The housing market is moving at a snails pace – a 2009 pace to be more precise. HPA is still historically high at 2.5% but relatively low for this heady cycle. Fed Governors softening on rate cuts as some economic data shows cooling growth and spending down. CRE markets continue to play Dizzy Bat with weakness continuing in the office sector and relative strength in industrial and multifamily sectors. Let’s get you caught up and out the door in 3 minutes. Tim

Today’s newsletter was prepared by our AI platform ALFReD. Know Better. Work Smarter. Be More Successful.  

_________________________________________________

Key Takeaways

• Housing market struggles continue with May existing-home sales hitting 4.03 million, the slowest May since 2009, despite inventory rising 20.3% year-over-year to 1.54 million listings 1
• Home price appreciation moderates significantly as national year-over-year HPA dropped to 2.5% in May 2025, down from 3.2% the previous month and 5.4% a year ago, according to the AEI Housing Center’s advanced pricing index 2
• Fed Governor Michelle Bowman announced Monday she would support an interest rate cut at the July Federal Open Market Committee meeting, contingent on inflation pressures remaining contained, marking a significant shift toward more dovish monetary policy. 1
• Economic slowdown indicators multiply with retail sales declining 0.9% in May, industrial production falling 0.2%, and housing starts dropping 9.8% to pandemic-era lows 4 5
• Commercial real estate fundamentals show mixed signals with office properties experiencing continued structural challenges while industrial and multifamily sectors demonstrate relative resilience in select markets 6
• Third-party verification surge – More CRE lenders requiring rigorous guarantor asset verification both before and after loan origination due to declining property valuations 3
• Regional market variations intensify as coastal markets face affordability pressures while Sun Belt metros continue attracting population and investment flows, creating divergent performance patterns 2

Residential Real Estate Markets

Market Overview: The residential sector faces a complex environment of declining sales activity, moderating price growth, and rising inventory levels, creating the most balanced market conditions seen in several years.

Sales & Inventory Dynamics

• Sales hit multi-year lows: Based on data from FRED, existing home sales reached 4.03 million units in May 2025, representing the slowest May since 2009 and a 0.7% year-over-year decline 7 1
• Inventory surge continues: Housing inventory climbed to 1.54 million units in May 2025, up 20.3% from the previous year, pushing months of supply to 4.6 months and approaching balanced market conditions 8
• Regional performance varies dramatically: The West led declines with sales down 6.7% year-over-year, while the Northeast and Midwest posted gains of 4.2% and 1% respectively, reflecting varying local economic conditions and affordability challenges 1
• SitusAMC RECAP (Quarterly) Existing home sales dropped to 4.03 million units in May, down 0.7% year-over-year and representing the slowest May since 2009 1
• SitusAMC RECAP (Quarterly) Inventory surged 20.3% year-over-year to 1.54 million listings, pushing months of supply to 4.6 months and approaching more balanced market conditions 1

Price Trends & Affordability

• Price appreciation moderates significantly: National year-over-year home price appreciation dropped to 2.5% in May 2025, down from 3.2% the previous month and substantially lower than the 5.4% recorded a year ago 2
• Metropolitan variations are extreme: Among the 60 largest metro areas, year-over-year HPA ranged from -10.3% in Cape Coral to +8.1% in Louisville, with Cape Coral and North Port experiencing the largest corrections since their 2022 peaks 2
• Record prices persist despite moderation: The median sale price reached $422,800 in May, establishing a new record high for the month, highlighting the ongoing affordability crisis affecting potential buyers 9

Construction Activity

• Housing starts collapse to pandemic lows: May housing starts plummeted 9.8% to reach the weakest pace since 2020, with multifamily starts falling 29.7% and single-family starts managing only a 0.4% gain 10
• Builder sentiment deteriorates: The NAHB Housing Market Index fell to 32 in June, its lowest level since 2022, suggesting the construction slowdown may persist and potentially exacerbate long-term housing supply constraints 10

Mortgage Markets

Market Overview: Mortgage markets remain volatile amid Federal Reserve policy uncertainty, with officials increasingly signaling potential rate cuts while regulatory changes reshape loss mitigation programs.

Federal Reserve Policy Signals

• July rate cut gains support: Vice Chair Michelle Bowman stated she would support lowering rates “as soon as our next meeting” if inflation pressures remain contained, representing a notable shift in Fed communication 3
• Coordinated messaging emerges: Bowman’s comments align with similar statements from Governor Christopher Waller, suggesting growing consensus among Fed officials for a more accommodative stance given labor market concerns 11
• Bond markets respond: The 10-year Treasury yield has reacted to Fed officials’ statements, with markets increasingly pricing in potential policy accommodation in the coming months 3

Economic & Political News

Market Overview: Multiple economic indicators point to a broadening slowdown, with retail sales declining, industrial production falling, and consumer sentiment showing mixed signals amid policy uncertainty.

Economic Slowdown Indicators

• Retail sales decline broadly: May retail sales fell 0.9%, marking back-to-back monthly declines, with auto dealer sales dropping 3.5% following the pre-tariff buying spree earlier in the year 4
• Industrial production weakens: Industrial production fell 0.2% in May for the third decline in the first five months of 2025, managing only a 0.6% year-over-year increase, well below historical norms 5
• Manufacturing activity stagnates: Manufacturing continues to “tread water” according to Wells Fargo analysis, with tariff policy weighing on activity rather than spurring the intended reshoring of industrial production 5

Federal Reserve Economic Outlook

Fed Governor Michelle Bowman announced Monday she would support an interest rate cut at the July Federal Open Market Committee meeting, contingent on inflation pressures remaining contained, marking a significant shift toward more dovish monetary policy. 1

• Bowman is the second Fed official in recent days to publicly support July rate cuts, joining Governor Christopher Waller who made similar comments Friday, creating visible divisions within the Federal Reserve leadership. 1
• Her assessment suggests Trump’s tariffs will have a “smaller and more delayed” impact on inflation than initially feared, providing economic justification for rate cuts despite ongoing trade policy uncertainty. 1
• GDP forecast revised downward: The Fed reduced its 2025 GDP forecast from 1.7% to 1.4% year-over-year from the fourth quarter, with Chair Powell citing policy uncertainty as a complicating factor for economic growth 13
• Unemployment expectations rise: The Fed slightly increased its 2025 unemployment rate forecast for the fourth quarter from 4.4% to 4.5%, while raising its core PCE inflation projection from 2.8% to 3.1% 13
• Policy uncertainty emphasized: Chair Powell’s emphasis on policy uncertainty highlights the challenges the Fed faces in navigating monetary policy amid ongoing political and economic developments 14

Consumer & Employment Trends

• Consumer sentiment shows mixed signals: The University of Michigan’s Consumer Sentiment Index jumped 8.3 points in June, though this follows significant deterioration throughout most of 2025 15
• Event promotion employment surges: Employment in promoters of performing arts, sports, and similar events reached 182,307 workers in 2024, representing a 174% increase since 2001, far outpacing the 21% increase in total private industry employment 16

_________________________________________________________________________________

CRE Market Overview (Including Multifamily)

Institutional capital is cautiously returning to commercial real estate markets, but with significantly higher standards for sponsors and deal preparation.

Key Developments:

• Institutional investors are back – but only for well-prepared sponsors with clear business plans, equity in hand, and established lender relationships from day one 1
• Sponsor strength is everything – Lenders are scrutinizing track records, execution capability, and financial positioning more rigorously than ever before, according to Trammell Crow’s Global Head of Capital Markets 1
• Debt funds re-entering – After sitting on sidelines in 2023, debt funds are becoming active again while regional banks continue lending within their footprints 1
• Asset preferences clear – Strong appetite for multifamily and industrial properties, while office remains challenging unless best-in-class and well-located 1

Multifamily Investment Activity

The Dallas-Fort Worth metroplex is experiencing unprecedented multifamily investment surge, signaling strong investor confidence in high-growth markets.

• Market Performance:
  DFW unit sales exploded 129% – 23,400 apartments traded for $1.6 billion in first five months of 2025 vs. same period in 2024 2
• AEW’s major acquisition – Purchased The Casey, a 300-unit luxury property in Frisco as part of the massive $1.8 billion Frisco Station mixed-use development spanning 242 acres 2
• Frisco, TX explosive growth – Population surged 17.3% between 2020-2024, making it one of the fastest-growing U.S. cities; over 1,300 units traded in first five months of 2025 vs. zero in same 2024 period 2
• Major player activity – AvalonBay contracted to purchase eight Texas properties for $618.5 million, including two Frisco assets, while CONAM made significant area acquisitions 2

CRE Financing & Risk Management

Lenders are implementing sophisticated verification processes and enhanced due diligence as market volatility drives more cautious lending practices.

Lending Trends from SitusAMC:

• Third-party verification surge – More CRE lenders requiring rigorous guarantor asset verification both before and after loan origination due to declining property valuations 3
• Comprehensive analysis required – Verification process includes personal financial statements, real estate holdings, operating agreements, tax returns, and bank statements with 30+ hours per guarantor 3
• Ongoing monitoring implemented – Lenders conducting regular reviews throughout loan lifecycle, with some guarantor asset values dropping millions within six-month periods 3
• Specialized outsourcing growing – Complex verification process increasingly outsourced to specialists combining accounting expertise with real estate valuation knowledge 3

Adaptive Reuse & Development

Residential conversions are accelerating as developers transform obsolete buildings into housing, achieving faster timelines and addressing housing shortages.

Project Highlights:

• The Hartby success story – Property Resources Corp. and Avenue Realty Capital converted 19th-century Brooklyn Catholic college into 205 apartments, with nearly one-third affordable housing at 130% AMI 4
• Time savings demonstrated – Slate Property Group’s JFK Hilton Hotel conversion into 318-unit Baisley Pond Park Residences completed in just 18 months—half typical construction timeline 4
• Ideal building characteristics – Older schools and hotels prove best candidates due to double-loaded corridors, large windows, and high ceilings that translate well to residential use 4
• Public-private partnerships key – Financial tools like tax abatements, historic tax credits, and low-interest loans make conversions economically feasible; NYC’s City of Yes initiative streamlines approvals 4