The housing market seems defined less by falling rates than by stubborn affordability and cautious buyer behavior. Mortgage rates have bounced around their lowest levels since 2022, most recently hovering near 6.27%, yet affordability keeps many financed buyers on the sidelines, allowing cash buyers to account for roughly 29% of transactions. Home listings are down 1.7% year over year—the sharpest decline in two years—and the Federal Reserve has made it clear that rates are more likely to linger than deliver the dramatic relief some had hoped for. The Northeast and Midwest are shaping up as the relative bright spots in the 2026 housing outlook, while sellers in pricier coastal markets remain content to wait and see how markets, tariffs, and broader economic signals shake out.
Commercial real estate posted its strongest quarterly showing in years, with large transactions up 48%, though the celebration was muted by CMBS special servicing rates climbing to a 12-year high as office distress deepened. Even as the Fed delivered another rate cut, officials signaled growing caution, and pre-2008 CMBS loans continued to age poorly, with special servicing rates reaching 63% (not a typo). Walmart’s decision to experiment with in-store 3D printing added a reminder that innovation is alive and well—just not always where the stress is. 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.Â
KEY TAKEAWAYS
- Fed Chair Powell warns housing struggles will persist despite rate cuts, stating that a 25-basis-point decline won’t make “much of a difference” for homebuyers as structural housing shortages require solutions beyond monetary policy 1
- Mortgage rates hit new lows with 30-year rates at 6.27% following the Fed’s third consecutive rate cut, marking the lowest levels since 2022, though refinance rates remain elevated at 6.61% 2
- Cash buyers dominate market with 29% share in October, up from 27% one year ago, as rising interest rates make all-cash purchases increasingly competitive according to NAR’s REALTORS® Confidence Index 3
- Home listings dip 1.7% year-over-year, marking the sharpest decline in two years as buyer demand cools and pending sales drop 4.1% – the steepest decline in ten months 4
- Mortgage lock volume surges 17% annually despite 25% monthly decline, driven by historically strong refinance demand accounting for 35% of all locks in November 5
- Northeast and Midwest emerge as top 2026 housing markets due to relative affordability, while limited new construction continues to constrain supply and drive prices higher 6
- GSE privatization discussions intensify for 2026 with industry experts predicting Fannie Mae and Freddie Mac will exit conservatorship while maintaining government backing and remaining separate entities 7
- Housing for the 21st Century Act introduced by bipartisan lawmakers to modernize federal housing policy, reduce regulatory barriers, and expand affordable housing supply nationwide 8
- Large CRE deals surged 48% quarter-over-quarter in Q3 2025, totaling $76.4B and accounting for nearly 68% of all single-asset investment—the highest share since mid-2022 1
- CMBS special servicing rate hit a 12-year high at 10.86% in November, with office properties comprising 43% of new $2.3B transfers to special servicing 2
- Office recovery exceeded expectations with national vacancy rates showing the first meaningful improvement since 2020, particularly in Class-A assets, while CRE investment bounced back 17% YoY 3
- Federal Reserve cut rates 25 basis points to 3.5%-3.75% range but projects only one additional cut in 2026, creating uncertainty for commercial real estate financing 4
- Walmart partners with Alquist 3D to build over a dozen retail stores using 3D printing technology, marking the largest commercial adoption of the technology to date 5
RESIDENTIAL REAL ESTATE MARKETS
The residential real estate market is displaying contradictory trends as 2025 draws to a close, with significant regional variations emerging across the country. Housing inventory continues to tighten while buyer demand shows signs of cooling, creating a complex market environment heading into 2026. Cash buyers are increasingly dominating transactions as financing becomes more expensive.
HOUSING MARKET SHOWS MIXED SIGNALS AMID SEASONAL SLOWDOWN
The residential market is experiencing a notable inventory shortage that continues to support pricing despite reduced buyer activity. Key developments include:
- New listings fell 1.7% year-over-year in the four weeks ending December 7, representing the largest decline in more than two years according to Redfin data 4
- Pending home sales dropped 4.1% from the previous year, marking the steepest decline in ten months as buyer engagement continues to weaken 4
- Properties taking longer to sell, with the typical home under contract now requiring 51 days to close, approximately one week longer than in 2024 4
- Median sale prices climbed 2% year-over-year despite reduced demand, demonstrating how tightening inventory continues to support pricing 4
- November sales declined 5.7% year-over-year across tracked markets, a sharp reversal from October’s 2.8% year-over-year gain according to Calculated Risk data 9
CASH BUYERS INCREASINGLY DOMINATE MARKET TRANSACTIONS
Rising interest rates have fundamentally altered buyer composition, with cash purchases becoming increasingly prevalent across all market segments:
- 29% of home buyers paid all cash in October 2025, virtually unchanged from 30% the month prior but up from 27% one year ago according to NAR’s REALTORS® Confidence Index 3
- 57% of vacation home buyers and 56% of investment buyers purchased homes with all cash over the past 10 months, demonstrating the dominance of cash in non-primary residence transactions 3
- 30% of repeat primary residence buyers paid all cash in 2025, a marginal decrease from 2024’s all-time high of 31% but dramatically higher than the 10% recorded in 2003 3
- 8% of first-time buyers made all-cash purchases in 2025, double the 4% rate recorded in 2003, indicating even entry-level buyers are increasingly turning to cash 3
- All-cash buyers tend to be significantly older, with first-time cash buyers having a median age of 58 compared to 38 for financing-dependent first-time buyers 3
REGIONAL MARKET DYNAMICS RESHAPE NATIONAL LANDSCAPE
Geographic variations are becoming increasingly pronounced as buyers seek affordability and sellers remain cautious about market conditions:
- Northeast and Midwest emerging as top 2026 markets due to relative affordability compared to coastal markets, providing buyers refuge from higher housing costs 6
- Limited new construction in affordable regions continues to hamper supply growth and drive prices higher, creating ongoing challenges for first-time buyers 6
- San Francisco market transformation shows notable changes in buyer-seller relationships, indicating shifting dynamics in high-cost coastal areas 6
- Buyers in emerging markets tend to be older and well-qualified, helping them navigate steadying housing market conditions more effectively than younger, first-time buyers 6
INVENTORY CHALLENGES PERSIST DESPITE MARKET ADJUSTMENTS
Housing analyst John Burns suggests the market is gradually moving toward balance, though significant challenges remain:
- New home inventory continues to accumulate as developers push through the construction pipeline, with new homes representing a larger share of total available inventory 10
- New home starts predicted to remain muted through the rest of 2025 and into 2026, as builders adjust to current market conditions 10
- Many potential sellers choosing to remain on the sidelines, waiting for clearer economic signals regarding interest rates, stock market performance, and potential policy changes including tariffs 4
- 60% of all-cash repeat buyers funded purchases with home equity, either from homes they continue to own or from the sale of their previous residence, highlighting the wealth-building power of homeownership 3
MARKET PERFORMANCE AND OUTLOOK
Industry performance metrics show mixed results across different sectors as companies adapt to changing market conditions:
- Affordability concerns still loom over housing market, with 25% of REALTORS® citing it as the most important factor limiting potential clients from making purchases 3
- Commission structure changes affecting agent relationships, with 70% of 2026 buyers still expecting sellers to cover their agent’s commission despite industry shifts 16
- Industry consolidation trends continuing as national firms find it faster and more effective to acquire local expertise rather than build it internally 18
- Geographic expansion strategies focusing on growth markets, with companies targeting regions offering relative affordability and strong demographic trends 18
MORTGAGE MARKETS
The mortgage market is experiencing significant activity driven by the Federal Reserve’s rate cuts, though structural challenges persist. Refinance demand has emerged as the dominant force while purchase activity remains constrained by elevated home prices and limited inventory. The rise in cash buyers reflects the increasing cost of financing.
RATE CUTS DRIVE MORTGAGE MARKET ACTIVITY
The Federal Reserve’s third consecutive rate cut has created favorable conditions for borrowers, though rates remain elevated compared to historical lows:
- 30-year fixed mortgage rates declined to 6.27% as of December 12, according to Bankrate data, representing the most favorable borrowing conditions homebuyers have seen in over a year 2
- 15-year rates reached 5.58% while 10-year rates hit 5.52%, providing attractive options for borrowers seeking shorter loan terms 2
- Refinance rates remain elevated compared to purchase rates, with the average 30-year refinance rate at 6.61% and 15-year refinance rate at 6.00% 2
- Rate-and-term refinances increased 223% year-over-year in November despite slowing from early fall peaks, demonstrating significant pent-up demand 5
- Cash-out refinances showed strong performance with a 29% annual increase as homeowners capitalize on improved rate conditions 5
MORTGAGE LOCK VOLUME REFLECTS MARKET BIFURCATION
Total mortgage activity shows the stark contrast between refinance and purchase demand:
- Total mortgage lock volume decreased 25% in November compared to October but remained 17% higher than November 2024, according to Optimal Blue’s Market Advantage data 5
- Refinances accounted for 35% of all mortgage locks in November, the highest share in years and demonstrating the market’s responsiveness to rate relief 5
- Purchase mortgage locks decreased 22% compared to October and were down 6% year-over-year, as elevated home costs and limited listings continued to weigh on demand 5
- November represented the strongest activity for the month in four years, underscoring the market’s responsiveness to rate relief despite seasonal patterns 5
LENDER EXECUTION STRATEGIES SHIFT AMID MARKET CONDITIONS
Mortgage lenders have significantly adjusted their execution strategies as market conditions evolved:
- Agency cash window sales rose 300 basis points to 25%, interrupting the recent trend toward greater securitization 5
- Agency MBS deliveries declined 100 basis points to 45% after six consecutive months of gains, while bulk aggregator share dropped 300 basis points to 27% 5
- Share of loans sold at highest price tier fell 200 basis points to 79%, while second- and fourth-tier deliveries increased, indicating broader pricing spreads 5
- Mortgage servicing rights for conforming 30-year loans decreased 3 basis points to 1.09%, representing a 4.36 multiple 5
REGULATORY DEVELOPMENTS IN REAL ESTATE
Regulatory discussions are intensifying around key issues including GSE privatization, new mortgage products, and comprehensive housing policy reform. These developments could significantly reshape the mortgage and housing landscape in 2026.
GSE PRIVATIZATION DISCUSSIONS INTENSIFY FOR 2026
The future of Fannie Mae and Freddie Mac remains a critical regulatory question with significant implications for the mortgage industry:
- Industry experts anticipate 2026 as decisive year for determining the government-sponsored enterprises’ path forward, with privatization appearing increasingly likely 7
- Government backing likely to remain in place even after privatization, as removing this support entirely would not align with market preferences or administration objectives 7
- GSEs expected to remain separate competitors rather than consolidating into a single entity, reflecting the administration’s belief in fair market competition 7
- Early consolidation speculation attributed to “DOGE effect” referring to the Department of Government Efficiency’s initial focus on eliminating perceived redundancies 7
50-YEAR MORTGAGE PRODUCTS GAIN REGULATORY MOMENTUM
Extended-term mortgage products are gaining attention as potential solutions to housing affordability challenges:
- 50-year mortgages expected to be added as funding option in 2026, despite ongoing debates about their potential market impact 7
- Proponents argue extended-term loans would provide access to homeownership for borrowers in high-cost markets like California and New York 7
- Critics raise concerns about equity-building challenges, though supporters contend increased access could drive home values higher 7
- Regulatory framework would need to address consumer protection concerns, including clear disclosure of total interest costs and appropriate underwriting standards 7
HOUSING FOR THE 21ST CENTURY ACT INTRODUCED
Bipartisan lawmakers have introduced comprehensive legislation to address housing supply and affordability challenges:
- Spearheaded by House Financial Services Committee leadership including Chairman Rep. French Hill and Ranking Member Rep. Maxine Waters 8
- Designed to modernize federal housing policy and address the shortage of affordable homes in communities nationwide 8
- Key components include expanding housing supply by reducing bureaucratic barriers at federal and local levels 8
- MBA expresses strong support for legislation, citing pro-housing proposals including updated FHA multifamily loan limits and streamlined federal housing programs 8
FEDERAL BANKING REGULATORY UPDATES
The FDIC has announced significant changes to banking regulations affecting mortgage lenders:
- Revisions to Call Reports effective Q1 2026 to align with final capital rule published in Federal Register on December 1, 2025 11
- Changes become effective April 1, 2026 with option for early adoption as of January 1, 2026 11
- FFIEC 041 and FFIEC 051 Call Reports extended for three years without revision, providing stability for smaller institutions 11
- Modifications to enhanced supplementary leverage ratio standards applicable to U.S. global systemically important bank holding companies 11
ECONOMIC NEWS
The Federal Reserve’s December meeting and economic projections signal a more cautious approach to future monetary policy, with implications for real estate and mortgage markets. Economic data reveals a complex landscape of growth, inflation concerns, and evolving consumer sentiment.
FEDERAL RESERVE SIGNALS CAUTIOUS APPROACH TO FUTURE RATE CUTS
The Fed’s December meeting concluded with mixed signals about the future path of monetary policy:
- Fed cut rates 25 basis points bringing the federal funds rate to a range of 3.5% to 3.75%, but “dot plot” forecasts only one additional rate cut in 2026 1
- Fed officials’ median forecasts show expectations for real GDP growth of 2.3% in 2026, substantially higher than the 1.8% pace projected in September 12
- Inflation projections show PCE price index falling to 2.4% in 2026, compared to September forecast of 2.6%, though Powell warned inflation could move higher near-term 13
- Powell emphasized housing challenges require solutions beyond monetary policy, stating “We haven’t built enough housing in the country for a long time” 1
FED OFFICIALS EXPRESS DIVIDED VIEWS ON FUTURE POLICY
Federal Reserve officials revealed continued divisions about appropriate interest rate policy following the December meeting:
- Chicago Fed President Austan Goolsbee dissented from the majority’s vote to cut rates, wanting to see more data first despite believing rates could come down significantly 14
- Philadelphia Fed President Anna Paulson expressed concerns about the job market and predicted inflation would likely fade next year 14
- Paulson attributed most goods inflation increases in 2025 to tariffs and expected bulk of these effects to disappear by middle of next year 14
- Jeffrey Roach of LPL Financial projected Fed wouldn’t move to lower rates again until Q2 2026, writing “Inflation must significantly cool for committee to cut more than two times” 13
LABOR MARKET CONDITIONS AND CONSUMER SENTIMENT
Economic conditions reflect a complex interplay of factors affecting real estate demand:
- Labor markets have softened but not collapsed, with job creation slowing and turnover remaining low, signaling cooling without widespread layoffs 15
- Unemployment ticked up to 4.3% but remains historically low and consistent with a healthy labor market 15
- Nearly all buyers and sellers surveyed (93%) brace for challenges to their financial stability in 2026, citing inflation as their top concern 16
- About 40% worry they won’t be able to afford housing payments in 2026 due to economic climate, leading most to plan changes in spending habits 16
INVESTMENT OUTLOOK AND ECONOMIC PROJECTIONS
The 2026 economic outlook reflects cautious optimism balanced against persistent uncertainties:
- Monetary policy easing and fiscal measures such as tax relief on tips under the One Big Beautiful Bill Act (OBBA) expected to boost disposable income 17
- Lagged effects of prior rate cuts and targeted stimulus programs should begin flowing through the economy in early 2026 17
- Despite economic concerns, 73% still think next year would be good time to buy while 72% believe it would be good time to sell 16
- Just 40% of 2026 buyers and sellers believe U.S. economy heading in right direction, and 55% expect a recession or depression 16
COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)
Commercial real estate markets delivered their strongest quarterly performance in years, with large transaction activity surging and office markets defying widespread pessimism. However, multifamily continues facing oversupply challenges while data centers maintain explosive growth.
LARGE DEAL ACTIVITY SIGNALS MARKET RECOVERY
- Transaction volume jumped 48% quarter-over-quarter in Q3 2025, with large deals over $10M totaling $76.4B and representing nearly 68% of all single-asset investment dollars—the highest concentration since mid-2022 1
- 1,826 single-asset transactions exceeded $10M—a 41% increase from the same period in 2024, signaling renewed investor confidence in premium assets across all property types 1
- Industrial assets showed particular resilience, with deal sizes just 1.7% below their recent peak, while multifamily median deal sizes climbed 14.2% from post-pandemic lows 1
OFFICE MARKET DEFIES PREDICTIONS
- National vacancy rates posted first meaningful improvement since 2020, particularly in Class-A assets, with vacancy in top-tier buildings expected to fall to 8.2% in coming years 3
- Office investment surprisingly jumped 35%, reflecting renewed confidence in high-quality assets, while leasing activity hit 59.8M SF, topping the five-year average 3
- Flight-to-quality trend accelerated, with premium buildings in major markets commanding significant rent premiums over lower-grade properties 3
MULTIFAMILY FACES OVERSUPPLY CHALLENGES
- 92,000 units delivered in Q3 alone with absorption down 73%, creating significant oversupply in key markets and limiting landlords’ pricing power 3
- National vacancy reached 4.4% with rent growth remaining stagnant, especially in Sun Belt markets still digesting new supply backlogs from the construction boom 3
- Dallas, Austin, and Phoenix construction pipelines exceeded 30,000 units each, overwhelming demand and forcing developers to offer concessions to attract tenants 3
DATA CENTER EXPANSION ACCELERATES
- 8 GW of colocation capacity under construction, up 17% year-over-year, driven by AI and cloud computing demand from major tech companies 3
- Virginia maintained leadership position while nontraditional markets including North Dakota, Michigan, and Louisiana entered the scene with new permits and builds 3
- 38% of new data centers expected to use on-site power by 2030, as the sector increasingly turns to renewable energy sources to meet sustainability goals 3
COMMERCIAL FINANCING MARKETS
The Federal Reserve delivered another rate cut but signaled a more cautious approach ahead, while commercial real estate investment volumes rebounded strongly and mortgage rates declined. Bank CRE lending showed more resilience than anticipated despite ongoing challenges.
CRE INVESTMENT VOLUME REBOUNDS STRONGLY
- CRE investment volumes rose 17% year-over-year, outpacing CBRE’s 8% growth forecast, with Q3 transactions totaling $112B driven by private buyers 3
- Senior housing led with 61.5% year-to-date investment growth, while retail and industrial also posted healthy gains as investors sought yield in a lower-rate environment 3
- Strong demand for multifamily and office properties emerged from both domestic and international investors seeking to capitalize on improved market conditions 3
- Commercial mortgage spreads tightened as investor confidence returned, particularly for high-quality assets in prime locations with strong tenant profiles 3
BANK CRE LENDING SHOWS RESILIENCE
- CRE-related bank write-downs more contained than anticipated, with the overall rate of write-downs declining slightly from 2024 despite notable losses including Zions Bancorp’s $50M charge-off 3
- Regional banks aggressively offloaded risky assets, particularly in office and multifamily sectors, with private credit filling the gap left by traditional lenders 3
- Credit standards remained tight but showed signs of gradual easing for high-quality borrowers with strong track records and conservative leverage ratios 3
COMMERCIAL SERVICING MARKETS
CMBS special servicing rates reached a 12-year high driven by office sector distress, while vintage disparities highlighted legacy challenges. The outlook for 2026 remains challenging with significant loan maturities looming.
CMBS SPECIAL SERVICING HITS 12-YEAR HIGH
- Special servicing rate reached 10.86% in November, marking a 12-year high despite a $45M decline in dollar balances to $64.6B, driven by a shrinking CMBS loan universe 2
- CMBS loan universe dropped $1.7B due to loan maturities and paydowns, causing the rate increase despite relatively stable distressed balances 2
- Third consecutive monthly increase signals ongoing stress in the CMBS market, with no immediate relief expected as economic uncertainty persists 2
OFFICE SECTOR DOMINATES DISTRESSED TRANSFERS
- Office properties comprised 43% of new special servicing transfers totaling $2.3B in November, down from October’s $2.5B but still representing the largest share by property type 2
- New York Times Building loan ($515M) transferred ahead of maturity despite being current, while the Starwood Regional Mall Portfolio ($488.7M) was transferred due to imminent default 2
- Office loans maintained highest special servicing rate at 17.16%, followed by retail at 11.57% and mixed-use at 13.37%, reflecting ongoing challenges in these sectors 2
VINTAGE DISPARITY HIGHLIGHTS LEGACY CHALLENGES
VINTAGE DISPARITY HIGHLIGHTS LEGACY CHALLENGES refers to the dramatic difference in distress levels between older CMBS loans (pre-2008 “CMBS 1.0” with 63% special servicing rates) versus newer post-crisis loans (“CMBS 2.0+” with only 10.78% rates), showing that legacy commercial mortgage securities from before the financial crisis are experiencing severe problems while newer loans remain relatively stable.
- CMBS 1.0 rates surged to 63.04%—nearly triple the rate from a year ago (23.37%), underscoring the severe distress in pre-2008 vintage loans 2
- CMBS 2.0+ rates rose modestly to 10.78%, up from 10.74% in October and 9.45% a year ago, showing more stability in post-crisis vintages 2
- Only industrial sector saw increase in special servicing rate to 0.74%, while lodging, multifamily, office, and mixed-use all declined month-over-month 2
INDUSTRY NEWS
The real estate industry is experiencing significant developments across technology adoption and mergers and acquisitions. These changes reflect broader market adaptations and strategic positioning for 2026, with companies focusing on technological innovation and geographic expansion.
TECHNOLOGY AND INNOVATION DEVELOPMENTS
Real estate technology adoption is accelerating across multiple sectors as companies seek competitive advantages:
- Non-QM lenders rapidly embracing new technology platforms to compete more effectively with conventional mortgage lenders like Rocket and UWM 7
- Real estate agents responding to competition with technology, with approximately 86% planning to use AI in some part of their business in 2026, from writing listings to market analysis 16
- Agents facing heightened competition from alternative models and automated platforms, driving increased adoption of artificial intelligence tools to maintain relevance 16
- Technology adoption driven by changing consumer expectations, as 37% of 2026 buyers and sellers said they might list without representation, up from 33% last year 16
MERGERS AND ACQUISITIONS ACTIVITY
The real estate industry continues to see significant M&A activity as companies position for growth and market expansion:
- The Real Brokerage expands in Southern California with addition of Freeman Wang and his team of 50 agents who closed $425 million in sales last year through Harvest Realty 18
- Wang cited speed of team scaling at Real as key factor in decision, stating “This was the best choice for my agents, giving them more tools, more opportunities and more support” 18
- Corcoran Group affiliate acquires Liberty Realty, an independent New Jersey firm operating since 1995 with over 250 real estate professionals in Hudson County 18
- Corcoran Sawyer Smith’s total affiliated agents now tops 500 with the addition of Liberty’s professionals, expanding their presence in residential, commercial and investment property sectors 18
- The Agency opens 150th location with new offices in Santa Fe and Waco, marking significant expansion milestone for the luxury-focused brokerage 18
- Agency Founder and CEO Mauricio Umansky described milestone as “an incredibly exciting moment for our team,” with the new Waco office representing the brokerage’s seventh location in Texas 18
WALMART PIONEERS 3D PRINTING IN COMMERCIAL CONSTRUCTION
- Walmart partnered with Alquist 3D to construct more than a dozen new stores using 3D printing technology, marking the largest commercial adoption of the technology to date 5
- Partnership includes materials giant Sika, which will supply materials for all future 3D-printed projects, helping reduce freight and material costs while supporting sustainable construction at scale 5
- Second build completed in just seven days—a 5,000 SF pickup center in Huntsville, Alabama—proving the model’s scalability after successful 8,000 SF expansion in Athens, Tennessee 5
WALMART PIONEERS 3D PRINTING IN COMMERCIAL CONSTRUCTION
- Walmart partnered with Alquist 3D to construct more than a dozen new stores using 3D printing technology, marking the largest commercial adoption of the technology to date 5
- Partnership includes materials giant Sika, which will supply materials for all future 3D-printed projects, helping reduce freight and material costs while supporting sustainable construction at scale 5
- Second build completed in just seven days—a 5,000 SF pickup center in Huntsville, Alabama—proving the model’s scalability after successful 8,000 SF expansion in Athens, Tennessee 5