Trump puts government agencies (even the Independent ones) on notice that they will be held accountable. Budget negotiations remain deadlocked potentially slowing major parts of the Trump agenda. Pace of homes sales faces headwinds but prices remain stable…for now. Happy Hump Day. Tim

As always, this newsletter and associated analysis was generated by our AI platform ALFReD. See what we can do for your business. Know Better. Work Smarter. Be More Successful. Tim

Key Takeaways

• Consumer Price Index rose 0.5% in January, with annual inflation at 3.0% 1
• Home prices nationwide increased 3.4% year-over-year in December 2024 2
• Existing home sales projected to reach 4.10 million SAAR in January, down from 4.24 million in December 3
• Mortgage rates remain elevated, likely between 6% and 7% throughout 2025 4
• Manhattan office leasing shows recovery: 3.6 million square feet leased in January, up 24% from December 5
• House Republicans propose $130 billion in spending cuts, focusing on non-defense discretionary spending 3
• • Democrats resist deep cuts to social programs and environmental initiatives 4
• • President Trump signs Executive Order on Ensuring Accountability for All Agencies 5

Residential Real Estate Markets: Navigating Challenges

• Existing home sales projected to reach 4.10 million SAAR in January, down from December’s 4.24 million 3
• Home prices nationwide increased 3.4% year-over-year in December 2024 2
• CoreLogic HPI Forecast indicates home prices will increase by 4.1% from December 2024 to December 2025 2
• Affordability and limited inventory continue to challenge the market
• Sun Belt cities and southeastern markets anticipated to see higher demand and growth 6

The housing market continues to face headwinds as we move through 2025. The decline in existing home sales reflects the ongoing challenges of affordability and limited inventory. However, home prices show resilience, with CoreLogic reporting a 3.4% year-over-year increase in December 2024. The forecast for continued appreciation suggests underlying strength in the market despite these challenges.

Mortgage Markets: Rates Remain Elevated, Originations Shift

• Mortgage rates likely to remain between 6% and 7% throughout 2025 4
• Total mortgage originations decreased by 15% year-over-year in Q4 2024 7
• Purchase originations increased by 5% year-over-year 7
• National mortgage delinquency rate at 2.8% in December 2024 7
• HELOC originations up 25% year-over-year 7
• Adjustable-rate mortgages (ARMs) account for 12% of new originations, up from 8% a year ago 7
• First-time homebuyers account for 28% of purchase originations, down from 33% 7
• 15% of new purchase loans include some form of temporary rate reduction 7

The mortgage market in early 2025 reflects the broader economic environment of elevated interest rates and persistent inflation. While overall origination volumes have decreased, the purchase market shows resilience, and alternative products like HELOCs are gaining traction. The low delinquency rates suggest that despite economic headwinds, most homeowners are managing to stay current on their mortgages. However, the declining share of first-time homebuyers highlights the ongoing affordability challenges in the market.

Economic & Political News: Inflation Concerns and Policy Impacts

Consumer Price Index rose 0.5% in January, with annual inflation at 3.0%, maintaining pressure on the Federal Reserve’s monetary policy 1

Budget negotiations remain at an impasse as the March 1 deadline approaches:

• House Republicans propose $130 billion in spending cuts, primarily targeting non-defense discretionary spending 2
• Democrats resist deep cuts to social programs and environmental initiatives 3
• Potential government shutdown looms if agreement isn’t reached, which could impact various housing and urban development programs

President Trump signs Executive Order on Ensuring Accountability for All Agencies, aiming to streamline regulatory processes 4

• Order mandates comprehensive review of agency regulations
• Emphasizes cost-benefit analysis for new and existing rules
• Sets targets for reducing regulatory burden across federal agencies

Potential impacts of the Executive Order on the mortgage industry include:

• Simplified compliance procedures for originators and servicers, potentially lowering operational costs
• Increased scrutiny on effectiveness of existing regulations, possibly leading to revisions
• Potential rollback of certain Dodd-Frank era rules, which could significantly alter the regulatory landscape
• Period of regulatory uncertainty as agencies review and revise their rules and enforcement practices 5

The interplay between budget negotiations, regulatory changes, and broader economic trends continues to shape the real estate and mortgage markets. The outcome of budget talks could affect government spending on housing-related programs, while the new Executive Order signals a shift towards deregulation that may benefit the mortgage industry but also introduce uncertainty.

Commercial Real Estate: Signs of Recovery and Expansion

• Jane Street Group expands office space at Brookfield Place to nearly 1 million square feet 5
• Manhattan office leasing: 3.6 million square feet leased in January, up 24% from December 5
• Average asking rent for Manhattan office space in January: $73 per square foot, 8% below March 2020 rates 5
• Cold storage facility in Miami changes hands, highlighting continued interest in industrial properties 9
• Industrial and retail sectors projected for stability and growth in 2025 10

The commercial real estate sector is showing signs of recovery and adaptation. Jane Street Group’s significant expansion in Manhattan signals confidence in prime office locations. The broader Manhattan office leasing market is also recovering, though average asking rents remain below pre-pandemic levels. In the industrial sector, the sale of a cold storage facility in Miami highlights ongoing demand for specialized logistics assets. JPMorgan Chase’s insights suggest stability and growth for industrial and retail sectors in 2025, supported by evolving e-commerce needs and the resurgence of in-person shopping experiences.

Closing

As we progress through 2025, the real estate market continues to navigate a complex landscape of economic, political, and demographic factors. While challenges persist, particularly in terms of affordability and inventory, there are also opportunities emerging in various sectors and regions. Real estate professionals should stay attuned to local market dynamics, policy developments, and economic indicators to guide their strategies effectively.