Key Market Indicators

• Mortgage Rates: The average 30-year fixed rate has reached 6.97%, up 3 basis points from last week 1
• Inflation: January saw inflation accelerate to a six-month high, showing little progress from a year ago 2
• Foreclosure Filings: January 2025 saw an 8% month-over-month increase, totaling 30,816 properties 3
• Multifamily Projections: The multifamily sector shows resilience in 2025, supported by strong demographic trends 4
• Office Market: The office sector presents a nuanced picture, with a clear divergence between high-end and older properties 5
• Retail Sector: The retail landscape is undergoing significant transformation 6 7

Residential Real Estate: Adapting to Change

The residential real estate market is experiencing significant shifts in 2025, driven by regulatory changes, demographic trends, and market pressures.

NAR Rule Impact: Despite new transparency requirements, the National Association of Realtors’ rule changes have had limited disruption to traditional commission structures 8

• While paperwork and commission discussions have become more transparent, the fundamental business model remains largely unchanged.
• Real estate professionals report that the anticipated upheaval in commission structures has not materialized as expected.

Generational Shift: The market is witnessing a significant demographic transformation 3

• Gen Z and Millennial mortgage holders expected to reach 52% by 2028, up from 40% in 2024
• This shift underscores the strong desire for homeownership among younger generations, despite current market challenges.
• Real estate professionals are adapting their approaches to meet the unique needs and preferences of these younger buyers.

Housing Market Predictions for 2025: The National Association of Realtors (NAR) has released its forecast for the coming year, highlighting several key trends 9

• Home prices are projected to rise by 3.7% throughout 2025, driven by a combination of slightly lower mortgage rates and an 11.7% increase in existing for-sale inventory.
• The spring to early summer period is expected to be particularly favorable for home listings, with increased buyer activity anticipated.
• Experts predict that the downward pressure on price growth due to higher mortgage rates will be offset by strong demand and limited supply in many markets.
• Regional variations are expected to persist, with some markets experiencing more significant price appreciation than others.

Mortgage Market Dynamics

The mortgage market in 2025 is showing signs of resilience despite ongoing challenges.

Current Mortgage Rates: As of February 18, 2025 1

• 30-year fixed rate: 6.97%
• 15-year fixed rate: 6.31%
• 5/1 ARM rate: 5.89% These rates continue to fluctuate in response to economic indicators and Federal Reserve policies.

Delinquency Rates: The mortgage delinquency landscape shows signs of stability 10

• Overall delinquency rate: 3.62% of all loans outstanding
• Serious delinquency rate (90 days or more past due): 1.85%
• Foreclosure inventory rate: 0.57% While these rates have seen a slight uptick from the previous quarter, they remain below historical averages, indicating relative stability in the mortgage market.

Private Mortgage Insurance: The sector has shown a strong rebound 11

• Volume up 5% in 2024 compared to 2023
• Total new insurance written: $298.9 billion in 2024
• Q4 2024 saw 33% year-over-year increase in new insurance written This growth suggests that despite challenges, homebuyers are finding ways to enter the market, often with the assistance of mortgage insurance.

GSE Updates: Fannie Mae has announced significant changes to its DUS Gateway system for Q1 2025 12

• New data requirements and validations aim to enhance accuracy and compliance.
• These updates reflect ongoing efforts to improve processes and adapt to evolving market needs.

Commercial Real Estate: Sector-Specific Trends

The commercial real estate market in 2025 presents a complex landscape with varying trends across different sectors.

Multifamily

• Urban Rent Growth: Major urban centers are experiencing rising rents 13

• Manhattan’s median rent reached $4,350 in January 2025, up 5% year-over-year This trend reflects the ongoing demand for urban living, despite previous pandemic-related shifts.
• Originations forecast: $330-375 billion in 2025
• Rent growth expectations: 2-2.5% range
• Vacancy rate projections: 6-6.25% These projections indicate a robust appetite for apartment investments and a relatively stable occupancy environment.

• Demographic Support: The sector benefits from favorable demographic trends 4

• Continued growth in prime renter-aged population expected over the next decade This trend provides long-term support for multifamily construction and investment.

Office Space

• Regional Disparities: The office market recovery is uneven across different regions 14

• Charlotte office vacancy rate: 22.2% in Q4 2024
• Houston: 28.7% vacancy for 1980s buildings vs. 5% for post-2010 buildings This data highlights the preference for newer, more modern office spaces and the challenges faced by older properties.
• Manhattan availability rate: 17.9% in Q4 2024, lowest since 2020
• Class-A office space: 38.9% of leased space in Manhattan This data suggests a stronger recovery for premium office spaces, particularly in prime locations.

• Construction Challenges: New office development is being limited by economic factors 5

• High construction costs and interest rates are constraining new projects
• This may exacerbate the supply-demand imbalance for high-quality spaces in prime locations

Retail Real Estate

• Store Closures: The retail sector faces significant headwinds 15

• Major retailers (JCPenney, Macy’s, Joann) announcing sweeping closures for 2025
• This trend is attributed to the ongoing economic impacts of the COVID-19 pandemic and the continued growth of e-commerce
• Expected store closures to inject over 140 million sq ft back into the market
• 30% of mall anchor redevelopments now incorporate residential units These trends reflect the ongoing challenges in traditional retail and the shift towards mixed-use developments.

• Mixed-Use Trend: Retail spaces are increasingly being repurposed 7

• 54% of mixed-use redevelopments include housing components
• This shift is attracting younger consumers and creating new, vibrant community hubs

Economic & Policy Landscape

The real estate market in 2025 is being shaped by broader economic factors and policy changes.

Climate Change Impact: Environmental risks are becoming a significant consideration 3

• Fed Chair Powell warns some coastal and fire-prone areas may become uninsurable within 10-15 years
• This assessment highlights the growing intersection between climate change and real estate markets, potentially leading to shifts in property valuations and investment strategies.

Tax Policy: Changes in tax policy are emerging as a major concern for the industry 16

• Identified as the third greatest macro concern for CRE leaders in 2025, up from 14th position in the previous year
• This shift underscores the potential impact of tax changes on investment decisions and market dynamics.

Closing

In conclusion, the real estate market in 2025 presents a complex landscape of challenges and opportunities. Success in this environment will hinge on the ability to adapt to changing consumer behaviors, leverage technological advancements, and navigate economic shifts. Those who can blend traditional real estate acumen with forward-thinking strategies will be best positioned to thrive in this dynamic and evolving market.

Thanks for reading,

Tim