The market is always right. And right now the market believes rates should be lower, and that’s where they’re heading. Good timing as homebuyers are going to need the help as households are spending near records amount of their income on living indoors. Personal bankruptcies are up reflecting tapped put consumers. And two different CRE sentiment surveys show more positive than negative vibes from executives. 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:

• Mortgage rates dropped to 6.65% for 30-year fixed loans as of June 30, 2025, continuing a downward trend that has seen rates fall by nearly 0.25% over the past month. 1
• Goldman Sachs now forecasts the Federal Reserve will begin cutting interest rates in September 2025 rather than December, predicting that Trump’s tariffs will cause a one-time inflation spike followed by economic slowdown requiring monetary policy support. 2
• The spread between the 10-year Treasury yield and 30-year fixed mortgage rates has widened to 2.46 percentage points, well above the historical average of 1.7 points, suggesting potential room for mortgage rates to decrease further. 3
• Harvard’s Joint Center for Housing Studies reports that 22.4 million renter and owner households (18% of all households) spent more than half their income on housing in 2023, with affordability challenges worsening in 2024-2025. 4
• Bankruptcy filings are projected to increase by 18% in 2025, with consumer filings already up 16% year-over-year in Q1 2025, potentially signaling broader economic stress that could impact housing markets. 5
• Fannie Mae and Freddie Mac have launched U.S. Financial Technology, LLC, a rebranded version of their joint venture Common Securitization Solutions, aiming to expand their technology services beyond the GSEs to other market participants. 6
• Kennedy Wilson has acquired two multifamily properties in North Las Vegas and Tempe, Arizona for $166 million, reflecting a strategic focus on affordable housing in high-growth markets. 7

Residential Real Estate Markets

Overview: The housing market continues to face significant affordability challenges despite improving inventory levels. Harvard’s research shows worsening conditions for both renters and buyers, while rising bankruptcy filings signal potential economic stress that could impact housing demand.

• Deepening Affordability Crisis: 22.4 million households (18% of all U.S. households) spent more than half their income on housing in 2023, with conditions deteriorating further in 2024-2025. The median home price-to-income ratio reached 4.3 in 2023, significantly higher than the 3.7 ratio considered affordable. 4
• First-Time Buyers Struggle: The typical monthly payment on a median-priced home has increased by over 45% since 2019, creating particularly steep challenges for first-time homebuyers entering the market. 4
• Inventory Improvements: Existing home inventory reached 1.54 million units in May, up 6.2% from April and 20.3% from a year ago. At the current sales rate, May unsold inventory sits at a 4.6-months’ supply, approaching the 4.5 to 6 months’ supply considered a balanced market. 8
• Sales Activity: Existing home sales rose 0.8% to a seasonally adjusted annual rate of 4.03 million in May, though this represents a 0.7% decrease compared to a year ago. The median sales price reached an all-time high of $422,800, up 1.3% from last year. 8
• Rising Bankruptcy Concerns: Consumer bankruptcy filings were up 16% year-over-year in Q1 2025, with Chapter 13 filings (which allow homeowners to restructure debts while keeping their homes) up 22%. This trend could eventually lead to increased housing inventory through distressed sales if economic conditions worsen. 5

Mortgage Markets

Overview: Mortgage rates continue their downward trend, offering some relief to potential homebuyers. Meanwhile, Fannie Mae and Freddie Mac are expanding their technology offerings, and HUD is strengthening international partnerships in housing finance.

• Rate Decline Continues: The average 30-year fixed mortgage rate dropped to 6.65% as of June 30, 2025, a decline of nearly 0.25% over the past month and the lowest level since early March. The 15-year fixed rate has similarly decreased to 5.83%. 1
• Unusual Treasury-Mortgage Spread: The spread between the 10-year Treasury yield and 30-year fixed mortgage rates has widened to 2.46 percentage points, significantly above the historical average of 1.7 points. This suggests mortgage rates have room to decrease further, potentially by 0.5 to 0.75 percentage points, even without additional drops in Treasury yields. 3
• GSE Technology Expansion: Fannie Mae and Freddie Mac have launched U.S. Financial Technology, LLC, a rebranded version of their joint venture Common Securitization Solutions. The new entity will expand beyond supporting the GSEs’ mortgage-backed securities issuance to offer technology services to other market participants, including private-label securities issuers and servicers. 6
• Modernizing Mortgage Tech: FHFA Director William Pulte announced that the rebranded entity will focus on modernizing mortgage technology infrastructure, stating: “This initiative represents a significant step toward creating a more efficient, transparent, and accessible mortgage finance system.” The technology platform currently processes over $400 billion in mortgage-backed securities transactions monthly. 6
• Pricing Terminology Simplification: FHFA is also considering renaming Loan-Level Price Adjustments (LLPAs) to simply “Pricing” for clarity and simplicity. Director Pulte noted that the current terminology “is meant to be confusing” and that simplification would benefit both industry professionals and consumers. 6
• International Cooperation: HUD and Ginnie Mae signed a memorandum of understanding with the Korea Housing Finance Corp. to strengthen international cooperation in housing finance, focusing on expanding access to affordable housing, cultivating innovation, and supporting residential development in both countries. 9

Economic & Political News

Overview: Goldman Sachs has revised its Fed rate cut forecast, while rising bankruptcy filings and market inefficiencies raise concerns about economic health. The historically wide spread between Treasury yields and mortgage rates suggests potential opportunities for policy intervention.

• Earlier Fed Rate Cuts Expected: Goldman Sachs now forecasts the Federal Reserve will begin cutting interest rates in September 2025 rather than December, with a total of five 25-basis-point cuts by the end of 2026. This revised outlook is based on expectations that President Trump’s tariffs will cause a one-time inflation spike followed by economic slowdown requiring monetary policy support. 2
• Tariff Impact Analysis: Goldman economists project that Trump’s proposed tariffs would initially boost inflation by 0.3 percentage points, but the economic drag would eventually outweigh the inflationary effects, leading to a net 0.2 percentage point reduction in GDP growth by late 2026. This economic slowdown is expected to prompt the Fed to begin easing monetary policy earlier than previously anticipated. 2
• Mortgage Rate Implications: The revised Fed outlook could accelerate the decline in mortgage rates, potentially bringing relief to homebuyers sooner than expected. Goldman analysts note that markets are already pricing in approximately 75 basis points of Fed cuts by mid-2026, which could translate to lower mortgage rates in anticipation of Fed action. 2
• Bankruptcy Trend Acceleration: Total bankruptcy filings are projected to increase by 18% in 2025, with consumer filings already up 16% year-over-year in Q1 and commercial filings up 23%. This trend is attributed to persistent inflation, high interest rates, and the exhaustion of pandemic-era savings. 5
• Small Business Impact: Chapter 11 filings are up 28% year-over-year, with retail, hospitality, and commercial real estate sectors experiencing the highest rates of bankruptcy. This could affect housing markets through reduced development activity and potential employment impacts. 5
• Mortgage Market Inefficiency: The historically wide spread between Treasury yields and mortgage rates is attributed to several factors, including elevated MBS prepayment risk, reduced competition among mortgage lenders following industry consolidation, higher servicing costs, and increased risk premiums demanded by investors. 3

Commercial Real Estate Markets (including Multifamily)

Market Overview

The commercial real estate market shows signs of stabilization as we enter the second half of 2025, with improving sentiment despite ongoing challenges in certain sectors. The Federal Reserve’s Commercial Real Estate Price Index, which tracks the total market value of commercial real estate assets held by major financial institutions, stands at 301,073 million dollars as of January 2025 – representing a modest 2.3% increase year-over-year and remaining 5.8% below its pre-pandemic peak in 2019, indicating the market is still in recovery mode.

• Improving Sentiment: 62% of commercial real estate executives now express optimism for the second half of 2025, citing stabilizing interest rates and improving debt markets as key factors driving renewed confidence. 1
• Transaction Volume Decline: Commercial real estate transaction volume has declined nearly 23% month-over-month in April 2025, marking the lowest level since April 2024, with retail and industrial sectors particularly affected by recent tariff announcements. 2
• Shifting Sentiment: DLA Piper’s Real Estate State of the Market Survey showed a decline in optimism among industry leaders from 52% bullish in early 2025 to just 34% by May, though more recent data suggests a potential turnaround. 3
• Investment Opportunity: UK-based analysts suggest commercial property may be approaching an attractive entry point, with yields on prime UK commercial property now at 5.5% compared to 3.5% in 2021, offering compelling income potential relative to other asset classes. 4
• CRE Price Index Context: The Commercial Real Estate Price Index value of 301,073 million dollars represents a slow recovery trajectory, having grown at an average quarterly rate of just 0.6% over the past year compared to the 1.8% quarterly growth seen in 2018-2019, reflecting the lingering effects of higher interest rates and sector-specific challenges, particularly in office properties. 11

Multifamily Sector Updates

The multifamily sector continues to demonstrate resilience with significant investment activity and development projects moving forward despite broader market caution.

• Mountain West Acquisition: Kennedy Wilson has acquired two multifamily properties in the Mountain West region for $166 million, comprising 700 units total in North Las Vegas and Tempe, Arizona, targeting affordable housing in high-growth markets. 5
• Texas Development Completion: ZOM Living and CP Capital have delivered Azola Avery Centre, a 359-unit garden-style community in Round Rock, Texas, offering units from studios to three-bedrooms with rental rates ranging from $1,200 to $2,600. 6
• Affordable Housing Progress: BFC Partners is moving forward with Phase III of a major affordable housing project in Brooklyn, New York, which will add 420 units to the development and ultimately provide 1,242 affordable housing units in Coney Island. 7

Financing Trends

The commercial real estate financing landscape is experiencing significant shifts as lenders adjust their strategies in response to market conditions, creating both challenges and opportunities.

• Bank Exposure Divergence: Large banks are actively reducing their exposure to commercial real estate loans, while smaller institutions are increasing their holdings, creating a shifting landscape in CRE financing. 2
• Alternative Lenders Rising: In the UK, alternative lenders now account for approximately 35% of new commercial real estate lending, up from just 5% a decade ago, as traditional banks reduce their exposure to the sector. 4
• CMBS Delinquencies: CMBS delinquencies have reached their highest levels since the fourth quarter of 2020, adding pressure to an already challenging financing environment. 2

• Servicing Challenges: Special servicing trends reveal ongoing challenges particularly in the office market, while multifamily servicing issues appear to be tied more to sponsor problems or unrealistic repositioning plans rather than market fundamentals. 2

Office Market Opportunities & Adaptive Reuse

The struggling office sector is creating unique buying opportunities while adaptive reuse strategies gain momentum as a solution to both office vacancies and housing shortages.

• Significant Price Discounts: Office properties in some markets are now selling at 50-70% discounts compared to their 2019 values, creating a potential window for buyers seeking long-term value, particularly in secondary markets and for Class B and C buildings. 9
• Chicago Conversions: Five prominent conversion projects in Chicago’s LaSalle Corridor are expected to add a total of 1,427 residential units as part of a broader initiative led by Mayor Brandon Johnson to revitalize underutilized areas. 10
• New York Adaptive Reuse: Notable conversions in New York include Pfizer’s old headquarters on East 42nd Street and 5 Times Square, supported by regulatory easing to facilitate these transformations in response to housing needs. 2
• Repositioning Strategies: Some investors are acquiring office buildings with plans to convert them to residential or mixed-use properties, while others are focusing on modernizing spaces to meet evolving tenant demands for flexibility and amenities. 9

________________________________________________

Industry News

Overview: Real estate companies are pursuing strategic acquisitions and innovative development approaches to address housing needs in high-growth markets, while also enhancing resident experiences through thoughtful design.

• Strategic Multifamily Acquisition: Kennedy Wilson has acquired two multifamily properties (Tides on Commerce in North Las Vegas and Finisterra in Tempe, Arizona) for $166 million. The 700-unit portfolio targets affordable housing in markets projected to grow by 7.2-9.5% over the next five years. 7
• Office-to-Residential Conversions: Chicago’s LaSalle Corridor Revitalization initiative includes six projects with nearly $900 million in investments and $300 million in TIF support. These conversions will add 1,427 residential units to downtown Chicago, helping address housing needs while revitalizing underutilized office spaces. 10
• Affordable Housing Development: BFC Partners is advancing to Phase III of a Brooklyn affordable housing project, securing a $250 million construction loan for 420 units at 1709 Surf Avenue in Coney Island. This is part of a larger 1,242-unit project with Phases I and II already completed (446 units in 2021 and 376 units in 2024). 11
• Resident Experience Innovation: Furniture, fixtures, and equipment (FF&E) selections are increasingly being used as strategic tools for branding and community building in multifamily properties. Current trends include multifunctional spaces, wellness-centered amenities, and tailored approaches for lifestyle renters who prioritize high-end, amenity-rich living environments. 12
• Student Housing Expansion: CRG and Shapack Partners are developing a new 625-bed student housing project in Ann Arbor, Michigan, called Chapter Ann Arbor. The project, set to be completed by 2027, reflects continued investment in purpose-built student housing despite broader market uncertainties. 12