Let’s talk Jerome Powell and bathtubs. Readout of FOMC meetings had little impact on rates, and monetary policy is contributing to a “bathtub effect” where active inventory is up 20% but new listings are only up 5%. Hard fought origination wins over the past few years look to yield refinance customers as nearly 2/3 are counting on lower rates to improve their affordability levels. Home builders are on their 16th month of knuckle dragging per the NAHB’s negative sentiment index (dropping). Who had the under on NYC office buildings??? Because they won (90% hit to some Midtown buildings). Let’s get you caught up and out the door in 3 minutes. Tim
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🔑 KEY TAKEAWAYS
- Home Price Cooling Accelerates: Home prices fell in a record 39 of the top 50 U.S. metros in July, with year-over-year price growth slowing to just 2.9% – the lowest since 2012 1
- Fed Divided on Rate Cuts: Federal Reserve officials showed unprecedented division at their July meeting, with two governors voting against holding rates steady – the first multiple dissent in over 30 years amid concerns about tariffs and employment 2
- Young Homebuyers Banking on Refinancing: Nearly two-thirds of Gen Z (64%) and Millennial buyers (65%) are depending on their ability to refinance to lower rates in the future – more than double the rate of Baby Boomers (32%) 3
- Consumer Credit Health Improves: Credit card delinquency rates dropped to 2.87% in Q2, the lowest since Q2 2023, while credit limits surged to a record $5.23 trillion 4
- Housing Starts Surge Despite Headwinds: Total housing starts jumped 5.2% in July to 1.428 million units, the highest since February, driven primarily by multifamily construction 5
- Mortgage Rates Hit 10-Month Low: The 30-year fixed mortgage rate averaged 6.58% last week, the lowest level since October 2024, though experts warn against expecting significant further declines 6
- Builder Confidence Remains Muted: The NAHB Housing Market Index fell to 32 in August, marking the 16th consecutive month of negative sentiment as builders continue using sales incentives at five-year highs 7
- NYC Office Takes 90% Valuation Hit: Midtown’s 1140 Sixth Avenue ground lease plummeted from $180M in 2016 to just $17.8M today, with value per square foot now below former asking rents 4
- Meta Opens $1B Missouri Data Center: The tech giant’s Kansas City facility is now operational, representing the largest single investment in Missouri’s recent history 5
- CRE Sentiment Rebounds Strongly: The Q3 2025 Real Estate Roundtable Sentiment Index jumped 13 points to 67, with executives seeing stabilizing asset values and improved capital access 1
🏠 RESIDENTIAL REAL ESTATE MARKETS
The residential housing market is experiencing a fundamental shift from seller-dominated conditions to a more balanced environment. Home prices are declining in record numbers of major metros while inventory rises significantly, yet this transition is occurring against persistent affordability challenges and concerning buyer dependency on future refinancing opportunities.
HISTORIC PRICE DECLINES SPREAD NATIONWIDE
- Record Price Declines: Home prices fell in 39 of the top 50 U.S. metropolitan areas in July – a record number signaling fundamental market change 1
- Slowest Growth Since 2012: Year-over-year price growth decelerated to just 2.9%, the slowest pace recorded since 2012, with median home prices dropping 0.1% month-over-month 1
- Florida Leading Declines: West Palm Beach led declines at -2.6%, followed by Jacksonville (-3.1%) and Tampa (-2.4%), reflecting oversupply in previously hot markets 1
- Regional Market Divide: Florida claimed four of the five “coldest” markets in Bankrate’s 2025 Housing Heat Index, with Cape Coral-Fort Myers ranking at the bottom 8
INVENTORY GROWTH FAILS TO BOOST SALES
- Inventory Surge: Active inventory rose nearly 20% year-over-year, but new listings increased only 5%, creating a “bathtub effect” where homes sit longer rather than generating more sales 9
- Longer Days on Market: Median listing age rose to 60 days in July, the longest for any July in Zillow records, and homes that do sell close within 24 days – which is near pre-pandemic norms 10
- Market Balance Shifts: 27 metros are now classified as balanced or buyer-friendly markets, up from 24 last month and 18 in July 2024 10
- Regional Resilience: Midwest and Northeast metros showed more stability, with 68% maintaining above-average sales activity despite limited new listings 9
YOUNG BUYERS FACE REFINANCING DEPENDENCY CRISIS
- Generational Divide: Nearly two-thirds of Gen Z (64%) and Millennial buyers (65%) are banking on refinancing to lower rates – more than double Baby Boomers (32%) 3
- Critical Dependency: More than half (56%) of all recent buyers consider refinancing important or extremely important to their financial wellbeing, with 25% calling it “extremely important” 3
- Widespread Stress: 90% of recent buyers experienced stress during the process, with 30% reporting “significant stress” – particularly acute among younger generations (33% vs 22% for Baby Boomers) 3
- Cost Surprises: 24% of buyers were surprised by additional costs such as agent fees, inspections, and closing costs, suggesting significant market education failures 3
- Confidence Gaps: 11% of recent homebuyers lack confidence in understanding mortgage terms, with Millennials showing highest lack of confidence at 15% and 20% of single women vs 10% of single men 3
💰 MORTGAGE MARKETS
Mortgage rates have reached 10-month lows, providing some relief to buyers, but industry experts warn against expecting significant further declines. The market faces challenges from GSE reform discussions, buyer education gaps, and a generation of borrowers dependent on future refinancing opportunities to maintain financial stability.
RATES DECLINE BUT FURTHER DROPS UNLIKELY
- 10-Month Low: 30-year fixed mortgage rate averaged 6.58% last week, the lowest level since October 2024, giving buyers with $3,000 monthly budgets roughly $20,000 more purchasing power than in May 6
- Expert Caution: Industry experts warn against expecting significant further rate drops, as mortgage rates are more closely tied to 10-year Treasury yields than Fed policy 6
- Market Dynamics: “Fed policy determines rates, but it’s really about how the market views Fed policy,” according to mortgage loan originator Taylor Sherman 6
FANNIE MAE PROJECTS STEADY HOME SALES
- 2025 Forecast: Fannie Mae projects total home sales at 4.74 million units for 2025, a slight downward revision from last month’s 4.85 million forecast 11
- Existing Home Sales: Projected at 4.09 million units in 2025 vs 4.06 million in 2024 – representing minimal growth despite rate environment 11
- Rate Projections: Mortgage rates expected to end 2025 at 6.5% and 2026 at 6.1% – modest upward revisions from July forecast 11
GSE REFORM CONCERNS INTENSIFY
- Reform Warnings: MBA Chief Economist Mike Fratantoni warns GSE reforms must be implemented carefully to avoid disrupting mortgage markets and prevent banks from accumulating risky long-term fixed-rate mortgages 12
- Potential Shifts: FHA and Ginnie Mae may need to absorb more loans if disruptions occur in conventional markets, highlighting interconnected mortgage ecosystem risks 12
📊 ECONOMIC & POLITICAL NEWS
Federal Reserve officials showed unprecedented division at their July meeting while broader economic indicators present mixed signals. Consumer credit health has improved significantly, but political uncertainties around tariffs and Fed leadership changes are creating policy challenges that directly impact real estate markets.
FED SHOWS UNPRECEDENTED DIVISION
- Historic Dissent: Two Fed governors voted against holding rates steady – the first multiple dissent in over 30 years, with Christopher Waller and Michelle Bowman preferring rate cuts 2
- Dual Mandate Tensions: Officials grappled with “risks to both sides of the Committee’s dual mandate, emphasizing upside risk to inflation and downside risk to employment” 2
- Policy Complexity: Division reflects challenging environment where traditional policy trade-offs have become more complex amid competing economic pressures 2
TARIFF CONCERNS DOMINATE DISCUSSIONS
- Uncertainty Effects: Fed participants pointed to “uncertain effects of tariffs and possibility of inflation expectations becoming unanchored” 2
- Policy Challenges: “Considerable uncertainty remained about timing, magnitude, and persistence of effects of this year’s increase in tariffs” 2
- Difficult Tradeoffs: Officials warned of potential “difficult tradeoffs if elevated inflation proved more persistent while labor market outlook weakened” 2
CONSUMER CREDIT HEALTH IMPROVES DRAMATICALLY
- Delinquency Decline: Credit card delinquency rates dropped to 2.87% in Q2, lowest since Q2 2023, with serious 60+ day delinquencies at 2.79% – lowest since Q3 2023 4
- Prime Performance: Prime-rated cardholders saw serious delinquency rates fall to pristine 0.93% level 4
- Balance Growth: Credit card balances rose $27 billion in Q2 to $1.21 trillion, representing 6.7% year-over-year increase driven by consumer spending and price increases 4
- Record Credit Availability: Aggregate credit limits surged to record $5.23 trillion, creating $4.03 trillion in total available unused credit 4
- Manageable Debt Ratios: Debt-to-income ratio for credit cards and consumer debt at 7.76% in Q2, near low end of pre-pandemic levels 4
FED CHAIR SEARCH ACCELERATES
- Interview Timeline: Treasury Secretary Scott Bessent announced interviews for 11 Fed chair candidates will begin after Labor Day, including current/former central bank officials, economists, and Wall Street experts 13
- Housing Focus: Bessent emphasized desire for rate cuts to help “moribund U.S. housing market,” arguing “big cut could facilitate boom in home building, keeping prices down” 13
- Policy Priorities: Administration believes current rates create issues for housing market and “low-income households with high credit card debt” 13
🏠 COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)
Industry confidence is showing strong signs of recovery despite persistent challenges across various CRE sectors. Executive sentiment has improved significantly as market participants see stabilizing conditions and better capital access.
CRE SENTIMENT SHOWS STRONG RECOVERY
- Sentiment Index Surge: Real Estate Roundtable’s Q3 2025 index jumped 13 points to 67, reflecting improved outlook for operating conditions, asset values, and capital access 1
- Future Expectations: Nearly three-quarters of respondents expect market conditions to improve over the next year
- Asset Value Outlook: 59% of executives expect asset values to rise over the next year, with many believing valuations have bottomed out
- Sector Winners: Multifamily, data centers, and New York City office emerged as bright spots in executive sentiment
- Sector Challenges: Industrial faces oversupply challenges despite previous strength
- Capital Market Disconnect: Debt markets have rebounded while equity remains harder to secure, creating a bifurcated recovery
NYC OFFICE FACES SEVERE DISTRESS
- Valuation Collapse: 1140 Sixth Avenue’s ground lease plummeted 90% from $180 million in 2016 to just $17.8 million today 4
- Value Per Square Foot: Now at $70 per square foot—actually below the building’s former asking rents of $85 per square foot
- Occupancy Decline: Building occupancy fell from 91% to 69%, reflecting broader office market challenges
- Income Deterioration: Net operating income plummeted from $9.5 million in 2016 to just $1.6 million in 2023
- Financial Distress: Loan transferred to special servicing in April with foreclosure proceedings beginning in June
- Ground Lease Burden: Owner cannot cover the $4.75 million annual ground lease payment, highlighting structural challenges
💰 CAPITAL MARKETS & FINANCING
Commercial real estate financing markets show resilience with record CLO issuance and private capital stepping in to fill lending gaps left by traditional banks.
CRE CLO MARKET REACHES NEW HEIGHTS
- Record Issuance: Q2 2025 CLO issuance reached $8.91 billion, the highest since Q2 2022 3
- Quarterly Growth: Surpassed previous quarter’s $8.35 billion, showing sustained momentum
- Multifamily Dominance: Multifamily loans comprised 81.81% of contributed collateral, up from 67.98% in Q1
- Office Exposure Minimal: Office exposure dropped to just 0.14%, reflecting investor risk aversion
- Credit Performance: Overall delinquency rates improved to 8.68% from 9.79% in Q1
- Sector-Specific Trends: Multifamily delinquencies fell 72 basis points while office declined 346 basis points but remains elevated at 15.28%
PRIVATE CAPITAL STEPS INTO LENDING GAP
- LaSalle Funding: Secured $700 million from institutional investors for real estate debt strategy focused on multifamily and industrial lending 6
- Loan Parameters: Will finance floating-rate senior loans ranging from $25 million to $75 million
- Target Markets: Focused on properties in key U.S. growth markets
- Broader Trend: Reflects private lenders filling void left by traditional banks pulling back from CRE lending
- LaSalle Track Record: Has raised more than $1.7 billion across multiple debt strategies over the past 12 months
REGULATORY & LEGAL DEVELOPMENTS
Government-sponsored enterprises and local property tax authorities face ongoing legal challenges that could impact broader market operations and valuations.
MIAMI PROPERTY TAX BATTLES INTENSIFY
- Legal Action: Miami-Dade Property Appraiser Tomas Regalado filed 17 separate lawsuits targeting major property owners who received valuation reductions in 2024 7
- High-Profile Targets: Defendants include affiliates of Blackstone, Simon Property Group, Royal Caribbean, and Prologis
- Developer Defendants: Prominent developers include Swire Properties, Melo Group, and KAR Properties
- Dolphin Mall Case: Valuation reduced from $603 million to $500 million, now under legal challenge
- Blackstone Portfolio: 21-property industrial portfolio reduced from $549.6 million to $460 million
- Royal Caribbean: Cruise Terminal A reduced from $68.8 million to $53.7 million
- Settlement Focus: Regalado instructed staff to work toward settlements rather than prolonged litigation
GSE TURMOIL CONTINUES
- Defamation Lawsuits: 41 former Fannie Mae employees filed lawsuits against CEO Priscilla Almodovar and FHFA Director Bill Pulte 8
- Employee Demographics: Many plaintiffs are of Indian nationality, claiming wrongful termination without evidence of misconduct
- Reputation Damage: Public statements accusing employees of receiving “kickbacks” allegedly damaged their professional reputations
- IPO Considerations: Controversy emerges as White House considers potential $30 billion IPOCombined Entity Value: Proposed Fannie Mae-Freddie Mac combination could be valued at $500 billion, making it one of the largest offerings ever
