Daily Dose of Real Estate for August 1

Freddie Mac increases credit reserves and cuts home price forecast by two-thirds. Mortgage rates hold and application rates drop. Mortgage delinquencies drift higher. And, naturally, we also hit a new record high in median home prices! 8M households are doubling up (multigenerational housing) for economic reasons. Student Housing Rents Rise 23% since 2020. Strong GDP and jobs reports – strong enough to keep rates where they were. Let’s get you caught up and out the door in 3 minutes. Tim

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Table of Contents

KEY TAKEAWAYS

Home prices hit record high despite sales slump: The median existing home price reached $435,300 in June, an all-time high, even as sales dropped 2.7% month-over-month to a nine-month low 1
Federal Reserve holds rates steady with notable dissent: The Fed maintained the federal funds rate at 4.25-4.5%, but two members voted for a quarter-point cut, signaling growing pressure for easing 2
Mortgage applications fall to two-month low: The MBA reported a 3.8% decrease in mortgage applications for the week ending July 25, with 30-year rates holding at 6.83% 3
Freddie Mac slashes home price growth forecast: The GSE dramatically cut its 12-month home price appreciation forecast from 4.2% to just 1.3%, citing modeled price declines and increased credit reserves 4
Housing inventory surges while price growth stalls: Active inventory climbed 23.7% year-over-year for the 90th consecutive week, while median list prices posted their first week without growth (0%) since May 5
Compass reports record-breaking quarter: The nation’s largest brokerage posted 21.1% revenue growth to $2.06 billion and nearly doubled net income, adding over 3,800 agents in Q2 6
Property tax escrow crisis looms: Over 60% of property tax bills come due in the second half of 2025, with Q4 collections reaching $318.7 billion compared to just $146.7 billion in Q2, creating operational strain for mortgage servicers 7
Industry Confidence Rebounds – CREFC Sentiment Index surged 27.8% to 112.3 in Q2 from 87.9 in Q1, returning to positive territory and reflecting growing optimism among CRE finance leaders 2
DC Multifamily Sales Explode – Investment volume jumped 950% to $646.1M in Q2 vs. $61.6M in Q1, driven by major institutional deals including PSP’s $266M Incanto purchase and JRK’s $186M West End 25 acquisition 3

RESIDENTIAL REAL ESTATE MARKETS

Overview: The housing market shows a clear paradox with record-high prices occurring alongside declining sales and rising inventory. Regional markets are diverging significantly, while demographic challenges emerge for older adults facing dual housing and healthcare costs.

PRICING & SALES TRENDS

Record median home price: Existing homes hit $435,300 in June, an all-time high despite 2.7% monthly sales decline to nine-month low 1
“Haves and have-nots” market: Cash buyers comprised 29% of transactions in June, with luxury homes above $1 million seeing 14% year-over-year sales growth 1
New vs. existing home pricing: New home median price of $401,800 is nearly $40,000 less than existing homes, with 38% of builders offering price incentives 1

INVENTORY & MARKET DYNAMICS

Inventory surge continues: Active listings up 23.7% year-over-year for 90th consecutive week, with over 1.1 million homes for sale—highest since November 2019 5
Extended time on market: Properties taking seven days longer to sell compared to last year, forcing sellers to choose between price cuts or delisting 5
Price growth stalls: Median list prices posted 0% growth for first time since May, signaling potential market cooling 5

REGIONAL MARKET VARIATIONS

Price declines spreading: 14 out of 50 major metros experienced median home price declines, with Oakland leading drops 8
D.C. metro supply surge: Housing supply rose 23% in June due to federal job cuts and employee buyouts prompting relocations 9

DEMOGRAPHIC CHALLENGES

Older adult housing crisis: Harvard research reveals growing “dual burden” of housing and care costs affecting older adults on fixed incomes 10
Doubling up increases: An estimated 8.1 million families now share housing arrangements due to affordability constraints 7

MORTGAGE MARKETS

Overview: Mortgage activity continues declining despite stable rates, while servicers face operational challenges from concentrated property tax payment schedules. GSEs are tightening credit standards and dramatically reducing growth forecasts.

APPLICATION & RATE TRENDS

Applications hit two-month low: MBA reports 3.8% decrease in applications for week ending July 25, reaching lowest level since May 3
Purchase activity declines: Purchase applications down 6% week-over-week across conventional, FHA, and VA loan categories 3
Rate environment: 30-year fixed at 6.83%, jumbo at 6.74%, FHA at 6.56%; ARM share increased to 8.3% of applications 3
Refinance activity: Share increased to 40.7% of applications but volumes declined for third consecutive week 3

PROPERTY TAX ESCROW CRISIS

Seasonal payment concentration: Over 60% of property tax bills due in second half of year, with Q4 collections at $318.7 billion vs. Q2’s $146.7 billion 7
Operational challenges: Servicers face “perfect storm” from October-December with assessment fluctuations, data inaccuracy, and staffing limitations 7

GSE POLICY CHANGES

Freddie Mac credit tightening: Provision for credit losses increased to $783 million from $394 million year-ago due to price decline models 4
Dramatic forecast cut: Home price growth forecast slashed from 4.2% to 1.3% over next 12 months—nearly 70% reduction 4
Credit loss reserves: Single-family allowance rose to $7.5 billion (23 basis points), up from 21 basis points at year-end 2024 4

LENDING QUALITY METRICS

Strong credit standards: Freddie Mac loans averaged 759 credit score and 77% loan-to-value ratio 4
First-time buyer focus: 53% of purchase loans went to first-time buyers, representing ~100,000 households 4
Delinquency trends: SDQ rate at 0.55%, up from 0.50% year-ago but down from 0.59% in Q1 4

ECONOMIC & POLITICAL NEWS

Overview: The Federal Reserve maintained rates despite internal pressure for cuts, while labor market data shows continued cooling. Economic growth has moderated with persistent inflation concerns affecting monetary policy decisions.

FEDERAL RESERVE POLICY

Rates held steady: FOMC maintained federal funds rate at 4.25-4.5% with notable dissent from two voting members favoring 0.25% cut 2
Economic assessment: Fed noted “growth of economic activity moderated in the first half of the year” while unemployment “remains low” 2
Policy outlook: Committee remains “attentive to risks to both sides of its dual mandate” with decisions remaining “data-dependent” 2
Inflation concerns: Fed stated “inflation remains somewhat elevated” despite recent moderation trends 2

LABOR MARKET INDICATORS

Job openings stable: JOLTS data shows 7.8 million job openings (4.6% rate) with little change from previous month 11
Hiring activity: Both hires and separations relatively unchanged at 5.5 million and 5.2 millionrespectively 11
Worker confidence: Quits rate held at 2.1% with 3.3 million voluntary separations, indicating stable worker confidence 11
Layoff stability: Layoffs steady at 1.6 million (1.0% rate), suggesting employers maintaining workforce stability 11

SECTOR-SPECIFIC TRENDS

Service sector growth: Accommodation and food services saw largest job opening increase (+314,000) 11
Government contraction: Federal gov openings decreased by 39,000, reflecting ongoing fiscal constraints 11

COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)

Market Overview: CRE markets showed mixed signals with the Fed holding rates steady while industry sentiment surged back to positive territory. Multifamily markets demonstrated strong fundamentals, particularly in DC and student housing, while distressed debt sales signal banks are finally addressing problem loans.
Fed Holds Rates at 4.25%-4.5% – July meeting maintained current rates with two dissenting votes (first since 1993), but September rate cut optimism builds as CRE awaits relief from elevated financing costs 1
Industry Confidence Rebounds – CREFC Sentiment Index surged 27.8% to 112.3 in Q2 from 87.9 in Q1, returning to positive territory and reflecting growing optimism among CRE finance leaders 2
DC Multifamily Sales Explode – Investment volume jumped 950% to $646.1M in Q2 vs. $61.6M in Q1, driven by major institutional deals including PSP’s $266M Incanto purchase and JRK’s $186M West End 25 acquisition 3
DC Market Fundamentals Strengthen – Net absorption rose to 6,380 units in Q2 (vs. 4,300 in Q1), rents increased 1% to $2,262 average, and occupancy climbed 40 bps to 96.2% 3
Student Housing Shows Momentum – Preleasing at Yardi 200 universities reached 85.3% in June (up 160 bps YoY), with 50 schools above 90% preleased and 10 universities completely full 4
Student Housing Rents Rise – Average rent per bed hit $909 in June (up 1.3% YoY), with 23% growth since January 2020 despite enrollment challenges from federal funding cuts 4
Student Housing Transactions Active – 50 assets changed hands YTD with average price per bed jumping to nearly $94,000 from $73,500 average (2020-2024) 4
“Extend-and-Pretend” Era Ends – Banks finally addressing problem loans as property values reset, with private credit funds buying discounted debt and expanding share of $11.9T global CRE debt market 5
Private Debt Funds Surge – Number of funds grew from 100 in 2011 to 1,000+ by Q3 2023, holding ~$500B AUM (projected $746B by 2030) as $384B in loan maturities come due this year 5

CRE FINANCING

Financing Overview: CRE lending is experiencing a dramatic rebound in 2025 with explosive growth across CLOs, CMBS, and agency lending. Banks are returning to the market while alternative lenders lose market share, signaling a shift back to traditional financing sources.

CRE CLO Issuance Explodes – Expected to grow 274% year-over-year to $32.5B in 2025, driving the broader lending rebound across commercial real estate sectors 6
CMBS and Single-Borrower Growth – CMBS conduit issuance up 6.4% to $35B, while single-borrower loan volumes projected to rise 28% to $90B in 2025 6
Agency Lending Surges – Both Freddie Mac and Fannie Mae expected to reach $65B each(up nearly 19% from 2024), offering most affordable financing at ~5.7% rates vs. 6.63% CMBS and 7.62% CRE CLOs 6
Banks Return to CRE Lending – Financial institutions now account for 34% of Q1 2025 loan closings (up from 22% a year earlier) as confidence returns to traditional lenders 5
Alternative Lenders Lose Share – Alt lender market share fell to just 19% in early 2025 from nearly half of all originations in 2024 as banks reclaim market position 5

CRE SERVICING

Servicing Overview: Sustainable finance continues gaining momentum with major C-PACE fund closings, as institutional demand grows for ESG-aligned CRE investments that offer stable returns while supporting environmental objectives.
Nuveen Closes $785M C-PACE Fund – Third C-PACE lending fund brings firm’s strategy to over $6B in assets under management, financing energy efficiency, water conservation, and resiliency projects in commercial real estate 7
C-PACE Becomes Preferred Option – Offering better terms than mezzanine debt or equity while supporting ESG goals and providing stable, tax-secured returns to investors as sustainable finance reshapes CRE lending 7

INDUSTRY NEWS

Overview: Major brokerages reported strong earnings despite market challenges, with significant M&A activity and technology disruption reshaping the competitive landscape. New business models continue gaining market share from traditional firms.

BROKERAGE PERFORMANCE

Compass record quarter: Revenue surged 21.1% to $2.06 billion with net income nearly doubling to $39.4 million 6
Agent growth: Compass reached 20,965 principal agents (+23.3% year-over-year) with highest organic recruiting quarter ever 6
Transaction volume: Closed 73,025 transactions in Q2, up 20.9% from 60,390 deals in Q2 2024 6

STRATEGIC DEVELOPMENTS

M&A pipeline expansion: Compass CEO reports M&A pipeline “larger than it has ever been” with new executive VP of M&A appointed in May 6
Platform disputes: Compass intensified public disputes with Zillow and MLSs, including ongoing Northwest MLS lawsuit filed in April 6