Daily Dose of Real Estate

Daily Dose of Real Estate for October 1

Congress hits the snooze button and the government goes back to bed – government shutdown 2025 has arrived. Yesterday, in big bold letters on HUD’s home page – HUD blamed looming shutdown on the ‘radical left.’ Go ahead and put that one in your scrap book. On a lighter note, pending home sales show some life as rates moderate and buyers try to score deals from weary sellers. It’s hard to save money for a down payment when 2/3 of renters struggle with basic living needs. Unsurprisingly, consumer confidence hits the skids. Multifamily transaction volume is picking up considerable (explain). And the industrial outdoor storage (IOS) which refers to land itself—rather than a building—is the primary rentable/useful asset is hot. PWC has the IOS market valued at $200B. Let’s get you caught up and out the door in 3 minutes. Tim

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Table of Contents

KEY TAKEAWAYS

Government shutdown is here with mortgage market implications – HUD posted controversial political messaging on its website while warning of potential delays to VA and FHA loan processing, with the National Flood Insurance Program set to expire today 1
Investor activity reaches five-year high – Real estate investors purchased 33% of single-family homes in Q2 2025, the highest share in five years, with small “mom-and-pop” investors controlling over 90% of the market 2
Pending home sales surge as rates decline – August pending home sales jumped 4% monthly and 3.8% annually as mortgage rates dropped, with the Midwest leading regional gains at 8.7% 3
Two-thirds of working-age renters struggle with basic needs – Harvard research reveals residual income cost burdens affect 67% of working-age renters, significantly higher than the 50% captured by traditional housing cost burden measures 4
Consumer confidence hits four-month low – The Conference Board’s index fell 3.6 points to 94.2 in September as Americans expressed growing concerns about inflation and job market weakness 5
Lock-in effect continues to ease gradually – Nearly one in five mortgages now carry rates of 6% or higher, the highest share since 2015, as homeowners slowly adapt to the new rate environment 6
Top-tier CRE prices climbed for the second consecutive month in August, with high-value properties gaining 1.3% while smaller deals continued to struggle, signaling a bifurcated recovery in commercial real estate markets 1
Industrial outdoor storage (IOS) rents have surged 123% since 2020, attracting over $900 million in institutional capital as vacancy rates tighten and major players like Peakstone and Barings make significant acquisitions 2
Multifamily transaction volume rose nearly 20% year-over-year in H1 2025 to $35 billion, though August apartment transactions fell 8% overall while individual property sales jumped 11%, reflecting mixed market conditions 3 4
Brandywine Realty Trust slashed its dividend by 47% to retain $50 million in cash for debt reduction, while Hines completed a $428 million acquisition of the mixed-use Runway complex in Los Angeles 5 6
CRE loan spreads remained steady ahead of expected Fed rate cuts, though long-term Treasury yields continue to be the primary driver of commercial real estate valuations and financing conditions 7
Federal regulatory activity included FinCEN’s renewal of information-sharing requirementsbetween government agencies and financial institutions, affecting real estate transactions and compliance protocols 8

RESIDENTIAL REAL ESTATE MARKETS

The residential market shows mixed signals with declining monthly prices but positive annual growth, while investor activity surges to five-year highs and pending sales defy seasonal expectations with strong regional variations.

MIXED PRICE SIGNALS ACROSS REGIONAL MARKETS

National home prices declined 0.1% in July but remained 2.3% higher year-over-year, showing conflicting short-term and long-term trends
Middle Atlantic division posted the highest annual gain at 5.1%, while Sun Belt markets continued experiencing cooling conditions
Regional price trends continue to diverge with Midwestern and Northeastern markets now leading national growth as previously hot Southern and Western markets cool 7

INVESTOR ACTIVITY REACHES HISTORIC HIGHS

Real estate investors purchased 33% of single-family homes in Q2 2025, representing the highest share in five years and a dramatic increase from the 2020-2023 average of 18.5% 2
Small investors dominate with over 90% market share, with mom-and-pop owners of just one to five properties controlling the single-family rental landscape rather than institutional “Wall Street landlords”
Investor-owned homes now account for roughly 20% of the nation’s 86 million single-family properties, serving as a stabilizing force during affordability constraints for traditional homebuyers
DSCR loans surge as brokers pivot to nonconforming loan products amid declining conventional mortgage volumes, providing financing based on rental income potential rather than borrower income

PENDING SALES ACTIVITY DEFIES SEASONAL EXPECTATIONS

Pending home sales surged 4% in August compared to July, marking both monthly and annual gains as easing mortgage rates pulled more buyers back into the market 3
Midwest led regional performance with 8.7% monthly increase and 6.7% annual growth, reflecting the region’s ongoing home-building boom and relatively affordable market conditions
South and West also posted increases while only the Northeast experienced a slight decline of 1.1% from July to August

STARTER HOME MARKET SHOWS RESILIENCE

Starter home sales increased 4% year-over-year in August, contrasting with mid-price homes (-0.6%) and high-price homes (-1.2%) over the same period 8
Median starter home price reached record $260,508, representing a 2.2% annual increase despite broader market challenges
Active starter home listings increased 16.4% year-over-year, providing more options for budget-conscious buyers while higher-end inventory remains constrained

MORTGAGE MARKETS

Mortgage markets experience significant shifts as rates decline from recent peaks, spurring application activity while lenders adapt strategies with nonconforming products and proactive loan limit adjustments amid mixed delinquency trends.

RATE ENVIRONMENT DRIVES MARKET ACTIVITY

Fed cut benchmark rate to 4%-4.25% range in first move since December, with policymakers projecting two more cuts this year 9
Lock-in effect continues to ease gradually with 19.7% of mortgages now carrying rates of 6% or higher—the highest share since Q4 2015 6
Share of homeowners with rates below 6% fell to 80.3%, down from 92.7% three years ago, indicating gradual market adjustment to higher rate environment

DSCR LOANS SURGE AS BROKERS PIVOT STRATEGY

Debt service coverage ratio loans gain popularity among small investors who dominate the single-family rental market, providing financing based on rental income potential 2
Nonconforming loan products represent strategic pivot by mortgage brokers seeking to maintain business volumes in challenging origination environment
20% of U.S. home sales now involve investor purchases, creating sustained demand for specialized financing products tailored to rental property acquisitions

LENDERS PROACTIVELY ADJUST LOAN LIMITS

Major lenders including CrossCountry Mortgage and Rate raised loan limits to $819,000, following United Wholesale Mortgage’s earlier decision to anticipate 2026 conforming loan limit changes 10
Early action supports home buyers in dynamic market while empowering loan officers with enhanced tools and pricing advantages ahead of official announcements

DELINQUENCY TRENDS SHOW MIXED SIGNALS

Multifamily delinquency rates reach highest levels since housing bust, excluding pandemic effects, according to Fannie Mae and Freddie Mac data 11
Freddie Mac single-family serious delinquency rate at 0.56% in August, up from 0.55% in July and higher than 0.52% in August 2024
Fannie Mae single-family rate unchanged at 0.53% but showed year-over-year increase from 0.50% in August 2024, warranting continued monitoring

REGULATORY DEVELOPMENTS IN REAL ESTATE AND MORTGAGE

Federal agencies implement significant policy changes including HUD’s multifamily premium restructuring, FHFA audit validation of credit reporting transitions, and potential government shutdown impacts on housing operations.

HUD IMPLEMENTS MAJOR POLICY OVERHAUL

HUD reduces multifamily mortgage insurance premiums to statutory minimum while eliminating green building and affordable housing categories as part of Trump administration directives 12
Agency characterizes eliminated categories as “economically obsolete”, signaling broader shift away from sustainability-based housing incentives toward accelerating housing supply
National Association of Home Builders welcomes move as step toward reducing financing costs and stimulating rental housing development

FHFA AUDIT VALIDATES CREDIT REPORTING CHANGES

FHFA Office of Inspector General validates 2022 transition from tri-merge to bi-merge credit reporting requirements for GSE mortgages 13
Audit found FHFA complied with internal policies and agency’s determination regarding non-applicability of Administrative Procedures Act was legally sufficient
Transition designed to enhance efficiency in mortgage lending while maintaining credit assessment accuracy and potentially lowering borrower costs

GOVERNMENT SHUTDOWN THREATENS HOUSING OPERATIONS

VA and FHA loan processing face potential delays as government shutdown begins at 12:01 a.m. EST today with agency furloughs 1
National Flood Insurance Program funding expires today, preventing new NFIP policies from being written and existing policies from being renewed
Bureau of Labor Statistics will not release September Employment Situation report on Friday if government shuts down, affecting market data availability

ECONOMIC NEWS

Economic indicators reveal mounting challenges with Fed officials signaling caution on rate cuts, consumer confidence declining, labor market stress emerging, and groundbreaking Harvard research exposing widespread renter financial struggles beyond traditional measures.

HARVARD RESEARCH REVEALS WIDESPREAD RENTER FINANCIAL STRESS

Two-thirds of working-age renter households struggle to afford basic needs after paying rent, significantly higher than traditional housing cost burden measures suggest 4
Residual income approach captures 5.3 million more households with affordability challenges than standard 30% housing cost burden measure, which identifies only 50% as cost-burdened
Housing costs average $18,000 annually for renters while combined estimated cost of other necessities reaches $57,000 for typical renter household
Lower-cost states show highest burden rates with Arkansas, West Virginia, and Wyoming displaying some of the highest residual income burden rates despite not appearing on traditional high-cost lists
$500 monthly cash allowance would reduce burdens by 7.3 percentage points, while traditional housing subsidies capping rent at 30% of income would reduce burdens by only 1.3 percentage points

FED OFFICIALS SIGNAL CAUTIOUS APPROACH TO RATE CUTS

Fed Vice Chair Jefferson warns US job market has begun to weaken, projecting economic growth to slow to approximately 1.5% for remainder of 2025 14
Labor market characterized as “softening” which suggests that left unsupported, it could experience stress requiring continued Fed attention
Uncertainty around baseline outlook especially high due to new policies being introduced by current administration and their effects on employment and inflation

CONSUMER CONFIDENCE HITS FOUR-MONTH LOW

Conference Board’s consumer confidence index fell 3.6 points to 94.2 in September, marking lowest reading since April when President Trump rolled out sweeping tariff policy 5
Short-term expectations measure fell to 73.4, remaining well below 80 threshold that can signal recession ahead
References to prices and inflation rose this month, regaining position as consumers’ primary economic concern in survey responses

LABOR MARKET SHOWS SIGNS OF STRESS

US nonfarm employers added only 22,000 jobs in August, following July’s disappointing 79,000 job gains with revisions shaving 258,000 jobs off previous estimates
Unemployment rate reached 4.3%, the highest since October 2021, while job openings remained at 7.2 million suggesting limited new opportunities
Companies appear locked in “no hire, no fire” position, fearful of expanding payrolls until effects of Trump’s tariffs become clearer

INFLATION CONCERNS PERSIST DESPITE RATE CUTS

Inflation rose to 2.9% in August from 2.7% the previous month, representing biggest jump since January with core prices rising 3.1%
Core inflation remains well above Fed’s 2% target, complicating monetary policy decisions amid potential inflationary impact of ongoing tariff policies
Tariff impacts less severe than anticipated but remain factor that could push inflation higher according to Fed officials

COMMERCIAL REAL ESTATE MARKETS

Commercial real estate markets are showing signs of bifurcated recovery, with top-tier properties gaining momentum while smaller assets continue to struggle. Industrial outdoor storage has emerged as the standout performer, while multifamily markets display mixed signals across different transaction types and regions.

TOP-TIER PROPERTIES LEAD RECOVERY

High-value CRE assets rose 1.3% in August, marking second consecutive month of gains after prolonged slump since 2022 1
Lower-priced transactions declined 0.1% in August, marking fourth drop in five months as equal-weighted index continues struggling 1
Commercial nonresidential properties gained 3.5% over three months, while multifamily assets fell 3.7% over past six months 1
Repeat-sale volume jumped 28% year-over-year to $133.9 billion, with August reaching $10.7 billion 1
Distress sales remained low at 2.7% of repeat transactions, well below past downturn levels indicating relatively healthy market conditions 1

INDUSTRIAL OUTDOOR STORAGE EMERGES AS HOT SECTOR

IOS rents surged 123% since 2020 due to tight supply and surging demand from logistics users and fleet operators 2
Over $900 million in institutional capital flowing into sector with major players including Peakstone, Barings/Brennan, and Realterm making significant acquisitions 2
PwC values entire IOS market at $200 billion as institutional investors recognize the asset class’s potential 2
National industrial rents reached $8.66 per square foot in August, up 6.1% year-over-year, though growth is moderating 2
Industrial vacancy stands at 8.7%, up 200 basis points from year ago as market transitions from hypergrowth to normalization 2

MULTIFAMILY MARKETS SHOW MIXED SIGNALS

H1 2025 multifamily transaction volume rose 20% year-over-year from $29.2 billion to $35 billion according to Yardi Matrix 3
Top 10 metros accounted for one-third of total national multifamily transaction volume in first half of 2025 3
August apartment transactions fell 8% to $5 billion according to MSCI Real Assets data 4
Individual property sales rose 11% in August, suggesting renewed investor interest in select assets despite overall market caution 4
Columbus, Ohio ranked 9th nationally for multifamily permits in August, hitting all-time high as secondary markets show strength 2

COMMERCIAL FINANCING MARKETS

Commercial real estate financing markets remain in a holding pattern as loan spreads stay steady ahead of anticipated Fed rate cuts. Long-term Treasury yields continue to be the primary driver of CRE valuations, while institutional investors show renewed interest in multifamily assets and REIT valuations slowly align with private market pricing.

CRE LOAN SPREADS HOLD STEADY

CRE loan spreads remained stable ahead of anticipated Federal Reserve rate cuts despite mixed signals from Fed officials 7
Long-end Treasury yields edged higher as Powell reiterated cautious stance, adding uncertainty around rate path and keeping refinancing pressure elevated 7
Long-term Treasury yields—not Fed rate cuts—will continue shaping CRE valuations, returns, and financing conditions in next cycle 7

REIT PERFORMANCE AND CAP RATE TRENDS

REIT and private transaction cap rates nearly aligned, though stubborn 132 basis points gap remains between public and private valuations 2
Sluggish appraisal adjustments continue stalling full market repricing between public and private real estate valuations 2

INSTITUTIONAL INVESTMENT ACTIVITY

Strong institutional equity interest evident with insurance companies, opportunity funds, endowments, and pension funds showing increased multifamily interest 4
Security Properties CEO notes institutional interest “has not been stronger at any point in the last several years” due to favorable supply-demand dynamics 4

COMMERCIAL SERVICING MARKETS

Commercial servicing markets are experiencing strategic repositioning as REITs adjust dividend policies to strengthen balance sheets. Major portfolio refinancing activity continues as owners seek to optimize capital structures, while federal regulatory updates affect transaction compliance requirements.

REIT DIVIDEND ADJUSTMENTS SIGNAL STRATEGIC REPOSITIONING

Brandywine Realty Trust cut quarterly dividend 47% from 15 cents to 8 cents per share to retain $50 million in cash 5
Philadelphia-based REIT plans to prepay $245 million secured loan maturing in 2028 for full unencumbered control of 120-asset core portfolio 5
Dividend cut will trigger $12-14 million one-time charge but boost free cash flow by $45 million annually 5

MAJOR PORTFOLIO REFINANCING ACTIVITY

Blackstone pursuing $465 million refinancing for 1,700-unit multifamily portfolio across Massachusetts, Florida, and Georgia 9
Financing package combines CMBS and mezzanine loans to streamline existing debts while enhancing property value 9
Portfolio managed by LivCor includes properties acquired between 2019-2021, with Blackstone investing $45+ million in renovations 9

FEDERAL REGULATORY UPDATES

FinCEN published notice regarding renewal of information-sharing requirements between government agencies and financial institutions 8
Regulations require financial institutions to search records and report information to FinCEN upon request, affecting real estate transactions and compliance 8

INDUSTRY NEWS

Major acquisition activity continues as institutional investors target stabilized mixed-use properties, while regional expansion strategies focus on discounted assets in high-growth markets. Technology and policy changes are reshaping development financing, particularly in the multifamily sector.

MAJOR ACQUISITION ACTIVITY

Hines completed $428.1 million acquisition of Runway, mixed-use development in Playa Vista, Los Angeles with 420 multifamily units and 630,000 SF commercial space 6
Invesco Real Estate sold property originally acquired in 2016 for $475 million, reflecting roughly 10% decline in value over period 6
Acquisition reflects Hines’ conviction in long-term strength of living and retail sectors according to co-Head Alfonso Munk 6

REGIONAL EXPANSION STRATEGIES

Atlanta-based Penler aggressively expanding across Southeast, acquiring 890+ units in Georgia and Florida while targeting discounted assets 10
Backed by Carlyle and Crow Holdings, firm implementing $600 million investment strategy approaching $1 billion portfolio 10
Reactivating development pipeline in promising suburban areas despite higher interest rates and tighter construction economics 10

TECHNOLOGY AND POLICY INNOVATIONS

HUD announced dropping multifamily insurance premiums to legal minimum, scrapping green and affordable categories to cut costs 2
Policy change could significantly impact multifamily development financing and affordable housing initiatives 2

MARKET OUTLOOK AND STRATEGIC POSITIONING

Rise in high-value deal prices and increased transaction activity point to early signs of recovery in parts of CRE market 1
Industrial market shifting from hypergrowth to normalization with investors becoming more selective and favoring resilient subtypes 2
Expect further consolidation in niche sectors, more attention to standardized pricing models, and cautious return to development 2