The CRE market prefers that you use the term “stressed” rather than “distressed” when describing the market. Thanks for your attention to this matter 🙂 GSE Merger and IPO rumors pick up with an end of 2025 timeline being thrown around (I’m taking the under). Reminder that the success of the housing market is usually a proxy for the overall economy, and real estate has got some real problems. Didn’t take much of a drop in rates to cause refinances to pop off. Rental markets continue to cool – good for renters but not for real estate. Multifamily is all over the place with defaults on developments, supply constraints, record absorption levels, and zero to negative rent growth…go figure. I smell a rate cut in September. Let’s get you caught up and out the door in 3 minutes.
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KEY TAKEAWAYS
The real estate market continues to show mixed signals with cooling rental growth, declining single-family permits, and mounting pressure for Federal Reserve rate cuts creating a complex landscape for industry participants.
- Rental market cooling accelerates: National rent growth slowed to 2.6% year-over-year in July, down from 2.9% in June, with seven major metros experiencing flat or declining rents as increased supply gives renters more bargaining power 1.
- Single-family permits continue six-month decline: Single-family housing permits fell 5.6% year-over-year through June 2025, while multifamily permits gained 2.9%, highlighting the divergent paths between housing segments 2.
- Real estate remains economic weak link: Circle Squared Investments founder Jeff Sica warned on FOX Business that “until real estate is improved, we’re not going to be able to celebrate any victory in this economy” 3.
- MBA opposes GSE merger: The Mortgage Bankers Association formally opposed the proposed Freddie Mac-Fannie Mae merger, citing concerns about reduced competition and increased systemic risk 4.
- Fed rate cut odds climb to 85%: Markets are pricing in an 85% likelihood of a quarter-point rate cut at the September Fed meeting, with Jerome Powell’s Jackson Hole speech Friday providing crucial policy signals 5.
- Mortgage originations surge on refinance activity: TransUnion reported a 5.1% year-over-year increase in mortgage originations in Q1, driven by a 44% jump in rate-and-term refinances despite rising delinquencies 6.
- Consumer sentiment deteriorates: The Michigan Consumer Sentiment Index fell to 58.6% in August as newly-enacted tariffs raised inflation concerns among consumers 7.
- Multifamily delinquencies surge amid construction collapse: Apartment CMBS loans drove CRE delinquencies up 24 basis points to 6.15% in July, while apartment construction hit a decade low of just 542,800 units under construction—down 37% year-over-year from the 2023 peak 2 3
- Record multifamily demand meets supply constraints: Q2 2025 saw record-setting apartment absorption of 188,200 units despite robust supply growth, yet rent growth remained below 1% for the second straight quarter—an unusual disconnect given historically tight fundamentals 4
RESIDENTIAL REAL ESTATE MARKETS
The residential housing market is experiencing its most sluggish summer pace in a decade while construction permits show a clear divergence between single-family weakness and multifamily resilience.
SUMMER SALES HIT DECADE LOW
- Market timing extends significantly: Homes that went under contract in July had a median market time of 43 days, the longest for July since 2015, as buyer demand weakens under elevated costs and economic uncertainty 8.
- Pending sales reach two-year low: Buyer caution has intensified with pending sales hitting their lowest level in two years, while home prices continue rising 1.4% year-over-year despite reduced demand.
- Active listings decline sharply: Inventory experienced its largest monthly decrease since 2023 as potential sellers remain on the sidelines rather than risk losses in current market conditions.
CONSTRUCTION PERMITS SHOW DIVERGENT TRENDS
- Single-family permits decline for sixth consecutive month: Through June 2025, single-family permits totaled 485,935 nationwide, down 5.6% from 514,728 in June 2024, highlighting persistently weak housing demand tied to affordability challenges 2.
- Multifamily permits show resilience: Multifamily permits reached 244,812 through June, up 2.9% from 237,935 in the prior year, suggesting potential stabilization despite volatility in this segment.
- Regional variations significant: Only the Midwest posted single-family permit growth (+1.8%), while the West declined 8.1%, South fell 6.5%, and Northeast dropped 1.7%. For multifamily, three regions showed growth with Midwest leading at +22.4%.
- Texas leads but declines: Texas issued the most single-family permits (78,104) but saw an 8.0% decline, while Florida, the second-highest state, decreased 10.6%.
NEW HOME APPLICATIONS SURGE DESPITE BUILDER PESSIMISM
- Purchase applications hit three-month high: New home purchase applications surged 7% in July, attributed to slightly lower mortgage rates and higher inventory levels from homebuilders 9.
- Builder confidence remains deeply negative: The NAHB Housing Market Index held at 32 in August, marking 16 consecutive months in negative territory, with 37% of builders reporting price cuts 10.
RENTAL MARKETS
Rental market dynamics are shifting dramatically as increased supply and economic uncertainty create the most tenant-favorable conditions in years.
RENT GROWTH COOLS TO MULTI-YEAR LOWS
- National rent growth slows to 2.6%: July rent growth decelerated from 2.9% in June, with typical asking rents now at $2,072, up just 0.1% monthly compared to the pre-pandemic average of 0.4% for this time of year 1.
- Seven major metros see flat or declining rents: Phoenix, San Antonio, Denver, and Austin experienced year-over-year rent declines, while Dallas, Las Vegas, and Orlando showed annual growth below 0.5%.
- Multifamily cooling outpaces single-family: Multifamily rents increased just 2.1% annually versus 3.4% for single-family rentals, with multifamily monthly growth slowing to 0.09% from 0.25% in June.
SUPPLY SURGE GIVES RENTERS BARGAINING POWER
- Rental vacancy rates climb: Non-seasonally adjusted rental vacancy rate reached 7.0% in June, up 0.4 percentage points from last year and above the pre-pandemic average of 6.6%.
- Record concessions offered: 36% of rentals listed on Zillow offered concessions in July, the highest level on record for July and nearly triple the July 2019 level.
- Multifamily completions expected to peak: Zillow expects multifamily completions to peak this year, with increased supply in both rental and for-sale markets giving consumers more options.
AFFORDABILITY REMAINS CHALLENGING
- Income burden stays elevated: The typical new renter spends 29.9% of household income on rent, compared to the pre-pandemic average of 28.1%.
- Income requirements surge: The income needed to comfortably afford rent is now $82,873, up 34.8% since the pandemic from $61,472.
- Regional affordability varies widely: Austin offers the most affordable rents at 19.7% of median income, while New York remains least affordable at 42.4%.
MORTGAGE MARKETS
The mortgage sector demonstrates surprising resilience through refinance activity while facing headwinds from rising delinquencies and industry consolidation pressures.
REFINANCE ACTIVITY DRIVES ORIGINATION GROWTH
- Originations increase 5.1% year-over-year: TransUnion reported mortgage originations grew despite challenging conditions, primarily driven by a 44% surge in rate-and-term refinances and 15% increase in cash-out refinances 6.
- Home equity market shows strength: Home equity originations rose 12%, particularly among Generation X and Baby Boomers leveraging accumulated equity from pandemic-era price appreciation.
- Delinquencies approach pre-pandemic levels: First mortgage delinquencies 60+ days past due increased to 1.27% in Q2, with FHA loans accounting for 35% of these delinquencies.
FEDERAL AGENCY OPPOSITION TO GSE MERGER
- MBA delivers strong rebuke: The Mortgage Bankers Association opposed Freddie Mac-Fannie Mae merger proposals, arguing consolidation would undermine competition and increase systemic risk 4.
- Competition concerns paramount: Key concerns include reduced competition leading to higher homebuyer costs, increased systemic risk from concentrating functions, and operational difficulties managing massive consolidation.
- Economist warnings echo 2008: Mike Fratantoni emphasized careful management of GSE restructuring to avoid repeating mistakes that led to the financial crisis 11.
INDUSTRY CONSOLIDATION CONTINUES
- Bank of Glen Burnie acquires VA Wholesale: The Maryland-based depository acquired the veteran-owned company specializing in military family lending, which closed $125 million in 2024 volume 12.
- Broader consolidation pattern: Recent similar deals include Anniemac’s acquisitions of Florida Funding and Home Solution Lenders, plus Great Lakes Credit Union’s purchase of Fit Mortgage.
ECONOMIC & POLITICAL NEWS
Federal Reserve policy expectations dominate market sentiment as political pressure mounts and consumer confidence deteriorates amid inflation concerns.
JACKSON HOLE SYMPOSIUM SETS STAGE FOR RATE SIGNALS
- 85% odds of September rate cut: Markets are pricing in a quarter-point rate cut at the September Fed meeting, making Jerome Powell’s Friday Jackson Hole speech crucial for setting policy expectations 5.
- Mixed economic signals complicate policy: Recent inflation data has been inconsistent, with consumer prices meeting expectations but wholesale inflation exceeding forecasts in the latest producer price index.
- Labor market shows cooling: The US added fewer jobs than expected in July with significant downward revisions to May and June employment gains totaling 258,000 jobs, strengthening the case for monetary easing.
CONSUMER SENTIMENT DETERIORATES
- Michigan index falls to 58.6%: Consumer sentiment declined for the first time in four months, surprising economists who expected continued improvement 7.
- Tariff-driven inflation concerns: Newly-enacted tariffs raised both short-term and long-term inflation expectations, creating a disconnect between consumer perception and hard economic data like retail sales.
- Self-fulfilling prophecy risk: When consumers expect higher prices, they may accelerate purchases or demand higher wages, potentially creating the inflationary pressures they fear.
POLITICAL PRESSURE ON FEDERAL RESERVE INTENSIFIES
- Trump calls for aggressive rate cuts: President Trump has intensified pressure on the Federal Reserve for aggressive interest rate cuts to stimulate growth and reduce mortgage rates 13.
- Fed maintains cautious approach: Central bankers express willingness to wait and assess tariff impacts before making policy adjustments, maintaining rates at 4.25% to 4.5%.
- Independence versus pressure: The tension between political pressure and Fed independence is expected to be a key theme in Powell’s Jackson Hole speech.
INDUSTRY NEWS
Major acquisitions and market shifts are reshaping the real estate landscape as companies adapt to changing economic conditions and technological advances.
MAJOR HOSPITALITY ACQUISITION
- MCR Hotels takes Soho House private: The $2.7 billion deal backed by Apollo Global Management represents one of 2025’s largest hospitality acquisitions, with MCR’s CEO becoming vice chairman and Ashton Kutcher joining the board 14.
- Strategic positioning: The acquisition positions MCR to blend iconic real estate with branded lifestyle hospitality, potentially creating synergies between Soho House’s membership model and MCR’s operational expertise.
COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)
Commercial real estate sectors are diverging dramatically, with retail emerging as an unexpected leader while multifamily faces unprecedented construction declines.
RETAIL SECTOR RESILIENCE
- Fastest rent growth: Retail leads all CRE sectors at 2.0% rent growth and maintains the lowest vacancy rate despite weakening demand over the past year 5
- Positive absorption: General retail was the only segment with positive absorption in Q2 2025, while neighborhood centers and malls posted significant losses but offset vacancy impact through strategic inventory cuts 5
- Class performance: General retail maintains 2.6% vacancy (lowest), while neighborhood centers and power centers lead rent growth at 2.7% and 2.6% respectively 5
MULTIFAMILY CONSTRUCTION COLLAPSE
- Decade-low construction: Just 542,800 units under construction by Q2 2025—lowest since Q3 2015 and 37% year-over-year decrease from 1.1 million unit peak in Q1 2023 3
- Major market declines: Austin, Phoenix, Atlanta, Dallas, and New York experiencing steepest drops, with some cities seeing construction activity drop by more than 60% 3
- Market shift implications: Supply constraints could significantly shift power toward landlords, potentially driving future rent growth as supply fails to meet demand 3
OFFICE SECTOR STRUGGLES CONTINUE
- Declining absorption: Office absorption declined again in Q2 after nearly turning positive in Q1, with vacancy rate reaching 14.1% and rent growth slowing to 0.6% 5
- Class distinctions: Class A offices posted positive 12-month absorption but saw vacancy climb to 20.5%, while Class B space continued shedding tenants with 12.0% vacancy 5
- Adaptive reuse emergence: Industry experts increasingly view adaptive reuse as viable solution for transforming underperforming office assets into mixed-use developments or residential units 6
INDUSTRIAL SECTOR COOLING
- Demand decline: 39% year-over-year drop in net absorption to decade-low 79.7 million square feet, with new completions outpacing demand by 4 to 1 5
- Vacancy and rent impact: Vacancy pushed up to 7.4% while rent growth slowed to 1.7%, falling behind retail as fastest-growing CRE sector 5
MULTIFAMILY DEBT MARKETS
- Strong origination momentum: Multifamily debt origination gained strong momentum in H1 2025, outpacing recent years due to improved market confidence, tighter loan spreads, and construction slowdown 4
- Lender mix shift: While GSEs continue leading market share, their dominance slightly declined as alternative lenders like debt funds, insurance companies, and CMBS/CRE CLOs fill gap from bank pullback 4
- Record demand paradox: Apartment demand surged to record levels w/ annual absorption at highest on record, yet rent growth remained < 1% for second straight quarter despite historically tight conditions 4
- Regional performance: Mid-Atlantic, Northeast, and Midwest led in occupancy and rent growth, while many Sun Belt cities posted flat or declining rents (except Miami and Tampa) 4
- Rent vs. buy gap: Renting remains significantly more cost-effective than homeownership, with cost gap continuing to widen well beyond historical norms 4
CRE SERVICING: MULTIFAMILY DRIVES DELINQUENCY INCREASES
Commercial real estate servicing shows concentrated stress in multifamily while overall mortgage performance improves. Lenders are taking harder stances on troubled apartment properties as market conditions tighten.
MULTIFAMILY DELINQUENCY SURGE
- Sector-specific stress: Multifamily was the only major CRE sector to post increases in both delinquency and servicing rates in July, marking concerning trend for previously resilient apartment sector 2
- CMBS loan impact: CRE delinquencies rose 10 basis points to 7.23% in July, driven by 24-basis-point jump for apartment CMBS loans to 6.15%, up from 2.63% a year ago 2
- Special servicing rates: Multifamily special servicing rate jumped 19 basis points to 8.37% compared to 5.11% one year ago, while overall CRE rate decreased 9 basis points to 10.48% 2
LENDER STANCE HARDENING
- Serious conversations: CBRE’s Kyle Draeger notes lenders telling borrowers: “Maybe you’ve exercised two or three extensions, and the debt funds or banks are saying, ‘You’ve done enough. Let’s see if you can sell or refinance at this point'” 2
- Equity injection capability: Despite scrutiny, “a fair amount of borrowers put cash in as they’ve refinanced their loans” with equity markets funding additional equity to transition from bridge to permanent loans 2
- Stressed vs. distressed: Industry characterizes current situations as “stressed” rather than “distressed” properties, indicating manageable but challenging conditions 2
