Daily Dose of Real Estate

Daily Dose of Real Estate for August 20

Make Mortgages Profitable Again! IMB’s ship has finally come in with the strongest profitability (we would have settled for just profitable) since Q4 2021. Homes are sitting on the market for 45 days – longest since 2015. One in four home sellers cut asking prices in June (highest on record). New home sales/applications signaling renewed builder conf. New home sales are tightly correlated to builder sales incentives which have recently peaked at 66% of deals. Multifamily construction is getting a second wind with starts up in July. Mortgage rates at a 10 month low. Data centers steal the show and market with a 2% vacancy rate and $1T pipeline of development deals. 80-90% chance of a rate cut next month despite a solid employment report pegging Unemployment rate at 4.2%. Let’s get you caught up and out the door in 3 minutes. Tim

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Table of Contents

KEY TAKEAWAYS

Housing Market Fever Breaking: More than one in four home sellers on Zillow cut asking prices in June, the highest share on record, as buyers gain leverage in a cooling market 1
Mortgage Production Profits Surge: Independent mortgage banks reported net production income of $2,088 per loan in Q2 2025, up dramatically from $1,027 per loan in Q1, marking the strongest quarterly performance since Q4 2021 2
New Home Applications Jump: July new home purchase mortgage applications increased 6.8% from June and surged 19.4% year-over-year, signaling renewed builder confidence despite market headwinds 3
Young Buyers Banking on Refinancing: Nearly two-thirds of Gen Z (64%) and Millennial buyers (65%) say refinancing ability is crucial to their financial health—double the rate of Baby Boomers at 32% 4
New Credit Scores Coming to Mortgages: FHFA Director Bill Pulte announced that Fannie Mae and Freddie Mac will immediately accept VantageScore 4.0, marking a major shift from traditional FICO scoring models 5
Housing Starts Surge: U.S. housing starts reached 1.428 million in July, up 5.2% from June and the highest since February, driven primarily by multifamily construction 6
Mortgage Rates Hit 10-Month Low: The 30-year fixed mortgage rate averaged 6.58% last week, the lowest level in 10 months, as markets anticipate a September Fed rate cut 1
$6 Billion Mississippi Data Center: AVAIO Digital announces massive 175-acre AI-ready campus in Brandon, Mississippi, with first phase delivering 600,000 sq ft and 116 MW by 2027 1
Data Center Supply Crunch: North America hits historic vacancy low of 2.3% with $1 trillion development pipeline through 2030 as AI demand explodes 2
Nuclear Power Partnership: TVA signs first U.S. utility deal for next-gen nuclear reactor to power Google data centers in Tennessee and Alabama 3
Multifamily Stabilizes: Net absorption surged 20% year-over-year while new completions dropped 9%, signaling early market balance 4

RESIDENTIAL REAL ESTATE MARKETS

Overview: The residential housing market is experiencing a fundamental shift from seller’s market to buyer’s market, with widespread price declines, increased inventory, and slower sales pace. New construction shows surprising strength despite broader market challenges.

MARKET DYNAMICS AND PRICING TRENDS

Buyer Leverage Increases: Real estate agents report dramatic change in buyer behavior, with homes that previously attracted multiple offers now struggling to find even one interested party 1
Record Price Cuts: More than one in four home sellers on Zillow cut asking prices in June, the highest share on record, indicating sellers’ desperation to attract buyers 1
Widespread Price Declines: Home prices fell in 39 of the top 50 U.S. metros month-over-month in July, marking the third consecutive month of national price declines of 0.1% 7

REGIONAL MARKET PERFORMANCE

Price Leaders: Cleveland led price gains with 12.8% year-over-year increase, followed by Nassau County, NY (7.1%) and Indianapolis (7.1%) 8
Price Laggards: Oakland, CA saw steepest decline at -6.1%, with Jacksonville, FL (-3.9%) and West Palm Beach, FL (-3.8%) also experiencing significant drops 8
Florida Market Collapse: Price declines in Florida lead all states, with 85% of counties showing annual price declines as pandemic-era migration reverses 1

NEW HOME CONSTRUCTION MOMENTUM

Application Surge: July new home purchase mortgage applications increased 6.8% from June and jumped 19.4% year-over-year, indicating renewed builder confidence 3
Housing Starts Jump: U.S. housing starts reached 1.428 million in July, up 5.2% from June and highest since February, with single-family starts up 2.8% to 939,000 units annually 6

GENERATIONAL BUYING PATTERNS

Refinancing Dependency: Nearly two-thirds of Gen Z (64%) and Millennial buyers (65%) consider refinancing ability crucial to their financial health—double Baby Boomers’ 32% rate 4
Financial Stress Divide: One in three Millennial and Gen Z buyers (33% each) experienced “significant stress” during buying process, compared to just 22% of Boomers 4
Mortgage Understanding Gap: 15% of Millennial buyers admit they are “not confident at all” in understanding their mortgage terms—higher than even Gen Z buyers at 11% 4

SALES ACTIVITY AND TIMING

Slowest Summer in Decade: Homes that went under contract in July sat on market for 43 days—longest July span since 2015, up from 35 days a year earlier 8
Builder Incentives Peak: 66% of construction firms employ sales incentives to attract buyers—highest percentage in post-Covid period, with NAHB Housing Market Index at 32 for 16th consecutive month in negative territory 1

MORTGAGE MARKETS

Overview: The mortgage industry experienced a dramatic profitability turnaround in Q2 2025 while implementing revolutionary credit scoring changes. Rates hit 10-month lows as markets anticipate Fed cuts, with new home lending showing particular strength.

PRODUCTION PROFITABILITY RECOVERY

Record Quarterly Profits: Independent mortgage banks reported net production income of $2,088 per loan in Q2 2025, more than double Q1’s $1,027 per loan—strongest performance since Q4 2021’s $2,339 peak 2
Operational Efficiency Gains: Dramatic improvement reflects both higher loan volumes and improved operational efficiency as lenders adapted to changing market conditions and rightsized operations 2

INTEREST RATE ENVIRONMENT

10-Month Rate Low: Average 30-year fixed mortgage rate fell to 6.58%—lowest point since October 2024—as markets increasingly price in potential September Fed rate cut 1
Rate Cut Caution: Industry experts warn against expecting dramatic rate drops even with Fed cuts, as mortgage rates tie more closely to 10-year Treasury yields than federal funds rate 9

REVOLUTIONARY CREDIT SCORING CHANGES

VantageScore 4.0 Launch: FHFA Director Bill Pulte announced Fannie Mae and Freddie Mac will immediately accept VantageScore 4.0, departing from decades-long reliance on traditional FICO scores 5
Score Differences: VantageScores average 14 points higher than Classic FICO scores, with larger gaps at lower score ranges, necessitating new minimum eligibility thresholds and pricing grids 5
Implementation Flexibility: Policy allows lenders to choose which credit score model to use for each loan, providing flexibility but introducing potential for adverse score selection 5
Market Uncertainty: Transition introduces operational, pricing, and transparency challenges, with mortgage insurers and investors potentially imposing “uncertainty premium” until clarity emerges 5

APPLICATION TRENDS AND LENDING ACTIVITY

New Home Applications Surge: July new home purchase mortgage applications increased 6.8% monthly and 19.4% year-over-year, representing strongest signal of new construction market recovery 3

MARKET FORECASTS

Fannie Mae Projections: Total home sales projected at 4.74 million units for 2025, with existing home sales expected at 4.09 million units compared to 4.06 million in 2024. Mortgage rates projected to end 2025 at 6.5% and 2026 at 6.1% 11

ECONOMIC & POLITICAL NEWS

Overview: Federal Reserve policy remains in focus with Jackson Hole conference approaching, while employment data shows stability and political developments around tariff policy create market uncertainty.

FEDERAL RESERVE POLICY OUTLOOK

Jackson Hole Focus: Markets intensely focused on Fed Chair Jerome Powell’s Jackson Hole speech, with investors hoping for signals about potential interest rate cuts 12
Rate Cut Probability: Probability of September rate cut fluctuated between 80-100% following mixed economic data releases 12
Dual Mandate Balance: Fed continues navigating dual mandate of controlling inflation while supporting employment, with recent inflation at 2.7% in June 13

LABOR MARKET CONDITIONS

National Employment Stability: Unemployment rate held steady at 4.2% in June, unchanged from year earlier, with nonfarm payrolls adding 147,000 jobs 14
State-Level Variations: Unemployment rates lower in 2 states, higher in 1 state, stable in 47 states and DC in June. South Dakota maintained lowest jobless rate at 1.8%, DC highest at 5.9% 14
Regional Job Growth: Over the year, nonfarm payroll employment increased in 15 states, with largest gains in Texas (+198,300), Florida (+142,300), and New York (+100,100) 14
Percentage Growth Leaders: Largest percentage increases occurred in South Carolina (+2.9%), Idaho (+2.5%), and Hawaii (+2.3%) 14

POLITICAL AND POLICY DEVELOPMENTS

Tariff Revenue Focus: Treasury Secretary Scott Bessent indicated tariff rebate checks not priority for Trump administration, with focus on using tariff revenue to pay down national debt 15
Revenue Projections: Tariff revenue projections could reach $300B for the year, exceeding expectations 15
Economic Uncertainty Impact: Trump’s trade and tariff policies contributed to economic uncertainty, with weaker jobs report deepening slowdown concerns and affecting buyer confidence in housing market 1

INDUSTRY NEWS

Overview: Technology innovation accelerates with AI-powered real estate tools, while strategic mergers and leadership changes reshape the industry landscape. Policy research continues to guide implementation of new credit scoring models.

TECHNOLOGY AND INNOVATION

AI-Powered Property Search: Inside Real Estate launched HomeSearch AI, leveraging natural language processing and image recognition to transform property search and agent engagement through recently acquired ListAssist technology 16
Employment Verification Research: Truework expanded research capabilities with comprehensive homebuyer surveys, revealing significant generational differences in homebuying confidence and financial stress levels 4

CORPORATE LEADERSHIP CHANGES

RE/MAX Mortgage Leadership: RE/MAX Holdings announced Vic Lombardo as President of Mortgage Services to lead Motto Mortgage, bringing extensive mortgage lending and technology innovation experience 18

POLICY RESEARCH AND ANALYSIS

Credit Scoring Implementation: Urban Institute provides critical analysis of housing finance policy changes, highlighting need for clear implementation guidelines and robust data disclosure practices for successful transition to VantageScore 4.0 and FICO 10T scoring models 5

COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)

DATA CENTER MARKET EXPLOSION

The data center sector is experiencing unprecedented growth driven by AI and cloud computing demand, with massive new investments reshaping regional economies and creating supply shortages across North America.

MAJOR DEVELOPMENT ANNOUNCEMENTS

AVAIO Digital’s $6 Billion Mississippi Hub: 175-acre campus in Brandon with sustainable design features including rooftop solar, water-efficient cooling, and rainwater recapture systems
First Phase Timeline: Over 600,000 square feet of data center buildings and 116 megawatts of power capacity completing by first half of 2027
Strategic Location Benefits: Direct connectivity to Dallas and Atlanta markets via multiple long-haul fiber routes in immediate vicinity
Economic Impact: Project will tap into Greater Jackson’s professional labor pool from construction through operations, with state tax exemptions approved 1

MARKET SUPPLY AND DEMAND DYNAMICS

Historic Vacancy Low: North American colocation market vacancy plummeted to just 2.3% with total inventory reaching record 15.5 gigawatts
Regional Concentration: Northern Virginia dominates with 5.6 GW capacity—more than triple Dallas-Fort Worth’s 1.5 GW
Absorption Surge: First half 2025 witnessed 2.2 GW of net absorption, with Northern Virginia leading at 647 MW, Dallas-Fort Worth at 575 MW
Pipeline Constraints: Construction pipeline expanded to 7.8 GW but 73% already preleased, ending traditional speculative development model 2

ENERGY INFRASTRUCTURE INNOVATION

Advanced energy solutions are becoming critical for data center development, with nuclear power and renewable energy partnerships driving location decisions and operational sustainability.

NUCLEAR POWER BREAKTHROUGH

TVA-Google Partnership: Tennessee Valley Authority’s first utility power purchase agreement for next-generation nuclear technology
Capacity Details: Up to 50 megawatts from Kairos Power’s Hermes 2 reactor in Oak Ridge, Tennessee, scheduled for 2030 operations
Technology Innovation: Fluoride salt-cooled, high-temperature reactor with molten salt coolant for higher efficiency and reduced waste
Regional Impact: Will power Google data centers in Montgomery County, Tennessee, and Jackson County, Alabama 3

POWER COST PRESSURES

Rising Electricity Costs: Average power costs increased nearly 30% since 2020 to 9.7 cents/kWh, reshaping development patterns
Emerging Market Growth: Columbus saw 1,800% growth since 2020, Austin/San Antonio grew 500% as developers seek lower-cost power
Cost Advantages: Salt Lake City (5.7 cents/kWh) and Denver (6.4 cents/kWh) attracting significant new development
Strategic Shift: “Power has become the new real estate” as availability and cost drive location decisions 2

OFFICE MARKET CHALLENGES

The office sector continues facing structural headwinds with rising vacancy rates and declining absorption, despite broader economic resilience and return-to-office initiatives.

VACANCY AND ABSORPTION TRENDS

Overall Market Weakness: Office vacancy climbed to 14.1% in Q2 2025 as net absorption declined again
Class A Performance: Posted positive 12-month absorption for second consecutive quarter but vacancy still reached 20.5%
Class B Stability: Continued shedding tenants but at half last year’s pace, with vacancy at 12.0% and stronger rent growth of 1.2%
Class C Struggles: Further tenant losses pushed vacancy to 5.4% w/ most severe challenges across property class 4

RENTAL MARKET CONDITIONS

Slow Rent Growth: Annual rent growth slowed to just 0.6% as landlords became more competitive on pricing
Tenant Hesitation: Companies remained reluctant to commit to leases amid ongoing uncertainty about space requirements
Flight to Quality: Continued preference for newer, well-amenitized properties in prime locations despite return-to-office mandates

MULTIFAMILY MARKET STABILIZATION

The multifamily sector shows early signs of supply-demand balance improvement, with reduced construction activity and steady absorption providing market relief.

SUPPLY AND DEMAND BALANCE

Absorption Surge: Net absorption jumped 20% year-over-year to 531,000 units while new completions declined 9%
Vacancy Stability: Overall vacancy held steady at 8.1% as supply-demand gap narrowed after years of oversupply concerns
Class Performance: Class B properties led demand with stronger rent gains, while Class A maintained highest vacancy rates
Geographic Variation: Sun Belt markets still pressured by oversupply while South Bend and San Francisco outperformed 4

CONSTRUCTION AND DEVELOPMENT

Modest Rent Growth: Annual rent growth remained at 0.9% as market conditions gradually improve
Reduced Pipeline: Developers pulled back on new construction starts responding to elevated costs and market saturation
Market Factors: High interest rates, rising construction costs, and restrictive zoning continue constraining development

RETAIL AND INDUSTRIAL SECTOR UPDATES

Mixed performance across traditional commercial property types reflects ongoing market adjustments and changing demand patterns.

RETAIL SECTOR PERFORMANCE

Demand Weakness: 12-month net absorption fell from 37.4 million to -3.9 million square feet over the past year
Market Leadership: Despite negative absorption, retail maintains fastest rent growth at 2.0% and lowest vacancy among all CRE sectors
Segment Variation: General retail posted only positive absorption in Q2 2025, while neighborhood centers and malls experienced significant losses 4

INDUSTRIAL MARKET COOLING

Absorption Decline: Net absorption dropped 39% year-over-year to decade-low 79.7 million square feet
Supply Imbalance: New completions outpaced demand by 4 to 1, pushing vacancy up to 7.4%
Rent Growth Slowdown: Annual rent growth decelerated to 1.7% as oversupply pressures intensify
Demand Drivers: Logistics remained primary demand source, followed by specialized facilities, while flex space experienced net losses