Daily Dose of Real Estate

Daily Dose of Real Estate for December 5

It’s now clear why Director Pulte has been lying low as he finds himself under congressional investigation into his conduct. Mortgage rates graciously declined to 6.19% this week—Christmas comes early. Construction lending finally posted its first increase in two years. The commercial real estate market is experiencing what economists might call “selective optimism” – office buildings are finally getting some love while multifamily landlords watch rents slide faster than a greased pig at a county fair. Meanwhile, the Federal Reserve is playing helicopter parent to smaller banks, hovering nervously over their CRE portfolios as $663 billion in loans prepare to mature in 2026 like a financial time bomb. Let’s get you caught up and out the door in 3 minutes. Tim

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Table of Contents

KEY TAKEAWAYS

Mortgage rates continue downward trend: Freddie Mac reports 30-year fixed rates averaged 6.19% as of December 4th, down from 6.23% the previous week and significantly lower than 6.69% a year ago 1
FHFA raises 2026 conforming loan limits: The baseline conforming loan limit increases 3.26%to $832,750 for 2026, with high-cost area ceiling at $1,249,125, reflecting continued home price appreciation 2
Federal Reserve rate cut highly anticipated: Markets price in 90% probability of a 25 basis point Fed rate cut at the December 10th meeting, though experts warn this may not significantly impact mortgage rates 3
Construction lending shows signs of recovery: Single-family construction loan volume rose to $91.2 billion in Q3 2025, marking the first annual increase in over two years despite overall AD&C lending declining 4
GAO opens investigation into FHFA Director: Congressional watchdog launches probe into Bill Pulte’s referrals of prominent Democrats to DOJ for mortgage fraud, raising questions about potential misuse of federal authority 5
2026 housing market outlook cautiously optimistic: Industry forecasts predict a “Great Housing Reset” with mortgage rates averaging 6.3% in 2026, down from 2025’s 6.6% average, supporting gradual market recovery 6
Office recovery strengthens with vacancy dropping to 16.4% in Q3 2025 after six straight quarters of positive absorption totaling 127M SF 1
CMBS delinquency rates declined by 20 basis points to 7.26% in November, though lodging and industrial sectors saw increases 2
Mixed commercial mortgage performance in Q3 2025 with CMBS delinquencies rising to 6.59% while bank and life company rates improved 3
Federal Reserve increases oversight of smaller banks’ commercial real estate portfolios amid rising refinancing pressures 4
Major multifamily transactions include Monadnock’s $175M Brooklyn financing and Mill Creek’s $68M Boston asset sale 5 6
FHFA raises multifamily caps to $88 billion per agency for 2026, up 20.5% from 2025, signaling strong financing expectations 7

RESIDENTIAL REAL ESTATE MARKETS

The residential real estate market shows mixed signals with starter homes continuing to outperform while overall inventory recovery remains gradual. Regional divergence is intensifying as some markets cool significantly while others maintain momentum.

STARTER HOME SEGMENT SHOWS RESILIENCE

Sales growth continues: Starter-home sales rose 4.9% year-over-year in October for the 14th consecutive month, demonstrating sustained strength in the entry-level market 7
San Francisco leads gains: The Bay Area metropolitan region recorded the biggest jump in starter-home sales among major markets, indicating renewed buyer activity in previously expensive areas
Supply improvements modest: Overall housing supply rose 5.1% year-over-year during the four weeks ending November 30, though this represents the smallest increase in nearly two years
New listings slow: New listings grew just 0.9%, the smallest uptick in two months, while pending sales fell 2.5% from a year earlier, showing continued buyer hesitation

REGIONAL MARKET DIVERGENCE INTENSIFIES

Two-speed market emerging: First American’s deputy chief economist Odeta Kushi forecasts a “two-speed market” for 2026, dividing regions expected to see continued growth from those that have become too expensive or risky 6
Price growth slowing broadly: Year-over-year price growth continued its downward trend, rising only 1.1% in October 2025 according to Cotality data
Price declines expanding: Price declines have expanded from six of the 100 largest metros in January to 32 by October, marking the broadest softening since the early 2010s
Hardest hit markets: Miami, St. Petersburg, Rochester, Las Vegas, Seattle, and Dallas are all down six percentage points or more in price growth

INVENTORY RECOVERY CONTINUES

2026 inventory projections: Housing inventory is projected to rise 8.9% year-over-year in 2026, extending a three-year recovery trend 8
Still below normal levels: For-sale supply will remain approximately 12% below pre-2020 norms, with the national market averaging 4.6 months of supply
Regional variations persist: Some markets continue to experience severe inventory shortages while others approach more balanced conditions

MORTGAGE MARKETS

Mortgage rates continue their downward trajectory with the 30-year fixed rate hitting multi-year lows. Federal Reserve rate cut expectations are high, though experts caution the impact on mortgage rates may be limited. Construction lending shows early signs of recovery.

RATES HIT MULTI-YEAR LOWS

30-year rates decline: Freddie Mac’s Primary Mortgage Market Survey shows the 30-year fixed-rate mortgage averaged 6.19% as of December 4, 2025, marking the second consecutive week of declines 1
Year-over-year improvement: Current rates represent a significant improvement from the 6.69% rate recorded one year ago, providing better affordability for borrowers
15-year rates also down: The 15-year FRM averaged 5.44%, down from 5.51% the previous week, offering attractive refinancing opportunities
Expert commentary: “Mortgage rates decreased for the second straight week as we emerged from the Thanksgiving holiday,” said Sam Khater, Freddie Mac’s Chief Economist

CONSTRUCTION LENDING SHOWS RECOVERY SIGNS

First increase in two years: Single-family construction loan volume rose to $91.2 billion in Q3 2025, registering the first annual increase in over two years with a 0.5% year-over-year gain 4
Overall AD&C lending still declining: Total acquisition, development and construction loans fell to $463.0 billion, down 5.6% from one year ago, marking the seventh straight quarter of decline
Other development loans lead decline: Other real estate development loans decreased 7% over the year to $371.8 billion, while residential construction lending bucked the trend
Still well below peak: Current 1-4 family residential AD&C loans stand 56% lower than the peak level of $204 billion reached during Q1 2008

CONSTRUCTION LOAN QUALITY METRICS IMPROVE

Delinquency rates stable: Loans 30+ days past due or in nonaccrual status fell slightly to $1.1 billion, representing 1.2% of total 1-4 family residential construction loan volume 4
Mixed performance indicators: Loans 30-89 days past due totaled $418.1 million, while nonaccrual status volume was $593.4 million
Alternative financing growth: Equity partners and alternative sources have supplemented traditional bank lending in recent years as construction financing remains constrained

FED RATE CUT EXPECTED BUT IMPACT UNCERTAIN

High probability of cut: Financial markets are pricing in approximately 90% probability of a Federal Reserve rate cut at the December 10th meeting 3
Expected magnitude: Markets anticipate a 25 basis point reduction bringing the federal funds rate to 3.50%-3.75%
Limited mortgage impact: Mortgage industry experts caution that this anticipated cut may already be priced into current mortgage rates
Multiple factors at play: Global demand for US Treasuries, risk premiums, and bank funding costs often overshadow individual Fed moves in determining mortgage pricing

2026 RATE PROJECTIONS CONVERGE

Industry consensus emerging: Most economists predict 6.3% average for 30-year fixed rates in 2026 (Realtor.com, Redfin) 9
Range of forecasts:
- 6.15% by end of 2026 (Bright MLS)
- Around 6% average (National Association of Realtors)
- Unlikely to fall below 6% (Zillow)

Modest improvement expected: This represents a decline from 2025’s 6.6% average, providing some relief for affordability-challenged buyers

MORTGAGE APPLICATION TRENDS

Weekly application data: MBA’s latest survey shows mortgage applications decreased, with the average contract interest rate for 30-year fixed-rate mortgages decreasing to 6.32% from 6.40% 10
Points decrease: Points decreased to 0.58 from 0.60 for 80% loan-to-value ratio loans, indicating improved pricing conditions
Market sentiment: Application trends suggest borrowers remain cautious despite improving rate environment

REGULATORY DEVELOPMENTS

Federal agencies announced significant policy changes for 2026, including higher conforming loan limits and expanded multifamily lending capacity. A congressional investigation into FHFA leadership has raised questions about potential misuse of federal authority, while new research proposes innovative tax code solutions for housing affordability.

GAO OPENS INVESTIGATION INTO FHFA DIRECTOR

Congressional watchdog probe launched: The Government Accountability Office confirmed it has opened an investigation into Federal Housing Finance Agency Director Bill Pulte following a request from Senate Democrats 5
Focus on DOJ referrals: The probe examines Pulte’s referrals of New York Attorney General Letitia James, Senator Adam Schiff, Federal Reserve Governor Lisa Cook, and Congressman Eric Swalwell to the Department of Justice for alleged mortgage fraud
Misuse of authority allegations: Senate Democrats requested the investigation to determine whether Pulte and FHFA employees “misused federal authority and resources” in pursuing information about Trump administration targets
Partisan targeting concerns: Democrats noted that Pulte’s public accusations “appear to have solely targeted prominent Democrats” despite claims of nonpartisan investigations

SWALWELL LAWSUIT AGAINST PULTE

First Amendment violation claims: Representative Eric Swalwell filed a federal lawsuit against Pulte, alleging the FHFA director violated the First Amendment and Privacy Act of 1974 through his mortgage fraud referral 11
Abuse of authority allegations: The lawsuit claims Pulte “improperly accessed and leaked”Swalwell’s private mortgage records in retaliation for political speech
Silencing political opponents: Swalwell stated that “Director Pulte has combed through private records of political opponents to silence them”
Investigation timeline: GAO indicated the scope determination process “can take a few months” before providing completion estimates

FHFA ANNOUNCES 2026 CONFORMING LOAN LIMITS

Baseline limit increase: The baseline conforming loan limit for one-unit properties will be $832,750, representing a 3.26% increase and $26,250 jump from 2025 2
High-cost area ceiling: For expensive markets where 115% of local median home value exceeds the baseline, the ceiling loan limit will be $1,249,125 (150% of baseline)
Special provisions: Alaska, Hawaii, Guam, and the U.S. Virgin Islands have baseline and ceiling limits of $1,249,125 and $1,873,675, respectively
Market impact: Due to rising home values, conforming loan limit values will be higher in all but 32 counties or county equivalents nationwide

FHFA INCREASES MULTIFAMILY LOAN PURCHASE CAPS

Substantial increase: FHFA increased agency multifamily loan purchase caps to $88 billion per agency, up 20.5% from 2025 12
Market expectations: The substantial increase indicates FHFA expects greater multifamily financing activity in 2026 than 2025
Mission requirements: Continued 50% mission-driven business requirement and exemption for workforce housing loans support affordable housing financing
Industry impact: Higher caps provide greater lending capacity for apartment and rental property financing

INNOVATIVE TAX CODE HOUSING PROPOSAL

EITC-Plus concept introduced: Urban Institute research proposes combining the Earned Income Tax Credit with Housing Choice Voucher program approaches to create an “EITC-Plus”housing supplement 13
Geographic cost adjustments: The proposal would revise EITC benefit levels using HCV’s approach of accounting for geographic differences in cost of living, addressing current inequities
Substantial cost estimate: Researchers estimate the program would cost $100.75 billionnationally in 2021, compared to HCV’s $25.7 billion cost serving one-quarter of eligible households
Implementation advantages: The EITC-Plus would be easier to implement than HCV expansion, requiring little additional bureaucracy and leveraging existing tax infrastructure

FHLBANK CHICAGO ANNOUNCES 2026 COMMUNITY INVESTMENT PROGRAMS

Community Advance Program: Opens January 2, 2026, offering up to $200,000 in interest rate subsidy for qualifying community development projects 14
Downpayment Plus Programs: Opens January 20, 2026, providing up to $1 million per programwith forgivable grants up to $10,000 per borrower for homebuyer assistance
Affordable Housing Program: Opens May 4, 2026, providing up to $2 million in grants for affordable housing development projects
Program continuity: Core benefits and eligibility requirements remain consistent with previous years to provide predictability for participants

ECONOMIC NEWS

Economic indicators show mixed signals with labor market concerns driving rate cut expectations while inflation remains a key factor for long-term mortgage rate trends. New research highlights significant housing burden challenges facing low-income renters.

LABOR MARKET CONCERNS DRIVE RATE CUT EXPECTATIONS

Unemployment rises: Recent data showing unemployment rising to its highest level since October 2021 has intensified expectations for Federal Reserve action 15
Job losses accelerate: 32,000 private-sector jobs lost in November, combined with widespread layoff announcements, has pushed probability of December rate cut to nearly 90%
Market reaction: Labor market weakness has become the primary driver of Fed policy expectations, overshadowing inflation concerns in the near term

INFLATION REMAINS KEY FACTOR

Long-term rate driver: Economists emphasize that inflation will matter more to mortgage rates than Fed leadership changes or short-term rate cuts 9
Market expectations: “If a new Fed chair cuts rates now, but there’s still inflation, market traders would assume that the Fed will have to increase rates later on,” explained Daryl Fairweather, Redfin’s chief economist
Policy implications: Sustainable mortgage rate declines require both Fed cuts and convincing evidence that inflation pressures are subsiding

AFFORDABILITY PROJECTIONS FOR 2026

Payment-to-income improvement: Realtor.com forecasts the typical mortgage payment share of income will retreat to 29.3% in 2026, dipping below the 30% threshold for the first time since 2021 16
Driving factors: Improvement results from combination of modest mortgage rate declines and continued income gains
Regional variations: Affordability improvements will vary significantly by market, with some high-cost areas remaining severely challenged

HOUSING BURDEN RESEARCH FINDINGS

Low-income renter challenges: One-third of US renters make less than $30,000 per year, with 83% being rent burdened, while only 25% of those eligible for federal housing assistance receive it 13
Geographic inequity: Current EITC program impact is inequitable because it doesn’t account for geographic variation in cost of living, unlike the Housing Choice Voucher program
Political advantages: The proposed EITC-Plus benefits from the consistent bipartisan supportthat the EITC has received, making it more politically tractable than new housing programs

COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)

The commercial real estate markets showed mixed signals in early December, with office properties demonstrating unexpected resilience while multifamily markets experienced continued rental pressure. Major transactions highlighted investor confidence in select markets, particularly in Boston and New York.

OFFICE SECTOR PERFORMANCE

National vacancy rates dropped to 16.4% from 17.2% in Q3 2025, marking six consecutive quarters of positive absorption totaling 127 million square feet 1
Office utilization rebounded to 70% of pre-pandemic levels, with New York and Miami leading the recovery among major metropolitan areas 1
Construction activity projected to hit 25-year low in 2026, creating supply constraints that could benefit landlords in select markets 1
Office cap rates increased 90 basis points since 2022 to an average of 7.6%, drawing interest from value-seeking investors 1

MULTIFAMILY MARKET ACTIVITY

Boston multifamily investments reached $2.7 billion across 36 assets in the first 11 months of 2025, up from $2.3 billion in the same period of 2024 6
Average per-unit price in Boston was $374,650, slightly down from 2024’s $391,995 but still indicating strong investor demand 6
Mill Creek Residential sold Alister Deco in Boston for $67.6 million ($375,555 per unit) with PNC Bank providing $37.7 million in acquisition financing 6
Monadnock Development secured $175 million in construction financing from PCCP LLC and U.S. Bank for a 300-unit Brooklyn community at 155 Third Street 5

RENTAL MARKET TRENDS

Multifamily rents continue sliding in key markets as demand lags new supply coming online across major metropolitan areas 8
Vacancy rates hit record highs in several metropolitan areas, creating a renter-favorable environment expected to persist into early 2026 8

COMMERCIAL FINANCING MARKETS

Commercial financing markets experienced significant shifts driven by changing Federal Reserve expectations and evolving capital market conditions. Interest rate volatility continued to impact investor sentiment while new lending products gained traction.

INTEREST RATE ENVIRONMENT

December rate cut odds jumped to 75% following weak ADP employment figures, a sharp reversal from expectations just two weeks prior 9
Job market weakness strengthened the case for Federal Reserve monetary easing, with markets rapidly repricing rate expectations 9

CAPITAL MARKETS ACTIVITY

Argentic Investment Management closing $952 million CRE CLO with multifamily assets comprising the largest portion at $571.6 million 10
CLO loan-to-value ratio averaged 59.6%, below the third-quarter industry average of 66.9%, indicating conservative underwriting standards 10
Asset allocation breakdown: Industrial ($133.8M), hospitality ($127.3M), office ($70M), and retail ($48.8M) completing the CLO portfolio 10

AGENCY LENDING EXPANSION

FHFA increased agency multifamily loan caps to $88 billion per agency for 2026, representing a 20.5% increase from 2025 levels 7
50% mission-driven business requirement remains in place, ensuring continued support for affordable housing initiatives 7

INVESTOR BEHAVIOR SHIFTS

Private buyers now account for 50% of office acquisitions, up from a historical average of 30%, indicating opportunistic investment strategies 1
Owner-users doubled their share to 13% of office acquisitions, suggesting end-user confidence in select markets 1

COMMERCIAL SERVICING MARKETS

Commercial servicing markets displayed mixed performance across different capital sources, with CMBS showing improvement overall while specific sectors faced continued stress. Regulatory oversight intensified as refinancing pressures mount.

DELINQUENCY RATE PERFORMANCE

CMBS delinquency rates declined 20 basis points to 7.26% in November, marking the fourth drop of the year 2
Mixed Q3 2025 results across capital sources covering $2.8 trillion in loans and 57% of commercial and multifamily mortgage debt outstanding 3
Banks and thrifts improved to 1.27% (down 0.02 percentage points) while life companies dropped to 0.47% (down 0.04 percentage points) 3
Agency performance diverged: Fannie Mae rose to 0.68% (up 0.07 percentage points) while Freddie Mac increased to 0.51% (up 0.04 percentage points) 3
CMBS delinquencies rose to 6.59% (up 0.23 percentage points), showing continued stress in securitized markets 3

SECTOR-SPECIFIC STRESS

Lodging delinquencies increased 10 basis points to 6.17%, reflecting ongoing challenges in the hospitality sector 2
Industrial sector rose 3 basis points to 0.67%, though remaining at relatively low levels compared to other property types 2
Seriously delinquent loans remained elevated at 7% of the CMBS market, including 60+ day delinquencies, foreclosures, REO, and non-performing balloons 2

SPECIAL SERVICING ACTIVITY

Multifamily special servicing rate rose 12 basis points to 8.32% in October, up from 6.21% a year ago 11
Three Tusk Multifamily Portfolio properties in Alabama and Georgia transferred to special servicing with 84% occupancy at year-end 2024 11

REGULATORY OVERSIGHT

Federal Reserve increasing oversight of smaller banks’ commercial real estate portfolios, citing concerns about rising interest rates and declining property values 4
$663 billion in CRE loans maturing in 2026 creating refinancing pressures, particularly for community and regional banks with high office exposure 4