Daily Dose of Real Estate

Daily Dose of Real Estate for September 5

Happy Friday! Critical jobs report out today with more twists and turns expected than your lower intestine. The homeowner population is shrinking, aging, and stuck. Homeowner households are shrinking while renters households are increasing. Households are delaying buying a home until later in life, and net domestic migration has been dramatically slowed by households locked-in by low mortgages & the unwinding of WFH policies. In secondary markets, GNMA pulls out to a commanding lead in issuances over both GSEs YTD. Commercial real estate eeks out gains with major cities leading the way. New York Federal Reserve district reported ongoing improvement in commercial real estate markets despite lingering uncertainty, with leasing activity surging. 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 tumble to 6.50%, the lowest level since April, yet homebuying demand shows only modest increases as affordability challenges persist 1
California and Florida top the nation’s riskiest housing markets as regional vulnerabilities emerge amid slowing price appreciation nationwide 2
Federal Reserve widely expected to cut rates by 25 basis points on September 17, with 90% probability according to market futures, as economic pressures mount 3
Domestic migration plummets 20% below pre-pandemic levels as the “lock-in effect” keeps homeowners trapped in low-rate mortgages, particularly in Western markets 4
Ginnie Mae dominates agency MBS issuance with $278.8 billion year-to-date, exceeding both Fannie Mae and Freddie Mac combined as government lending programs gain market share 5
Tariff impacts squeeze consumers and businesses, with Federal Reserve’s Beige Book highlighting economic strain that could accelerate rate cut decisions 6
Commercial real estate prices rebounded 1.3% in July, marking the first monthly gain since February as institutional investors including pension funds and REITs gradually return to the market 1
REITs stumbled 1.6% on September’s first trading day after posting their second-best monthly performance of 2025 in August with 3.3% gains, according to the FTSE Nareit All REITs index 2
Small multifamily properties are leading mortgage delinquencies while industrial sales surged past $33 billion in the first half of 2025, highlighting divergent performance across asset classes 3
Federal Reserve’s latest Beige Book reveals mixed regional commercial real estate activity, with New York showing ongoing improvement despite lingering uncertainty, while other regions report flat or declining activity 4

══════════════════════════════════════════════════════════════════════════

RESIDENTIAL REAL ESTATE MARKETS

Overview: The residential market is experiencing its most significant slowdown in over a decade, with price growth hitting decade lows while migration patterns reveal deeper structural challenges. Regional disparities are widening as the lock-in effect creates geographic pockets of market dysfunction.

NATIONAL PRICE TRENDS

House price appreciation slows to 3.8% year-over-year in Q2 2025 – the slowest growth rate since 2013, marking a dramatic deceleration from pandemic-era gains 7
44 states and DC experienced price growth deceleration compared to Q1, highlighting the broad-based nature of the market cooldown across the nation 7
27 metro areas posted negative house price growth during the quarter, with Punta Gorda, Florida recording the largest decline at -7.4% while Sumter, South Carolina led gains at +18.1% 7

HOMEOWNERSHIP DYNAMICS

Homeowner population stops growing for first time since 2016, with homeowner households decreasing 0.1% year-over-year while renter households surged 2.6% 8
Median home sale price reaches $443,867, creating significant affordability barriers despite recent mortgage rate declines and changing demographic preferences 8
Economic uncertainty drives delayed homeownership, with many Americans choosing rental flexibility over homebuying commitments amid elevated borrowing costs 8

MIGRATION AND MOBILITY PATTERNS

Domestic migration falls 20% below pre-pandemic levels in Q2 2025, with both inter-city and intra-city moves declining year-over-year as the lock-in effect constrains mobility 4
Midwestern cities lead population growth, with Indianapolis and Columbus experiencing the fastest inflows while Western and Northeastern cities show significant outflows 4
Texas remains popular destination with Austin and San Antonio receiving new residents, while Florida markets including Miami, Orlando, and Tampa experience population declines 4

INVESTOR ACTIVITY

Investor home purchases drop 6% in Q2 2025, marking the biggest decline since 2023 as high borrowing costs and stagnant rent growth pressure returns 9
Condo market experiences pronounced weakness, with investor purchases declining significantly as market conditions deteriorate and financing becomes more challenging 9

MORTGAGE MARKETS

Overview: Mortgage rates have reached 10-month lows, yet demand remains surprisingly tepid as government-backed lending programs capture increasing market share. The disconnect between lower rates and application activity highlights complex market dynamics beyond borrowing costs.

INTEREST RATES AND DEMAND

30-year fixed mortgage rate averages 6.50% as of September 4, down from 6.56% the previous week and representing the lowest level since April 2025 1
Total mortgage applications drop 1.2% for the week despite rate declines, highlighting the disconnect between lower borrowing costs and actual homebuying demand 10
Purchase applications remain weak as affordability challenges persist even with improved rate environment, suggesting deeper structural issues in the housing market 10

GOVERNMENT LENDING DOMINANCE

Ginnie Mae issues $278.8 billion in MBS year-to-date through July 2025, exceeding combined issuance of Fannie Mae ($180.5B) and Freddie Mac ($198.4B) 5
VA loans account for 40.4% of Ginnie Mae issuance in 2025, up dramatically from just 14.6% in 2008, reflecting strong growth in veteran lending programs 5
FHA loans comprise 57.9% of Ginnie Mae collateral, maintaining their position as the largest component while serving first-time homebuyers and limited down payment borrowers 5

REFINANCING ACTIVITY

Refinance applications increase 1% weekly and 20% annually, with the share of refinancing reaching nearly 47% of total applications – the highest level since October 1
FHA and VA refinances drive growth, benefiting from rates averaging 30 basis points lower than conventional loans throughout 2025 10
Homeowners position for further rate declines, with refinance activity indicating expectations for continued Federal Reserve easing in coming months 1

RESIDENTIAL SERVICING MARKETS

Overview: The servicing sector maintains remarkable stability with historically low delinquencies and foreclosures, while industry consolidation continues as government programs show improving performance metrics.

DELINQUENCY AND FORECLOSURE TRENDS

No foreclosure surge expected despite recent house price weakness, supported by solid lending standards and substantial homeowner equity positions built during pandemic appreciation 11
FHA serious delinquency rates decline 18 basis points to 3.77% from Q1 to Q2 2025, while VA delinquencies drop 20 basis points to 2.31% 5
Homeowner equity provides protection, with most borrowers maintaining substantial equity combined with low fixed-rate mortgages as buffer against financial distress 11

REO AND DISTRESSED ASSETS

REO levels increase modestly from $766 million in Q2 2024 to $852 million in Q2 2025 for FDIC-insured institutions, but remain historically low 11
Market stability continues with effective loss mitigation efforts by servicers preventing significant increases in distressed property inventory 11

SERVICING INDUSTRY CONCENTRATION

Top five servicers control 53.7% of all Ginnie Mae mortgage servicing rights as of July 2025, reflecting ongoing industry consolidation 5
DBA Freedom Mortgage leads market with $407.5 billion in unpaid principal balance (15.7% share), followed by Lakeview Loan Servicing at $390.3 billion (15.1% share) 5
Smaller servicers exit market due to regulatory and operational pressures, driving continued consolidation among remaining industry participants 5

═════════════════════════════════════════════════════════════════════════

ECONOMIC NEWS

Overview: The Federal Reserve appears poised for rate cuts as tariff impacts create economic strain, while regional disparities in the lock-in effect reveal uneven market conditions across the country.

FEDERAL RESERVE POLICY

90% probability of September 17 rate cut according to CME Group’s FedWatch tool, with widespread consensus building for 25-basis-point reduction 3
Fed Governor Waller calls for immediate rate cuts, citing labor market concerns and need to move toward more neutral policy stance 13
UWM CEO Ishbia supports rate cuts as “right thing for America,” noting 66% increase in refinance activity in first half of 2025 versus prior year 13

REGIONAL LOCK-IN EFFECT ANALYSIS

Western markets experience most severe mobility constraints, with highest share of mortgages below 5% rates combined with highest percentage of households spending over 30% of income on mortgages 4
San Jose, Los Angeles, San Francisco, and San Diego have highest concentrations of households with mortgage payments exceeding 30% of monthly income 4
Geographic concentration explains supply constraints in high-cost coastal markets where rate-sensitive borrowers are most reluctant to sell 4

EMPLOYMENT OUTLOOK

Critical August jobs report due Friday – first since Trump fired BLS head following July’s disappointing data, with economists predicting only 75,000 jobs added 15
Unemployment rate may rise to 4.3%, with stronger-than-expected job growth potentially influencing Federal Reserve rate cut timing and magnitude 15

COMMERCIAL REAL ESTATE MARKETS

Commercial real estate markets showed encouraging signs of recovery in July with the first monthly price gain since February. Major cities led the rebound while regional conditions varied significantly across Federal Reserve districts. Transaction activity remained robust in key markets like New York City.

Table of Contents

PRICE RECOVERY AND MARKET STABILIZATION

Commercial real estate prices increased 1.3% in July – the first monthly gain since February, driven by renewed institutional investor confidence 1
Major cities like Chicago, New York, and Los Angeles led price gains while smaller markets also demonstrated improvement across asset classes 1
Transaction volume rose 9.1% year-over-year as pension funds and REITs returned to the market, focusing on large, high-value assets 1
Investment-grade deals surged 33% from previous year, though prices remain 21.4% below their July 2022 peak 1

REGIONAL MARKET CONDITIONS

New York Federal Reserve district reported ongoing improvement in commercial real estate markets despite lingering uncertainty, with leasing activity surging 4
Record high rents achieved in Class A Midtown office space driven by major deals from prominent companies, while vacancies decreased and asking rents stabilized 4
Industrial demand remained strong in Northern New Jersey with surge in leasing for warehouse and distribution space, though building sales declined in NYC 4
Construction activity continued to decline across the New York district, reflecting ongoing caution in new development projects 4

TRANSACTION ACTIVITY

NYC recorded 187 deals totaling $257 million on September 3rd, demonstrating robust market activity in the nation’s largest commercial real estate market 2
328 transactions worth $705 million were completed from late August through September 2nd, including notable commercial property trades 6
$33 million Upper East Side penthouse sale highlighted continued demand for premium residential properties in Manhattan markets 2

COMMERCIAL FINANCING MARKETS

Financing markets showed mixed signals with REIT performance declining after strong August gains. Tax policy changes provided new opportunities for multifamily investors through restored bonus depreciation benefits.

REIT PERFORMANCE AND CAPITAL MARKETS

REITs declined more than 1.6% on September’s first trading day according to the FTSE Nareit All REITs index tracking nearly 200 U.S. public REITs 2
August posted 3.3% total returns – the second-best performing month of 2025 and significant improvement from July’s 1.1% decline 2
Sharp reversal from August’s strong performance demonstrates continued volatility in public real estate investment markets 2

TAX POLICY CHANGES BOOST MULTIFAMILY INVESTMENT

One Big Beautiful Bill Act (OBBBA) restored 100% bonus depreciation for qualified property placed in service after January 19, 2025, allowing immediate write-offs 7
Larger upfront tax deductions make deals easier to close for multifamily investors, creating significant financial advantages for new acquisitions 7
Bond financing threshold lowered from 50% to 25% for 4% Low-Income Housing Tax Credit (LIHTC) projects, opening doors to more affordable housing deals 7

CREDIT CONDITIONS

Credit standards eased for all loan types including business loans, consumer loans, and both commercial and residential mortgages according to New York Fed banking contacts 4
Delinquency rates generally improved since the last Federal Reserve reporting period, though some sectors noted specific challenges 4

COMMERCIAL SERVICING MARKETS

Servicing markets showed divergent trends with small multifamily properties leading delinquencies while overall distressed sales remained low. Regional stress appeared concentrated in specific markets like Texas.

DELINQUENCY PATTERNS BY ASSET CLASS

Small multifamily properties leading mortgage delinquencies, highlighting stress in this particular segment compared to other commercial asset classes 3
Distressed sales remain low at 2.6% for general commercial assets, indicating overall market stability despite pockets of stress 1
Asset class divergence evident with industrial and office properties showing different distress patterns than multifamily segments 3

REGIONAL FORECLOSURE ACTIVITY

CRE foreclosures climbing in Texas as the multifamily market unravels in the region, reflecting localized distress and oversupply conditions 3
Foreclosure activity remains historically low nationally, contrasting with concentrated distress in specific regional markets like Texas multifamily 3
Regional market dynamics drive distress patterns rather than systemic issues, with oversupply in certain multifamily submarkets creating localized problems 3