Daily Dose of Real Estate

Daily Dose of Real Estate for February 19

The Trump administration has affordability on its mind in this election year. As the midterm cycle approaches, the White House remains focused on cost-of-living pressures — particularly housing affordability, inflation, and wage growth — as voters continue to signal that prices feel persistently elevated. Expect President Trump to center his State of the Union on housing costs and healthcare affordability.

Fed officials remain stuck in neutral on rate cuts as they await additional inflation data — CPI came in at 2.4% today. Refinances are spiking in response to the lowest mortgage rates in three years.

Commercial real estate markets are undergoing a fundamental shift as lenders abandon “extend and pretend” strategies, pushing office CMBS delinquencies to a record 12.34%. Meanwhile, multifamily markets are flipping from landlord-friendly to renter-friendly conditions, with only 6 of the top 50 apartment metros maintaining sub-5% vacancy rates. Manhattan’s trophy office market faces severe supply constraints, with just 3.7% availability, forcing major tenants to secure leases up to five years early at rents exceeding $200 per square foot — highlighting the stark divergence between premium and distressed commercial real estate assets.

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.

Table of Contents

KEY TAKEAWAYS

Fed Minutes Signal Cautious Approach: FOMC minutes from January 27-28 meeting released, showing officials held rates steady at 3.5%-3.75% range with some members advocating for indefinite hold due to inflation concerns 1
Mortgage Applications Rise 2.8%: Weekly MBA data shows applications increased driven by 7% jump in refinance activity as 30-year rates dropped to 6.17%, marking strongest refinance week since mid-January 2 3
Rental Market Turns Renter-Friendly: National rental vacancy rate reached 7.6% in 2025, up from 7.2% in 2024, with median rent declining 1.5% year-over-year to $1,672 for 29th consecutive month of declines 4
Builder Credit Costs Hit 2022 Lows: Construction and development loan rates fell across all categories in Q4 2025, with effective rates dropping to lowest levels since 2022 despite continued credit tightening 5
Refinance Activity Surges 132% Year-Over-Year: Applications to refinance jumped dramatically compared to same week in 2025 when rates were 76 basis points higher 6
Housing Market Shows Mixed Regional Signals: California home sales hit lowest level since May 2025 with 23-month price low, while Miami market shows gradual recovery with 1.2% increase in transactions 7 8
Federal Housing Officials Outline 2026 Priorities: FHA, VA, and Ginnie Mae leaders detailed policy focus on streamlined lending processes, loan-level shifts, and partial claims programs at MBA Servicing Solutions Conference 9
Fed Official Hints at Multiple Rate Cuts: Chicago Fed President Austan Goolsbee suggests “several more rate cuts” possible in 2026 if inflation returns to 2% target, with 3% policy rate as loose neutral target 10
Lender enforcement surge Office CMBS delinquencies hit record 12.34% as lenders abandon “extend and pretend” strategies, forcing borrowers to confront structural market reset 1
Multifamily market shift Only 6 of top 50 apartment metros remain landlord-friendly as national median asking rents fall 1.5% year-over-year to $1,672 2
Manhattan office shortage Trophy properties hit 3.7% availability, forcing large tenants to secure 100K+ SF leases up to 5 years early, fueling $200+ PSF rents 3
Insurance company pivot US insurers face $17B in office loan maturities across 904 loans, shifting capital allocation from office (25% to 18%) toward multifamily and industrial 4
Retail distress continues Palisades Center megamall sells for $175M post-foreclosure, less than half its $418.5M mortgage value, highlighting ongoing mall valuation pressure 5
REIT sector recovery Data centers power publicly traded REIT comeback after bruising 2025, with infrastructure supporting AI boom driving renewed investor attention 6

RESIDENTIAL REAL ESTATE MARKETS

The housing market continues its seasonal reset with mixed regional performance and improving rental conditions. National data shows typical January patterns with declining sales but rising inventory, while regional markets like California struggle with affordability challenges and Miami shows signs of gradual recovery. The rental market has shifted decisively in favor of tenants.

NATIONAL HOUSING RESET CONTINUES

Home sales fell 32% from December and 6% year-over-year in January 2026, following typical seasonal patterns as winter weather and holiday effects reduced buyer activity 11
New listings surged 61.8% month-over-month as spring selling season approaches, with sellers beginning to test market conditions ahead of traditional peak season 11
Inventory remained flat from December but increased 10.9% year-over-year, marking the 25th consecutive month of annual gains as supply conditions continue improving 11
Median sales price slipped 2% to $425,000 but remained 1% above January 2025 levels, showing resilience despite affordability challenges 11
Days on market averaged 62, up from 61 in December and 56 a year earlier, representing one of the highest readings of the past four Januaries 11

RENTAL MARKET SHIFTS TO RENTER-FRIENDLY CONDITIONS

National rental vacancy rate reached 7.6% in 2025, up from 7.2% in 2024, indicating a clear shift to renter-friendly market conditions nationwide 4
Median rent declined 1.5% year-over-year to $1,672 in January 2026, marking the 29th consecutive month of annual rent declines as supply increases outpaced demand 4
All unit sizes experienced rent declines with studios down 1.2%, one-bedrooms down 1.4%, and two-bedrooms down 1.7% year-over-year 4
Among the top 50 metros, 22 are now renter-friendly, 22 are balanced, and only six favor landlords, representing a significant shift in market dynamics 4
Sun Belt markets lead renter-friendly conditions with Birmingham, AL posting 14.3% vacancy rate and Austin, TX at 13.8% as pandemic-era migration patterns normalize 4

CALIFORNIA MARKET STRUGGLES WITH AFFORDABILITY

Existing single-family home sales totaled 256,550 on seasonally adjusted basis, representing the lowest level since May 2025 as high prices and rates constrain activity 7
Sales declined 10.8% from December and 1.3% from January 2025, reflecting both seasonal factors and ongoing affordability pressures 7
Statewide median home price fell to $823,180, down 3.2% from December and representing a 23-month low as buyer resistance to high prices increases 7
Market pullback attributed to “heightened policy uncertainty and geopolitical tensions” that contributed to mortgage rate volatility early in the year 7

MIAMI SHOWS RECOVERY SIGNS

Total residential transactions rose 1.2% year-over-year to 1,869 closings, extending the market’s gradual recovery from previous downturns 8
Single-family sales climbed 2.8%, marking the fifth consecutive month of annual gains as this segment shows stronger momentum than condominiums 8
Condominium activity remained effectively flat year-over-year, reflecting ongoing challenges in the high-rise segment amid insurance and assessment concerns 8
Active residential listings totaled 17,942 at month-end, up 5.6% annually but still roughly 25% below pre-pandemic 2019 levels 8

REGIONAL RENTAL MARKET VARIATIONS

Milwaukee experienced the most notable shift, with vacancy rising from 4.9% to 10.8%, moving from landlord-friendly to renter-friendly conditions 4
Seven markets shifted from renter-friendly to balanced conditions, including Pittsburgh, PA and Richmond, VA, as local supply-demand dynamics evolved 4
Landlord-friendly markets remain concentrated in high-cost areas including Boston (3.2% vacancy), San Jose (3.5%), and New York (4.6%) where demand continues to outstrip supply 4
Portland, OR shifted from balanced to renter-friendly as vacancy rose from 5.7% to 7.4%, reflecting increased apartment completions in the metro area 4

MORTGAGE MARKETS

Mortgage markets showed renewed activity as rates declined to monthly lows, sparking the strongest refinance demand since mid-January. Purchase applications remained muted despite rate relief, reflecting ongoing affordability challenges. Builder financing costs reached their lowest levels since 2022.

APPLICATIONS REBOUND ON RATE RELIEF

Total mortgage applications increased 2.8% on seasonally adjusted basis for the week ending February 13, driven primarily by refinancing activity 2
Market Composite Index rose 5% on unadjusted basis, reflecting both seasonal factors and rate-driven demand improvements 2
Refinancing activity jumped 7% week-over-week and surged 132% compared to the same week in 2025 when rates were significantly higher 2
Refinances accounted for 57.4% of total applications, up from 56.4% the prior week, marking the strongest refinance week since mid-January 2

MORTGAGE RATES HIT MONTHLY LOW

Average 30-year fixed-rate mortgage decreased to 6.17% from 6.21%, representing the lowest rates in four weeks and providing relief to borrowers 6
Points remained unchanged at 0.56 for loans with 20% down payment, indicating stable pricing conditions from lenders 6
Rates closely tracked Freddie Mac’s national average of 6.09% for the week ending February 12, showing consistency across rate reporting sources 6
Rate decline contributed to the strongest refinancing week since mid-January as borrowers rushed to capitalize on improved conditions 6

BUILDER CREDIT COSTS REACH 2022 LOWS

Construction and development loan rates declined across all categories in Q4 2025, providing relief to builders facing tight margins 5
Land acquisition loan rates fell from 7.95% to 7.61%, while land development rates dropped from 7.68% to 7.44% during the quarter 5
Speculative single-family construction rates dropped from 7.89% to 7.47%, improving economics for spec building activity 5
Pre-sold single-family construction rates declined from 7.90% to 7.16%, offering the most favorable terms for builders with contracted sales 5
Effective interest rates including points reached their lowest levels since 2022 across all loan types despite continued credit tightening 5

PURCHASE DEMAND REMAINS MUTED

Seasonally adjusted purchase index decreased 3% from the previous week, reflecting ongoing affordability challenges despite rate improvements 12
Unadjusted purchase applications increased 3% and were 8% higher than a year ago, showing some underlying strength when seasonal factors are removed 12
VA purchase applications bucked the overall trend with a 4% increase week-over-week, benefiting from the program’s competitive terms 12
ARM applications rose to a seven-week high as buyers sought to manage monthly payments through adjustable-rate products 12

GOVERNMENT LOAN MARKET SHARE

FHA share remained unchanged at 18.4% of total applications, maintaining its steady presence in the market 2
VA share increased to 16.5% from 16.0% the previous week, reflecting strong demand for veterans’ benefits programs 2
USDA share remained flat at 0.4%, consistent with the program’s niche role in rural markets 2
ARM marketshare increased to 8.2% of total applications as borrowers sought payment flexibility 2

CONSTRUCTION-TO-PERMANENT FINANCING TRENDS

35% of single-family builders used construction-to-permanent loans in Q4 2025, providing streamlined financing for homebuyers 5
On average, 59% of homes built by these respondents were financed through one-time-close loans, reducing complexity for buyers 5
Credit conditions continued tightening for the 16th consecutive quarter despite rate improvements, as lenders maintain strict underwriting standards 5

REGULATORY & POLICY DEVELOPMENTS

Federal agencies released key policy updates and meeting minutes, while housing officials outlined 2026 priorities focused on affordability and operational efficiency. The Fed signaled potential regulatory changes to strengthen banks’ role in mortgage markets, while local governments continue implementing vacant property ordinances.

FED MINUTES REVEAL CAUTIOUS STANCE

FOMC held the federal funds rate steady in the 3.5%-3.75% range at the January 27-28 meeting, maintaining current monetary policy stance 1
Some officials considered language suggesting “upward adjustments” to the target range could be appropriate if inflation remains at above-target levels 1
At least two new voting regional presidents, Lorie Logan of Dallas and Beth Hammack of Cleveland, have publicly stated the Fed should remain on hold indefinitely 1
Minutes showed continuing concerns about inflation threats despite recent progress toward the 2% target 1

FEDERAL HOUSING AGENCY PRIORITIES OUTLINED

FHA, VA, and Ginnie Mae leaders detailed their 2026 policy focus at the MBA Servicing Solutions Conference, emphasizing affordability and efficiency 9
Priorities include streamlined FHA lending processes designed to reduce origination timelines and operational complexity for lenders 9
Ginnie Mae announced a loan-level shift initiative aimed at enhancing secondary market operations and improving liquidity 9
VA introduced a new partial claims program designed to assist struggling borrowers and reduce foreclosure rates 9

FED SIGNALS BANK MORTGAGE ROLE ENHANCEMENT

Fed Vice Chair Michelle Bowman identified the concerning trend of mortgage market activity shifting from banks to nonbank firms over the past decade 13
Banks’ mortgage origination share declined dramatically from roughly 60% in 2008 to about 35% by 2023, raising systemic risk concerns 13
Bank servicing share dropped from 95% to roughly 45% over the same period, concentrating risk in less-regulated nonbank entities 13
Fed signaled willingness to consider regulatory changes to recalibrate capital rules that currently influence bank incentives to participate in mortgage markets 13

VACANT PROPERTY ORDINANCES CONTINUE EXPANSION

Local governments nationwide are implementing increasingly stiff fees on mortgage companies responsible for maintaining vacant properties during foreclosure processes 14
Registration fees range from $35 to $500, with annual maintenance fees sometimes exceeding $700 and daily penalties reaching up to $1,000 14
California allows $1,000-per-day fines on financial institutions that fail to properly maintain vacant properties under their control 14
Chula Vista, CA requires mortgage companies to register and maintain vacant homes even before formal foreclosure proceedings begin 14
More than 60 local ordinances now track foreclosed properties nationwide, creating significant compliance challenges for the mortgage servicing industry 14

FHFA AUDIT FINDINGS RELEASED

FHFA Office of Inspector General released audit report AUD-2026-001 examining the agency’s controls over legal service payments 15
The agency paid approximately $15.5 million for contracted legal services from April 2024 through March 2025, requiring robust oversight controls 15
Controls were generally effective but did not ensure compliance with all contractual requirements, particularly regarding billing documentation 15
Audit identified specific areas for improvement in oversight procedures and compliance monitoring to strengthen financial controls 15

ECONOMIC NEWS

Economic indicators showed mixed signals with declining Treasury yields supporting mortgage rate relief, while Fed officials provided varying outlooks on future rate cuts. Inflation data showed continued improvement but remained above target levels.

FED OFFICIAL SUGGESTS MULTIPLE CUTS POSSIBLE

Chicago Fed President Austan Goolsbee indicated “several more rate cuts” could happen in 2026 if economic conditions support such moves 10
Rate cuts would be contingent on inflation returning to the Fed’s 2% target, with a 3% policy rate described as a “loose target” for neutral 10
Goolsbee’s comments would imply two or three additional quarter-point cuts if inflation data cooperated with Fed objectives 10
The Chicago Fed president emphasized the need for concrete evidence that inflation is headed back to 2% before rates can continue declining 10

TREASURY YIELDS DECLINE ON MIXED DATA

Treasury yields ended the week lower as weaker-than-expected data on retail sales and home sales outweighed better job market readings 6
The yield decline contributed directly to mortgage rate improvements and helped revive refinancing activity across the market 6
Markets are showing increased sensitivity to economic data releases as investors attempt to assess future Fed policy direction 6

INFLATION TRENDS SHOW IMPROVEMENT

Consumer Price Index data for January showed the annual inflation rate improved to 2.4%, down from 2.7% growth in December 16
Shelter-driven inflation was up 0.2% during the month and 3% for the year, remaining a key component of overall price pressures 16

RATE CUT EXPECTATIONS SHIFT

Only 10% of interest rate traders expect a rate cut after the March 18 FOMC meeting, down from roughly 21% a month earlier 16
Market odds increase for later meetings, with 25% expecting a 25-basis-point cut in late April and 50% by mid-June 16
Market expectations reflect a more cautious approach to Fed policy given persistent inflation concerns and mixed economic signals 16
The economic growth outlook is described as “good, but not great” with a 2.2% GDP growth rate below the long-term average of 3.0% 17

COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)

The commercial real estate landscape continues its dramatic transformation, with multifamily markets experiencing a fundamental power shift toward renters while Manhattan office markets face severe supply constraints. Regional variations are becoming more pronounced as Sun Belt markets struggle with oversupply while coastal trophy assets command premium pricing.

MULTIFAMILY POWER SHIFT ACCELERATES: Only 6 of top 50 apartment metros maintain landlord-friendly conditions with sub-5% vacancy rates, while 22 metros report renter-friendly conditions above 7% vacancy 2

Sun Belt markets including Dallas-Fort Worth, Houston, and Austin post double-digit vacancy rates with year-over-year rent declines, reversing investor darling status 2
National median asking rents declined 1.5% year-over-year to $1,672 as oversupply creates tenant negotiating power and concession opportunities 2

MANHATTAN OFFICE SUPPLY CRUNCH INTENSIFIES • Trophy office availability plummeted to 3.7% with 43.8% of NYC leases covering 100K+ SF as large tenants dominate constrained market 3

Bloomberg expanded 498K SF at 120 Park Ave, Guggenheim renewed 360K SF at 330 Madison years ahead of expiration to secure prime space 3
Major rents exceed $200 PSF as developers launch new projects betting on sustained demand from quality-seeking corporate tenants 3

SOUTH FLORIDA TRANSACTION ACTIVITY • Princeton Grove apartment complex sold for $39.5M, representing 40% discount from 2021 price of $51M for 216-unit Miami-Dade property 6

Coconut Grove office at 3480 Main Highway traded for $61M at $1,100 PSF, setting submarket record despite broader office struggles 6

COMMERCIAL FINANCING MARKETS

The commercial real estate financing landscape is undergoing a seismic shift as lenders abandon their “extend and pretend” strategies, triggering widespread defaults particularly in office properties. Insurance companies are simultaneously reallocating capital away from office toward multifamily and industrial assets, while CLO markets maintain steady activity.

LENDER ENFORCEMENT WAVE BEGINS • CRE lenders pulling plug on distressed loans after years of extensions, with $25B past maturity and half of $100B due unlikely to refinance 1

Refinancing costs run 300+ basis points higher than existing ultra-low rates, creating payment shock borrowers cannot bridge with current income 1
Regional banks entering “peak distress” holding 36% of $5T US CRE debt while major banks avoided exposure through conservative underwriting 1

INSURANCE COMPANY CAPITAL REALLOCATION • US life insurers reduced office exposure from 25% to 18% of commercial allocations, redeploying toward multifamily and industrial loans 4

Most insurer office debt at 3.8% rates faces refinancing at 7% averages, creating significant payment shock for borrowers 4
Conservative LTV underwriting expected to limit severe losses, with damage concentrated in weaker assets and struggling markets 4

CLO MARKET ACTIVITY • Fitch rated Barings CLO $500M refinancing and Sculptor CLO $400M portfolio, both featuring ‘B+’/’B’ average credit quality 7

CLO activity demonstrates functional structured credit markets despite CRE volatility, providing alternative financing and investment opportunities 7

COMMERCIAL SERVICING & DISTRESS

Commercial real estate distress is reaching critical levels, with office properties leading delinquency rates to historic highs while retail foreclosures continue to demonstrate severe valuation declines. The shift from loan extensions to enforcement is accelerating across all property types.

OFFICE DELINQUENCIES HIT RECORDS • Office CMBS delinquencies reached 12.34% in January, highest since 2000, as lenders shift from extensions to enforcement 1

Peak distress expected through 2026 as refinancing wall approaches and properties viable at 3% rates become unsustainable at 7% 1
Special servicing transfers accelerating as borrowers exhaust extensions and face equity contribution or property surrender decisions 1

RETAIL MALL FORECLOSURE ACTIVITY • Palisades Center sold for $175M post-foreclosure, down from $881M 2016 valuation and below $463M list price to Black Diamond Capital 5

New owner plans significant tenant mix and property upgrades, betting discounted acquisition provides repositioning cushion 5
Mall foreclosures increasing as owners face declining income and high capex requirements, creating distressed investor opportunities 5

INDUSTRY NEWS

Industry leaders presented conflicting forecasts on home price trends while builder confidence remained subdued. Residential mortgage REITs showed strong 2025 performance but momentum has cooled in early 2026. Local governments continue expanding vacant property regulations affecting mortgage servicers.

HOME PRICE FORECASTS DIVERGE

Economists at the International Builders Show presented conflicting views on 2026 home price trends, reflecting uncertainty about market direction 18
Realtor.com Chief Economist Danielle Hale reiterated her forecast for modest price increases throughout 2026 based on supply-demand fundamentals 18
Asking prices were roughly flat in January compared to a year earlier while sales prices ticked slightly higher, supporting Hale’s optimistic outlook 18
Other economists predict home prices will fall in 2026, which would mark the first annual decline since 2020 and signal a significant market shift 18

BUILDER CONFIDENCE REMAINS LOW

NAHB/Wells Fargo Housing Market Index showed builder confidence at 36 in February, down one point from January and remaining in negative territory 17
The February reading was down six points year-over-year, indicating builders remain pessimistic about near-term market conditions 17
36% of builders cut prices in February, down from 40% in January, suggesting some stabilization in pricing pressure 17
The average price reduction stayed relatively unchanged at 6%, while 65% of builders continued using sales incentives to attract buyers 17

REIT PERFORMANCE UPDATE

Residential mortgage REITs delivered a banner 2025 with total returns surging 16% after the Federal Reserve implemented three rate cuts 19
Momentum has cooled significantly in 2026 as initial excitement over lower borrowing costs has waned among investors 19
Total returns for the residential mortgage REIT sector are climbing just over 4% year-to-date in 2026, well below 2025’s pace 19
Performance reflects broader market uncertainty about the future interest rate path and evolving economic conditions 19

HOUSING STARTS FORECAST

NAHB Chief Economist Robert Dietz forecasts housing starts will inch up just 1% in 2026, reflecting cautious optimism about market recovery 17
Stronger 5% growth is expected in 2027 as mortgage rates are anticipated to track downward, improving affordability conditions 17
The forecast reflects measured expectations about housing market recovery tied to anticipated improvements in financing conditions 17
Growth expectations are directly tied to anticipated improvement in affordability conditions as rates and prices stabilize 17

VACANT PROPERTY COMPLIANCE CHALLENGES GROW

Mortgage companies face an increasing compliance burden from expanding local vacant property ordinances across the United States 14
Cities are implementing aggressive programs to recover property maintenance costs through tax liens and civil judgments against servicers 14
Cincinnati collected $192,000 in vacant property fees in 2026 compared to $265,000 in all of 2007, showing the growing financial impact 14
Providence enacted a “vacant property penalty” equal to 10% of assessed property value for properties deemed blighted by city officials 14
The mortgage industry is now tracking more than 60 local ordinances dealing with foreclosed properties nationwide, creating complex compliance requirements 14