Daily Dose of Real Estate

Daily Dose of Real Estate for December 12

The Federal Reserve delivered its third consecutive rate cut on December 11th, bringing the target range to 3.5%–3.75%, though mortgage rates stubbornly remained north of 6%. Home prices turned negative for the first time in more than two years, led by markets like Austin, where values are down roughly 10%, while new listings posted their sharpest decline since 2023. Michael Burry warned that the Fed’s need to maintain more than $3 trillion in bank reserves signals systemic fragility rather than resilience, even as refinance activity surged 88% year over year as borrowers rushed to capture modest rate improvements. The housing market may be setting the stage for a 2026 recovery, but persistent regional disparities and ongoing regulatory rollbacks in commercial real estate lending have professionals increasingly focused on risk management amid policy uncertainty.

SpaceX and Blue Origin are reportedly exploring data centers in space—apparently having exhausted all manageable real estate options on Earth—while construction firms closer to home are abandoning projects at a 41% monthly pace as tariffs push costs into the stratasphere. Foreign investors continue to funnel roughly $7 billion into New York City multifamily assets – global capital still prefers U.S. real estate. Regulatory rollbacks are rolling at a record pace, as federal agencies figure out that over-regulating was getting in the way of a good old-fashioned lending cycle. 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.

Table of Contents

KEY TAKEAWAYS

Federal Reserve delivers third consecutive rate cut to 3.5%-3.75% range, but mortgage rates remain stubbornly above 6% as 10-year Treasury yields show minimal movement 1
New home listings post sharpest decline in two years, falling 1.7% year-over-year as sellers retreat amid economic uncertainty and seasonal slowdown 2
Home prices turn negative for first time in over two years, with national prices down less than 1% while markets like Austin (-10%) and Denver (-5%) see significant declines 3
Michael Burry warns Fed’s Treasury buying plan reveals banking system fragility, stating that requiring $3+ trillion in reserves shows weakness rather than strength 4
Refinance rates average 6.45% for 30-year loans, with refinance activity surging 88% year-over-year as borrowers capitalize on modest rate improvements 5
Unemployment claims jump to 236,000 for the week ending December 6, representing a significant 44,000 increase from the previous week’s revised level 6
Foreign Investment Surge: NYC multifamily attracted $7B in foreign investment through Q3 2025, with international buyers capturing 31% of successful bids 1
Office Recovery: Lower Manhattan office leasing doubled to 4M SF in 2025, the highest level in over a decade, driven by residential conversions tightening supply 2
Construction Crisis: Project abandonments surged 41% month-over-month in November, with tariff pressures driving the highest stress indicator since July 3
Space Race Heats Up: SpaceX and Blue Origin are developing orbital data centers to handle AI computing loads, joining Google, Nvidia, and others in the space-based infrastructure race 4
Regulatory Rollback: Federal regulators repealed 2013 leveraged lending guidance, raising concerns about increased risk exposure in commercial real estate markets 5

RESIDENTIAL REAL ESTATE MARKETS

The residential real estate market experienced significant supply constraints and the first negative price growth in over two years, with regional variations creating a complex landscape of winners and losers across metropolitan areas.

HOUSING SUPPLY TIGHTENS AS SELLERS RETREAT

New listings fell 1.7% year-over-year during the four weeks ending December 7, marking the biggest decline in new inventory since early 2023 2
Pending home sales dropped 4.1% from a year ago, representing the largest decline in 10 months and reflecting weakened buyer demand across most markets 2
Typical home takes 51 days to go under contract, roughly a week longer than the same period last year, indicating softening demand conditions 2
Active listings grew by just 4.6%, representing the smallest increase since January 2024, while months of supply reached 4.6 months 2

HISTORIC PRICE DECLINE EMERGES

National home prices turned negative for the first time in over two years, declining less than 1% according to Parcl Labs data measuring both new and existing home values 3
Austin leads price declines with a substantial 10% year-over-year decrease, followed by Denver at 5%, Tampa and Houston both at 4%, and Atlanta and Phoenix each down 3% 3
Regional price gains persist in Cleveland (6% appreciation), Chicago and New York City (both up 5%), Philadelphia (rising 3%), and Pittsburgh and Boston (each gaining 2%) 3
Active listings in November were nearly 13% higher than November 2024, while new listings increased by just 1.7% year-over-year 3

MARKET OUTLOOK POINTS TO 2026 RECOVERY

Existing home sales projected in the 4.25 million range for next year, still well below pre-pandemic levels but representing meaningful improvement from current conditions 7
Home price increases expected to be less than 1% but analysts anticipate a significant 10% jump in inventory, which could help address affordability challenges 7
Shadow inventory of 150,000 homes nationally were delisted or withdrawn from the market in 2025, potentially providing relief to supply-constrained markets if conditions stabilize 7

MORTGAGE MARKETS

Mortgage markets showed mixed signals as Federal Reserve rate cuts failed to provide meaningful relief to borrowers, while application activity increased driven primarily by refinancing demand from existing homeowners seeking to capitalize on modest rate improvements.

FED RATE CUT FAILS TO MOVE MORTGAGE RATES

Federal Reserve cut rates to 3.5%-3.75% in its third consecutive quarter-point reduction, but mortgage rates showed minimal movement 1
30-year mortgage rates dropped slightly to 6.35%
Ten-year Treasury yields showed marginal movement following the Fed announcement, hovering around 4.14% compared to a high of 4.20% on Wednesday 1
Fed projects only one additional rate cut in 2026, suggesting limited mortgage rate relief in the near term 8

REFINANCE ACTIVITY SURGES AMID RATE STABILITY

Current average refinance rate on 30-year loans stands at 6.45%, according to Zillow data, with conventional 15-year refi rates at 5.61% 5
Jumbo mortgage refinance rates significantly higher, with 30-year jumbo refi rates at 7.67% and 15-year jumbo rates reaching 8.50% 5
Government loan programs offer competitive rates, with FHA 30-year refi rates at 5.88% and VA 30-year rates at 5.62% 5
Refinance activity surged 14% week-over-week and posted an impressive 88% increase compared to the same week a year earlier, driven by borrowers seeking to capitalize on modest rate improvements 1

RATE OUTLOOK REMAINS CAUTIOUS

Fannie Mae projects mortgage rates will average 6.2% in the first quarter of 2026, gradually declining to 5.9% by year-end 8
Lock-in effect continues to impact housing mobility, as homeowners with ultra-low pandemic-era rates remain reluctant to move and give up favorable financing 8
Rates below 6% remain a distant prospect, with analysts not expecting significant relief in the near term due to persistent inflationary pressures 8
Political pressure for lower rates conflicts with market realities, as President Trump criticized the Fed’s “rather small” rate cut and called for more aggressive easing 1

REGULATORY DEVELOPMENTS

Federal regulators implemented significant policy changes that could increase risk in commercial real estate markets while the Federal Reserve signaled a more measured approach to future monetary policy adjustments, with prominent investor Michael Burry warning about underlying banking system fragility.

BURRY WARNS OF BANKING SYSTEM FRAGILITY

Michael Burry criticized the Fed’s Treasury buying plan, stating that if the US banking system can’t function without $3+ trillion in reserves, “that is not a sign of strength but a sign of fragility” 4
Fed plans to purchase $35-45 billion in Treasury bills monthly starting in January through “reserve management purchases” (RMPs) to rebuild reserve buffers and stabilize overnight rates 4
Banking system required only $2.2 trillion in reserves before the 2023 banking turmoil and just $45 billion in 2007, highlighting the dramatic increase in Fed support requirements 4
Fed formally ended quantitative tightening after shedding about $2.4 trillion in assets since 2022, as funding markets show increasing volatility 4

LEVERAGED LENDING GUIDANCE REPEALED

Federal banking regulators withdrew the 2013 leveraged lending guidance, marking a significant shift in regulatory oversight that could impact commercial real estate markets 9
FDIC and OCC argued the guidance pushed risky lending practices into the nonbank sector, reducing oversight and increasing systemic risk outside the regulatory perimeter 9
Repeal comes amid growing concerns about commercial real estate vulnerabilities, particularly in office and multifamily sectors facing refinancing challenges 9
Banks now only required to report loan modifications made in the past 12 months, potentially obscuring risk by removing older distressed loans from disclosure requirements 9

FED POLICY SIGNALS MEASURED APPROACH

Federal Reserve projects just one rate cut in 2026 and another in 2027, representing a significant scaling back from earlier expectations 10
Three FOMC members dissented from the December rate cut, marking the first dissenting votes since September 2019 and highlighting internal disagreements 10
Fed Chair Powell emphasized data-dependent approach, stating officials are “well positioned to wait and see how the economy evolves” 11
Kevin Hassett viewed as front-runner to succeed Powell when his term ends in May, potentially altering the Fed’s policy trajectory 11

CAPITAL REQUIREMENTS ADJUSTMENT

Federal regulators loosened capital requirements for large banks, reducing the extra leverage cushion associated with Treasury holdings 9
Move aims to encourage major financial institutions to purchase more long-term government debt, potentially pushing yields lower and easing government borrowing costs 9
Change has already prompted increased Treasury demand among major banks, reinforcing the intended effect of the regulatory adjustment 9

ECONOMIC NEWS

Economic indicators showed mixed signals with labor market stress emerging alongside persistent inflation pressures, while growth projections were revised higher despite recession risks for 2026.

LABOR MARKET SHOWS SIGNS OF STRESS

Initial unemployment claims jumped to 236,000 for the week ending December 6, representing a significant 44,000 increase from the previous week’s revised level 6
Four-week moving average increased to 216,750, up 2,000 from the previous week’s average of 214,750 6
Federal Reserve projects unemployment rate to end 2025 at 4.5%, declining to 4.4% in 2026 and 4.2% in 2027 12
Labor market performance directly affects housing demand, as employment stability influences both homebuying demand and geographic mobility patterns 7

INFLATION OUTLOOK REMAINS ELEVATED

PCE inflation projected to decline from 2.9% at the end of 2025 to 2.6% in September 2026 and 2.4% by year-end 2026 12
Inflation expected to reach 2.1% in 2027, roughly in line with the Fed’s target after persistent price pressures proved more durable than expected 12
Upward pressure on global goods prices related to trade tensions expected to remain elevated through at least the first half of 2026 13
Persistent inflation limits Fed’s ability to cut interest rates aggressively, suggesting mortgage rates may remain elevated relative to pandemic-era levels 13

ECONOMIC GROWTH PROJECTIONS REVISED HIGHER

Federal Reserve increased forecast for 2026 economic expansion to 2.3% from an earlier estimate of 1.8% in September 10
Fed Chair Powell characterized the U.S. economy as “extraordinary”, highlighting its continued strength despite various headwinds 10
J.P. Morgan forecasts 35% probability of recession in 2026, expecting consumption to downshift in developed markets in Q4 2025 13
Artificial intelligence investment expected to continue driving market dynamics and supporting growth, though broader economic environment faces challenges 13

COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)

Commercial real estate markets showed mixed signals with strong foreign investment in NYC multifamily, office recovery in Lower Manhattan, and construction sector stress from tariff pressures. International capital continues flowing into US markets while domestic construction faces unprecedented challenges.

NYC OFFICE MARKET REBOUNDS

Leasing Surge: Lower Manhattan office leasing doubled to 4M square feet in 2025—the strongest performance in over a decade, driven by supply constraints from residential conversions
Supply Reduction: Residential conversions removed 5.5M SF of office space since 2020, with an additional 5.8M SF set to be converted, tightening available inventory
Market Metrics: Vacancy rates dropped to 17.8% from 18.8% year-over-year, while asking rents climbed 3.1% annually as landlords gained pricing power
Premium Performance: Class A and trophy buildings dominated with 2.7M SF leased—nearly triple 2024 volumes, with properties like 140 Broadway and 28 Liberty leading activity 2

FOREIGN CAPITAL DRIVES NYC MULTIFAMILY

Investment Volume: International investment in NYC multifamily reached $7 billion through Q3 2025, with foreign firms accounting for 31% of all successful multifamily bidders
Global Reach: Investors from Japan, South Korea, Germany, Canada, China, Israel, and Argentina are targeting both core and value-add assets across Manhattan and Brooklyn
Major Deals: Recent transactions include Hanshin Juken’s $18M SoHo acquisition, Closer Properties’ $62.5M Upper East Side portfolio, and Pamera North America’s $49.5M NoHo mixed-use purchase
Market Confidence: Despite proposed rent reform policies, foreign investors maintain confidence driven by tech expansion (6% of workforce) and AI job creation 1

SOUTH FLORIDA WORKFORCE HOUSING TRANSFORMATION

Policy Impact: Florida’s Live Local Act is reshaping multifamily development, with developers converting market-rate rentals to workforce housing for tax incentives
Financial Benefits: Program offers 75-year property tax exemptions for developments with at least 70 affordable units, creating compelling economics for developers
Market Response: Industry leaders note the financial benefits are substantial, with one developer stating “You’d be an idiot not to” take advantage of the incentives
National Trend: The transformation contributes to nearly 39,000 branded residences across the US as affordable housing incentives reshape development strategies 6

CONSTRUCTION SECTOR FACES SEVERE HEADWINDS

Stress Indicator: ConstructConnect’s Project Stress Indicator reached 125.7 in November—up 19.9% from prior month and 9.9% year-over-year, the highest level since July
Abandonment Surge: Project abandonments jumped 41.1% month-over-month as tariff pressures force developers to cancel projects due to rising construction costs
Market Dynamics: Private project abandonments were up 5.7% year-over-year, while project holds increased 16.5% as developers pause to reassess economics
Megaproject Exception: Despite stress, 10 projects worth over $1B broke ground in October, including Meta’s $7.5B Hyperion data center in Louisiana, showing large-scale infrastructure continues 3

COMMERCIAL FINANCING MARKETS

The financing landscape experienced significant regulatory changes with the withdrawal of leveraged lending guidance, while servicer concentration data revealed market structure dynamics. Regulatory rollbacks are reducing oversight just as CRE faces refinancing challenges.

REGULATORY ROLLBACK RAISES RISK CONCERNS

Policy Change: The FDIC and OCC officially withdrew the 2013 leveraged lending guidance, citing unintended consequences of pushing risky lending to nonbank entities
Broader Trend: This marks the latest in a series of 2025 regulatory rollbacks, including loosened capital requirements for large banks and modified loan modification reporting rules
Market Concerns: Critics warn these changes reduce transparency and weaken oversight just as commercial real estate faces refinancing challenges from rising rates and falling valuations
Bank Exposure: The Federal Reserve’s December 2025 report flags ongoing CRE concerns among 3,367 community banking organizations and 100 regional banking organizations 5

MBA SERVICER RANKINGS RELEASED

Market Leaders: Wells Fargo leads total servicing volumes at $646.1 billion, followed by PNC Real Estate/Midland Loan Services at $584.0 billion and KeyBank National Association at $478.1 billion
CMBS Dominance: In CMBS servicing specifically, Wells Fargo topped rankings with $332.7 billion, while PNC handled $328.6 billion and KeyBank managed $187.8 billion
Market Insight: The data provides crucial insight into commercial mortgage servicing landscape structure as the industry navigates refinancing challenges from higher interest rates
Specialization Trends: Rankings show increased specialization, with firms like Berkadia Commercial Mortgage focusing heavily on multifamily products while others maintain diversified portfolios 7

COMMERCIAL SERVICING MARKETS

Servicing markets show significant concentration among top players, while regulatory changes are reducing transparency in distressed loan reporting. Market participants are closely monitoring servicer performance as refinancing pressures mount.

SERVICING CONCENTRATION TRENDS

Market Dominance: The top 5 servicers handle over $2.6 trillion in total loan volumes, showing significant market concentration that could impact borrower options
Wells Fargo Leadership: Wells Fargo maintains dominant positions across categories including warehouse loans ($36.8 billion), CMBS servicing ($332.7 billion), and Freddie Mac loans ($104.1 billion)
Specialized Focus: Firms like Berkadia Commercial Mortgage focus heavily on multifamily products while CBRE Loan Services maintains strong positions across multiple asset classes
Stability Implications: This concentration could have significant implications for market stability and borrower options as refinancing needs increase in higher rate environment 7

DELINQUENCY MONITORING INTENSIFIES

Transparency Reduction: September rule changes allow banks to report only loan modifications from the past 12 months, limiting visibility into older distressed loans
Data Importance: Servicer rankings and performance data become more critical for market participants as regulatory transparency decreases
Risk Concentration: Community and regional banks’ significant CRE exposure remains a key concern as refinancing pressures mount from higher interest rates
Market Vigilance: Industry observers are paying closer attention to servicer performance metrics given reduced regulatory reporting requirements 5

INDUSTRY NEWS

The real estate industry experienced significant developments in M&A activity, technology adoption, and market expansion, with artificial intelligence reaching a tipping point for widespread implementation across the sector and new policy proposals emerging to address condominium affordability challenges.

CONDO AFFORDABILITY ACTION PLAN PROPOSED

Condominiums are 54% more affordable than single-family homes in the 25 largest U.S. metropolitan areas, yet condo sales are down 12% year-over-year according to Redfin data 14
FHA condo loans have plummeted from over 100,000 in 2001 to around 15,000 annually currently, with only 2% of FHA loans going to condos despite condos comprising 10% of existing home sales 14
Community Home Lenders of America and Community Associations Institute propose allowing FHA loans for any condo project already approved by Fannie Mae or Freddie Mac 14
Fannie Mae and Freddie Mac charge 75 basis points LLPA fee for each condo loan, undermining the competitive affordability advantage condos have over site-built homes 14

GLOBAL M&A ACTIVITY SURGES TO RECORD LEVELS

Global M&A activity projected at $4.8 trillion for 2025, representing a 36% increase versus 2024 and marking the second-highest total deal value on record 15
Technology M&A led the surge with AI-related transactions driving deal values substantially higher throughout the year 15
Companies focused on scope deals designed to expand into new markets, marking 2025 as the biggest year for deals targeting revenue growth 15
Total number of transactions increased by only 5%, indicating that larger, more strategic deals dominated the landscape 15NVIDIA DRIVES SILICON VALLEY OFFICE EXPANSION
Nvidia’s continued expansion drives Silicon Valley office market recovery, with the AI chip giant’s real estate activity symbolizing broader technology sector transformation 16
AI companies including OpenAI, Meta, Google, and Microsoft have contributed to surging office demand, with many relying heavily on Nvidia’s specialized chips 16
Nvidia forecasts global AI infrastructure spending to reach $4 trillion by 2030, suggesting continued real estate expansion 16
AI boom creates new category of high-value tenants with specific infrastructure requirements, driving demand for specialized office and data center facilities 16

NEW YORK LUXURY MARKET MAINTAINS MOMENTUM

NYC’s top 10 most expensive residential transactions totaled $540 million, down from more than $720 million in 2024 but showing market resilience 17
Vornado Realty Trust’s 220 Central Park South reclaimed the top spot with an $83 million sale, demonstrating continued demand for trophy properties 17
Notable transactions spanned diverse neighborhoods, from Upper East Side co-ops to Downtown Manhattan condos, indicating geographic diversification in luxury demand 17
Market resilience suggests New York’s appeal to wealthy buyers remains strong despite economic and political uncertainties 17

AI INTEGRATION REACHES TIPPING POINT IN REAL ESTATE

Real estate industry experiencing fundamental shift as AI technology becomes more sophisticated, powerful, and accessible to agents and executives 18
Industry leaders view AI adoption as essential for competitive operations, though implementation comes with significant risks and challenges 18
Technology evolution from experimental tools to practical applications has accelerated dramatically, with generative AI enabling complex tasks previously requiring human expertise 18
Industry approach to AI adoption varies significantly, with some firms embracing comprehensive integration while others maintain cautious, limited implementations 18

CONSTRUCTION INDUSTRY FACES 2026 CHALLENGES

Employment growth in construction sectors projected to decline, with heavy and civil construction falling from 2.86% growth in 2024 to just 0.06% in 2026 19
Construction spending expected to remain relatively stable, with slight increases projected in residential and civil engineering sectors 19
JLL forecasts civil engineering spending to hold steady at $470 billion in 2026, rising to $520 billion by 2027 19
Residential construction expected to climb from $860 billion in 2025 to $880 billion in 2026 and $940 billion by 2027 19

SPACE-BASED DATA CENTERS TAKE OFF

New Frontier: SpaceX and Blue Origin are joining the race to establish orbital data centers for AI-computing payloads, representing the next evolution in data infrastructure
Competitive Landscape: They join Google’s Project Suncatcher (launching 2027), former Google CEO Eric Schmidt’s Relativity Space acquisition, and Nvidia-backed Starcloud, which has already begun training AI models from orbit
Technical Advantages: Space offers ideal conditions with solar panels 8 times more productivethan Earth-based systems and continuous power generation without weather interruptions
Challenges Remain: Experts warn of significant hurdles including temperature management, radiation protection, data transmission latency, and space debris risks that must be overcome 4