Daily Dose of Real Estate for August 15

Fed doves had all of about 48 hours to celebrate softening CPI data before getting cracked with a strong PPI number. Long term rates largely took the inflation news on the chin. Student loans reach record levels – so do student loan delinquencies (our pipeline of future homebuyers). HELOC origination story starts with 81% of homeowners having a mortgage rate below 6%. Work from home era continues to be eroded with 70% of companies tracking in office attendance (punch in for me). 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. Work Smarter. Be More Succesful.

KEY TAKEAWAYS

• Producer prices surge 0.9% in July – largest monthly increase since March 2022, with annual inflation accelerating to 3.3%, signaling potential pressure on construction costs and housing affordability 1
• Mortgage delinquencies improve to 3.93% – down 11 basis points from Q1 2025, though serious delinquencies (90+ days) increased across all loan types 2
• Housing inventory growth decelerates – active listings up 24.8% year-over-year in July, marking 21st consecutive month of gains but slowing from June’s 28.9% increase 3
• School district premiums intensify – homes in top-rated school districts command significant price premiums, adding complexity to affordability challenges 4
• Student loan balances reach record levels – creating additional financial pressure on potential homebuyers and constraining housing affordability for younger demographics 5
• Rate lock-in effect persists – more than 81% of homeowners locked into sub-6% mortgage rates, constraining housing supply as homeowners resist selling 6
• MBS markets show resilience – mortgage-backed securities maintain stability despite broader market volatility as investors seek yield opportunities 7
• 72% of companies now successfully meet office attendance targets, up from 61% last year according to CBRE’s 2025 survey 1
• Companies actively tracking attendance jumped to 69% from 45%, while enforcement rules more than doubled to 37% from 17% 1
• Apartment construction hits another cycle low with just 542,800 units under construction by end of Q2 2025, lowest level since 2015 4

RESIDENTIAL REAL ESTATE MARKETS

Housing inventory continues recovering but shows signs of deceleration, while price pressures mount from multiple directions including school district premiums and construction cost inflation.

INVENTORY TRENDS

• Active listings up 24.8% year-over-year in July 2025, marking 21st consecutive month of gains but decelerating from June’s 28.9% increase 3
• New listings rose 7.3% year-over-year according to Realtor.com, with market now boasting over 1.1 million homes for sale nationwide 3
• Total active listings remain 13.4% below typical 2017-2019 levels – slightly wider gap than last month’s 12.9% shortfall 3

PRICING PRESSURES

• 2024 sales were lowest since 1995 with current year trends showing sales down slightly compared to last year’s already depressed levels 3
• School district premiums create localized pricing dynamics with homes in top-rated districts commanding significant premiums and creating bidding wars in coveted areas 4
• Regional variations pronounced with Dallas experiencing “glut of inventory” while other metros maintain tighter supply conditions, particularly in highly-rated school districts 3

SUPPLY CONSTRAINTS

• 81% of homeowners locked into sub-6% mortgage rates creating powerful disincentive to sell as they would face significantly higher borrowing costs on next purchase 6
• Rate lock-in effect artificially constrains existing home supply forcing buyers to compete for limited inventory that does come to market 6

MORTGAGE MARKETS

Mortgage markets show surface-level stability with improving delinquency rates, though underlying trends and MBS market dynamics reveal growing complexity amid economic uncertainty.

DELINQUENCY TRENDS

• Overall delinquency rate declined to 3.93% seasonally adjusted in Q2 2025, down 11 basis points from Q1 and 4 basis points year-over-year 2
• Serious delinquencies (90+ days) increased across all loan types with seriously delinquent rate rising 14 basis points year-over-year to 1.57% non-seasonally adjusted 2
• Current rate remains well below historic average of 5.21% dating back to 1979 2

PRODUCT PERFORMANCE

• Conventional loans outperform with seasonally adjusted delinquency rate decreasing 10 basis points to 2.60% over previous quarter 2
• FHA loans showed 5 basis point decrease to 10.57% while VA loans experienced dramatic 31 basis point improvement to 4.32% 2
• Geographic variations notable with Mississippi, North Dakota, Ohio, Michigan, and West Virginia experiencing largest quarterly increases in delinquency rates 2

MBS MARKET DYNAMICS

• Mortgage-backed securities demonstrate resilience in today’s trading session with investors continuing to seek yield opportunities despite broader market volatility 7
• Trading influenced by Fed policy expectations with market participants closely monitoring economic indicators for signals about future monetary policy direction 7

FORECLOSURE ACTIVITY

• Foreclosure process rate at 0.48% at end of Q2 2025, down 1 basis point from Q1 but 5 basis points higher than one year ago 2
• New foreclosure actions declined with percentage of loans on which foreclosure actions started falling 3 basis points to 0.17% 2

ECONOMIC & POLITICAL NEWS

Economic indicators present mixed signals with surging producer price inflation raising concerns about construction costs, while student debt burdens continue constraining housing demand among younger demographics.

INFLATION SURGE

• Producer prices jumped 0.9% in July – largest monthly increase since March 2022, with annual inflation accelerating to 3.3%, highest since February 2025 1
• Core producer prices advanced 0.6% in July, largest increase since March 2022, rising 2.8% year-over-year and suggesting persistent price pressures 1
• Construction-related costs surging with fresh/dry vegetables up 38.9% and diesel fuel up 11.8% in July alone, likely translating to higher construction costs 1

COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)

EMPLOYEE BACK-TO-OFFICE ATTENDANCE SURGES ACROSS U.S.

• 72% of companies now successfully meet office attendance targets, up from 61% last year according to CBRE’s 2025 survey 1
• Companies actively tracking attendance jumped to 69% from 45%, while enforcement rules more than doubled to 37% from 17% 1
• Gap remains between desired and actual attendance: Companies want 3.2 days per week onsite, employees average 2.9 days 1
• 67% of firms plan to maintain or grow office space over next three years, up from 64% last year 1

MAJOR OFFICE SALE REFLECTS MARKET DISTRESS

• Pasadena Towers sold for $120 million, a 53% discount from its 2016 price of $256 million to Harbor Associates and Roxborough Group 2
• Price per square foot dropped to $252 from $537 in 2016 for the 477,101-square-foot Class A complex 2
• Greater LA office vacancy ticked up to 24.4% with finance, legal, and healthcare leading leasing as tech demand lags 2

COWORKING MARKET SHOWS STRATEGIC CONSOLIDATION

• Total coworking locations declined 1% to 7,742 in Q2 2025, marking first post-COVID contraction 3
• Average space size increased 2% to 18,245 square feet as operators pivot to fewer, larger locations 3
• Manhattan led consolidation with 5% location reduction to 267 sites while increasing average size 1% to 40,859 square feet 3
• Secondary markets drove growth: Long Island (+11%), Birmingham (+10%), West Palm Beach-Boca Raton (+9%) 3

MULTIFAMILY CONSTRUCTION SLOWDOWN

Apartment construction activity has plummeted to decade lows as developers face continued headwinds from high interest rates and construction costs.

APARTMENT CONSTRUCTION HITS DECADE LOW

• Just 542,800 units under construction by end of Q2 2025, lowest level since 2015 4
• 37% year-over-year decrease from peak of 1.1 million units in Q1 2023 4
• Major markets experiencing sharp declines: Austin, Phoenix, Atlanta, Dallas, and New York 4
• Some growth markets emerging: Cincinnati, Richmond, and West Palm Beach showing increases 4

REGULATORY AND POLICY UPDATES

Federal oversight agencies face leadership turmoil while state-level tax reforms provide relief for commercial tenants.

FEDERAL APPRAISAL BOARD APPOINTS THIRD DIRECTOR IN ONE MONTH

• Frederick Griefer named acting executive director effective August 10, third person in position within one month 6
• Agency has lost 30% of staff and been without permanent leadership for over seven months 6
• Senators demand response by August 29 regarding staffing cuts, missed meetings, and fraud litigation concerns 6
• Bipartisan concern over “chaos” that risks undermining real estate markets 6

FLORIDA ELIMINATES 55-YEAR COMMERCIAL RENT TAX

• 2% tax on commercial lease rents eliminated starting October 1, 2025 7
• $24,000 annual savings for tenant paying $100,000 monthly rent 7
• Part of $2.2 billion tax relief package to boost Florida’s business competitiveness 7
• $19 billion in securitized loans affected with Miami metro representing $10.3 billion, over half in retail 7