighter CRE lending standards, with demand either flat or weakening amid rising construction costs 4
- Federal Home Loan Bank Results: Federal Home Loan Bank of Boston announced Q1 2025 results with net income of $57.0 million, down from $77.8 million in Q1 2024, attributed to lower interest rates affecting net interest income 5
Commercial Real Estate Servicing
The CRE servicing sector continues to evolve with technology integration and market consolidation, while loan distress shows improvement across most sectors except office properties.
Recent Servicing Developments:
- Loan Distress Improvement: For the first time in five months, loan distress across various property types decreased by 70 basis points to 10.8%, marking a significant shift suggesting potential market recovery 6
- Office Sector Challenges: Despite overall distress decline, office sector distress rates reached a new high of 19.3%, with Class A and A+ properties seeing rent growth while Class B and C properties reported rent drops 6
- Wells Fargo Divestiture: Wells Fargo completed the sale of majority stake in its CRE mortgage servicing unit to Trimont, while maintaining commitment to market-leading commercial real estate business with broad lending and advisory services 7
- FHFA Advisory Guidance: Federal Housing Finance Agency issued Advisory Bulletin to Federal Home Loan Banks ensuring sound credit risk management framework and member ability to access liquidity during economic stress 8
- Technology Integration: SitusAMC continues expanding end-to-end real estate lending and investing solutions, including investment advisory, transaction support, servicing, asset management, and special servicing capabilities 9
🏢 Industry News
Multifamily financing remains active despite market challenges, with significant transactions closing and REITs maintaining strong fundamentals. Office-to-residential conversions gain momentum across major cities.
Major Transactions:
- Capital City Real Estate secured $48M construction financing for 281-unit Charlotte project 13
- Northshore Development completed $48M refinancing for 248-unit Palm Bay community 14
- Hanover Company closed $125M Opportunities Fund targeting distressed office conversions 15
REIT Performance:
- Multifamily REITs trading at 19.71x FFO multiple 16
- Average AFFO payout ratio of 74.3% in Q1 2025 17
- Healthcare REITs lead at 27.98x multiple, followed by self-storage at 25.68x
Development Activity: