Mortgage rates have been trading in a very tight range since the Fed cut rates last week. Refinance and purchase mortgage activity both declined week over week. Congress is now reviewing its second bipartisan (no, seriously) housing bill—this time in the House. The Housing for the 21st Century Act is largely designed to boost multifamily housing supply and make it easier for developers to move projects forward.
Multifamily vacancy rates, however, are telling a very different story, with vacancies continuing to rise. Homeowners who locked in pandemic-era low rates have about 1,000 reasons ($1,000+) to stay put, as the cost of trading in those low-rate mortgages has effectively “locked in” much of the housing stock. Meanwhile, the top three financial regrets identified by Americans in 2025 were not saving enough for emergencies (38%), emotional or impulse spending (28%), and accumulating too much credit card debt (21%)—a reflection of recent economic shocks.
Commercial real estate markets in December 2025 present a tale of geographic winners and losers, with Southern multifamily markets drowning in 9% vacancy rates while small industrial properties maintain their stubborn resilience at just 5.2% vacancy. Meanwhile, data-center darling Fermi Inc. discovered that even in the AI gold rush, losing your anchor tenant can still send your stock tumbling—down 33% faster than you can say “power purchase agreement.” The year closes with Blackstone throwing $1 billion at small-balance lending and Congress actually showing bipartisan support for housing legislation—proving that even in real estate, stranger things have happened.
Let’s get you caught up and out the door in three minutes. Tim
Today’s newsletter was prepared by our AI platform ALFReD. Know Better.Â
KEY TAKEAWAYS
- Mortgage applications declined 3.8% following the Fed’s latest rate cut as investors interpreted FOMC comments to signal the end of the rate cutting cycle
- 30-year mortgage rates increased to 6.38% from 6.33% despite the Fed’s 25 basis point cut, with refinance share reaching 59% – the highest since September
- California home sales hit three-year high with 287,940 units sold in November, up 2.6% year-over-year, despite median prices falling 3.9% month-over-month to $852,680 1
- UWM announces $1.3 billion acquisition of Two Harbors Investment Corp in all-stock transaction, nearly doubling UWM’s MSR portfolio to approximately $400 billion 2
- Homeowners face potential $1,000 mortgage payment increases due to “lock-in effect” as those with pandemic-era low rates reluctant to move 3
- Bipartisan Housing for the 21st Century Act introduced in Congress with provisions for federal zoning reform guidance, environmental review exemptions, and updated FHA loan limits for multifamily projects 4
- Multifamily vacancy hits 7.0% nationally with Southern markets reaching 9.0% as oversupply pressures mount 1
- Industrial vacancy expected to reach 8.6% by end of 2026, but small bay properties remain resilient 2
- Blackstone launches $1B small-balance lending program with Harvest Capital targeting SBA-backed commercial loans 3
- Fermi Inc. shares tank 33% after first tenant terminates $150M data center agreement 4
- Data center valuation shifts to power-focused metrics as AI demand reshapes traditional real estate models 5
 RESIDENTIAL REAL ESTATE MARKETS
California’s housing market delivered its strongest performance in over three years, while national trends showed mixed signals heading into year-end. The “lock-in effect” continues to reshape housing dynamics as homeowners with pandemic-era low rates remain reluctant to move, creating inventory constraints and mobility challenges across markets.
CALIFORNIA MARKET SURGE SIGNALS BROADER RECOVERY
- Sales volume reached 287,940 units in November on a seasonally adjusted annualized basis, representing a 1.9% monthly increase and 2.6% year-over-year gain – the highest since September 2022 1
- Statewide median price fell to $852,680, down 3.9% from October but remaining essentially flat compared to the previous year, with regional variations from $490,000 in Central Valley to $1,275,000 in San Francisco Bay Area 1
- Market conditions improved for buyers with inventory rising to 3.6 months from 3.3% a year earlier and days on market increasing to 32 from 26 days, providing more breathing room particularly in higher-priced coastal markets 1
- 25 of 53 counties posted annual sales gains, with Trinity, Imperial, and Mendocino leading with increases of 60.0%, 46.7%, and 43.3% respectively, while price performance varied dramatically across regions 1
LOCK-IN EFFECT RESHAPES HOUSING ECOSYSTEM
- Homeowners with pandemic-era mortgages reluctant to move, creating “lock-in effect” where large numbers hold mortgages far below prevailing rates, leading to chronically low inventory and reduced mobility 3
- Potential $1,000 monthly payment increases face Americans looking to buy new homes in today’s market compared to those who secured historically low rates around 2020 during coronavirus pandemic 3
- Only 22.1% of outstanding mortgages originated through August 2025, with homebuying and refinancing collapsing since rates started rising post-pandemic, according to Realtor.com analysis 3
- Current mortgage holders pay average $1,300 in principal and interest monthly, with locked-in markets slowing home sales and reshaping entire housing ecosystem through reduced turnover 3
NATIONAL MARKET TRENDS AND REGIONAL OUTLOOK
- Builder confidence experienced late-year uptick despite overall weakness throughout 2025, with rising resale inventory creating increased competition for new homes 5
- Purchase application volume typically drops off quickly at year-end, creating a seasonal shift in business mix that favors refinancing activity, evident in latest data showing refinance applications maintaining stable levels
- Economists project mild to moderate growth for both home sales and prices in 2026, with the Federal Reserve’s more cautious approach to rate cuts tempering expectations for dramatic improvements in affordability 1
MORTGAGE MARKETS
The Federal Reserve’s latest rate cut created the familiar paradox of rising mortgage rates, marking the third consecutive instance where Fed easing failed to translate into lower borrowing costs. Application volumes showed seasonal weakness while refinancing activity surged to the highest levels since September, with current rates providing some relief compared to January 2025 peaks.
FED RATE CUT PARADOX CONTINUES
- 30-year fixed-rate mortgages increased to 6.38% from 6.33% despite the Fed’s 25 basis point rate cut, with points rising to 0.62 from 0.60 as investors interpreted FOMC comments to signal the end of the rate cutting cycle 1
- Rate variations across loan types showed jumbo 30-year rates actually decreasing slightly to 6.44% from 6.46%, while FHA 30-year rates rose to 6.12% from 6.08%, with 15-year fixed loans averaging 5.72% and 5/1 ARMs at 5.63%
- Third consecutive instance where Federal Reserve easing failed to translate into lower mortgage rates, highlighting the disconnect between monetary policy intentions and borrowing cost realities
APPLICATION VOLUME AND MARKET DYNAMICS
- Total mortgage applications declined 3.8% on a seasonally adjusted basis, with the Market Composite Index falling 5% on an unadjusted basis compared to the previous week 1
- Refinance index decreased 4% from the previous week but remained 86% higher than the same week one year ago, highlighting significant year-over-year improvement in refinancing conditions
- Purchase applications declined 3% on a seasonally adjusted basis and 7% on an unadjusted basis, but remained 13% higher than the same week in 2024, indicating underlying strength despite seasonal headwinds
- Refinance share increased to 59.0% from 58.2% the previous week, reaching the highest level since September, while ARM share increased to 7.2% of total applications
CURRENT RATE ENVIRONMENT PROVIDES RELIEF
- December 2025 rates at 6.22% represent significant improvement from January 2025 peak of 7.04%, with homeowners saving approximately $201 monthly on median $410,800 home purchase with 10% down 3
- Monthly mortgage costs vary significantly by down payment: 20% down results in $2,017 monthly payment, 15% down at $2,143, and 10% down at $2,296 for median-priced home 3
- Annual savings of approximately $2,412 compared to January 2025 rates, though affordability challenges persist for many potential homebuyers despite rate improvements 3
GOVERNMENT PROGRAM PERFORMANCE
- FHA loan applications represented 19.5% of total applications, down from 20.2% the previous week, while VA applications increased to 16.6% from 16.4%
- USDA applications remained minimal at 0.4%, up slightly from 0.3%, reflecting continued limited rural lending activity
- Year-end pattern emerging with fewer purchase loans, more opportunistic refinances from rate-sensitive borrowers, and market focus on inflation expectations and Federal Reserve policy for early 2026 6
 REGULATORY DEVELOPMENTS
Bipartisan housing legislation gained significant momentum with the introduction of comprehensive reform measures, while banking regulators achieved key deregulatory milestones. These developments signal potential policy shifts that could meaningfully impact housing supply and mortgage lending capacity.
BIPARTISAN HOUSING LEGISLATION GAINS MOMENTUM
- Housing for the 21st Century Act introduced as 120-page bipartisan legislation backed by Representatives French Hill (R-Ark.), Maxine Waters (D-Calif.), Mike Flood (R-Neb.), and Emanuel Cleaver (D-Mo.) to address the nation’s housing crisis 4
- Federal zoning reform guidance provision would direct HUD to create recommendations helping states and localities modernize outdated zoning laws that restrict housing development 4
- Environmental review exemptions proposed for certain multifamily projects, potentially speeding up approvals by bypassing lengthy environmental assessments that delay construction 4
- FHA loan limits updated for multifamily projects to reflect current development costs, while expanding the federal definition of manufactured homes to include modern, factory-built housing types 4
INDUSTRY SUPPORT AND IMPLEMENTATION TIMELINE
- Strong industry backing with Matthew Berger of the National Multifamily Housing Council calling the legislation a “tremendous step forward” for removing key barriers that have stalled new construction 4
- Support expressed by Bob Broeksmit, president and CEO of the Mortgage Bankers Association, while emphasizing the need to align House and Senate efforts for unified legislation 4
- Bipartisan backing provides strong prospects for advancement in 2026, with industry groups committed to supporting negotiations between House and Senate to create unified path forward 4
BANKING REGULATORY DEVELOPMENTS
- Key deregulatory milestones achieved by US bank regulators in Q4 2025, finalizing amendments to existing rules and supervisory processes including modifications to enhanced supplementary leverage ratio 7
- Additional capital relief provided for global systemically important banks’ depository institution subsidiaries, potentially impacting mortgage lending capacity and credit availability 7
- New supervisory operating principles implemented to focus examiners’ work on material financial risks, representing a shift toward more targeted regulatory oversight in the banking sector 7
ECONOMIC NEWS
Mixed economic signals dominated the landscape as inflation expectations showed signs of stabilization while consumer financial stress remained elevated. Economic data maintained traders’ hopes for continued Federal Reserve rate cuts in 2026, with upcoming inflation reports crucial for determining policy direction.
INFLATION EXPECTATIONS AND FED POLICY OUTLOOK
- Consumer inflation expectations stabilized with typical shoppers expecting prices to rise 3.2% over the next year according to November New York Fed survey, while economists project inflation to drift down to 2.6% in 2026 8
- Critical inflation report scheduled for Thursday expected to show that prices for US consumers continue to rise faster than desired, with preliminary data suggesting price pressures are rising sharply 9
- Mixed economic data maintains traders’ hopes for continued Federal Reserve rate cuts in 2026, with inflation data crucial for determining the Fed’s future policy direction
CONSUMER FINANCIAL STRESS AND SPENDING PATTERNS
- Top three financial regrets identified by Americans in 2025: not saving enough for emergencies (38%), emotional or impulse spending (28%), and accumulating too much credit card debt (21%), reflecting impact of major economic events
- 73% of Americans reported saving less for emergencies due to factors like rising prices and elevated interest rates, with approximately 24% of households reporting significant financial stress according to Bankrate survey
- Two-thirds of survey respondents indicated that macroeconomic conditions like inflation and tariffs impacted their spending habits, highlighting widespread economic anxiety among consumers
EMPLOYMENT REPORTS RELEASED THIS WEEK
- Weekly unemployment claims surge 44,000 to 236,000 for the week ending December 6, marking the largest increase since September, with the four-week moving average rising to 216,750 1
- November jobs report shows mixed signals with 64,000 jobs added, beating expectations of 45,000, but unemployment rate rises to 4.6%, the highest level since September 2021 2 3
- October job losses confirmed at 105,000 primarily due to 162,000 federal government positions lost through DOGE deferred resignation program – August and September were revised down by 33,000 jobs 4
- ADP private payrolls show potential rebound with employers adding average of 16,250 jobs per week for four weeks ending November 29, signaling recovery after four weeks of job losses 5
- Part-time employment for economic reasons spikes to 5.5 million in November, an increase of 909,000 from September, as workers unable to find full-time positions accept reduced hours 4
COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)
The commercial real estate markets show significant geographic and asset class divergence, with multifamily experiencing oversupply pressures in the South while industrial markets face vacancy increases despite strong fundamentals in smaller properties.
MULTIFAMILY MARKET SHOWS GEOGRAPHIC DIVIDE
- National multifamily vacancy reaches 7.0% in Q2 2025, with Southern markets hitting 9.0% due to oversupply challenges 1
- Regional vacancy breakdown: South (9.0%), Midwest (6.6%), West (5.7%), Northeast (5.2%) – showing stark geographic contrasts
- Urban cores struggle most with 7.6% vacancy compared to 6.7% in suburbs and 5.8% in rural areas
- Oversupply persists despite population growth in many Southern metros, creating complexity for investors drawn by job growth and in-migration trends
INDUSTRIAL VACANCY TRENDS FAVOR SMALLER ASSETS
- US industrial vacancy reached 7.8% by September 2025 and could hit 8.6% by end of 2026 following three-year construction surge 2
- Construction boom delivered 1.4 billion SF between 2022-2024, creating current oversupply conditions
- Clear market bifurcation emerges: Large buildings (500,000+ SF) at 11.5% vacancy, mid-size at 7.0%, small bay properties at just 5.2%
- Ten metros accounted for nearly half of new inventory, with Austin expanding 60%, Phoenix growing 40%, and Charleston, Las Vegas, San Antonio seeing 21-36% increases
MAJOR TRANSACTION ACTIVITY
- New York hotel sale closes at $230 million – InterContinental Times Square at 300 West 44th Street sold by Tishman Realty and MetLife to Highgate-Gencom-Argent Ventures JV 6
COMMERCIAL FINANCING MARKETS
Commercial financing markets experienced rate volatility following Federal Reserve signals, while alternative lending programs gained traction with major institutional backing for small-balance commercial loans.
SMALL-BALANCE LENDING GAINS MOMENTUM
- Blackstone Credit partners with Harvest Commercial for $1 billion loan acquisition program focused on small-business commercial real estate 3
- Deal provides Blackstone steady SBA-backed loan pipeline while giving Harvest permanent capital to increase lending capacity
- Harvest’s portfolio composition: 50% industrial, 18% office, 15% retail properties, with California representing 50% of geographic exposure
- Track record shows $1+ billion originated since 2016 launch, with most recent 2025 securitization totaling $264.6 million
CAP RATE AND INVESTMENT TRENDS
- Industrial cap rates held steady in high-6% range despite market pressures, with investors accepting lower rates for large properties due to newer construction and stronger tenant credit
- Small bay and infill assets outperformed in markets with limited new supply, showing resilience against broader vacancy trends
- Investment activity remained 19% above 2014-2019 average despite lower transaction volumes compared to 2021 peak
DATA CENTER MARKET VOLATILITY AND VALUATION SHIFTS
- Fermi Inc. shares plunged 33% after prospective anchor tenant terminated $150 million Advanced in Aid of Construction Agreement for Project Matador AI campus at Texas Tech University 4
- Stock closed at $10.09, nearly 52% below October IPO price of $21/share, prompting Hagens Berman investigation into potential investor disclosure violations
- Data center valuation paradigm shifts from traditional real estate metrics to power-focused models, with investors now underwriting megawatts rather than square footage 5
- Power Purchase Agreements (PPAs) now critical for loan approval, with secured power capacity taking 12-36 months depending on equipment backlogs and transmission upgrades
- Data center transactions reached $13 billion between January-August 2025 across 42 deals, following $52 billion in 2024 transactions, with North America accounting for 50% of activity
- Principal Financial raised $3.6 billion for Data Center Growth & Income fund in February 2025, targeting hyperscaler facilities with Stream Data Centers partnership
INDUSTRY NEWS
Major mortgage servicing rankings revealed market concentration among leading institutions, while UWM’s blockbuster acquisition of Two Harbors represents the largest mortgage industry deal in recent years. Legal developments and technology initiatives continue to shape the evolving industry landscape.
UWM ANNOUNCES MAJOR ACQUISITION OF TWO HARBORS
- $1.3 billion all-stock transaction announced between UWM Holdings Corporation and Two Harbors Investment Corp, with UWM acquiring TWO at fixed exchange ratio of 2.3328 shares of UWMC stock for each TWO share 2
- MSR portfolio nearly doubles to $400 billion, with TWO bringing high-quality $176 billion UPB MSR portfolio through RoundPoint Mortgage Servicing subsidiary, positioning combined company as 8th largest servicer nationwide 2
- $150 million annual cost and revenue synergies expected from transaction, with UWM CEO Mat Ishbia noting “timing of doubling our servicing book as we bring servicing in-house is perfect alignment” 2
- Transaction expected to close Q2 2026 subject to TWO stockholder approval and regulatory approvals, with combined company public float increasing 93% to approximately 513 million shares worth $2.6 billion 2
COMMERCIAL REAL ESTATE INVESTMENT ACTIVITY
- Blackstone’s partnership with Harvest in small-balance lending highlighted continued evolution of commercial real estate debt markets, representing institutional investors’ growing interest in smaller, asset-backed lending strategies 12
- Trend toward smaller-balance lending reflects broader market dynamics where institutional capital seeks safer, more diversified exposure to commercial real estate debt as credit conditions tighten 12
- Increased competition expected in small-balance lending space as other major investors may follow Blackstone’s lead into this niche but growing market segment 12
CONSTRUCTION AND TECHNOLOGY INNOVATIONS
- Modular data center market hit $36 billion in 2025, expected to exceed $85 billion by 2030, with North America holding 43% market share 5
- Factory-built components comprise 40-60% of data center infrastructure, reducing construction time to 2-3 months versus traditional timelines
- Construction industry faces critical labor shortage with 499,000 new workers needed in 2026, driving Google’s $10 million electrician training grant and partnerships by Amazon, Microsoft, and TSMC
INVESTMENT STRATEGY SHIFTS
- Multifamily investors rethink Sun Belt strategies as Southern vacancy pressures mount, leading to more balanced portfolio approaches
- National investors adjust toward mixed portfolios combining higher-growth markets with steadier Midwest, suburban, and coastal city properties
- Builder confidence dropped in 2025 despite late-year uptick, with rising resale inventory creating more competition for new homes 8
Today’s newsletter was prepared by our AI platform ALFReD. Know Better.Â
KEY TAKEAWAYS
- Mortgage applications declined 3.8% following the Fed’s latest rate cut as investors interpreted FOMC comments to signal the end of the rate cutting cycle
- 30-year mortgage rates increased to 6.38% from 6.33% despite the Fed’s 25 basis point cut, with refinance share reaching 59% – the highest since September
- California home sales hit three-year high with 287,940 units sold in November, up 2.6% year-over-year, despite median prices falling 3.9% month-over-month to $852,680 1
- UWM announces $1.3 billion acquisition of Two Harbors Investment Corp in all-stock transaction, nearly doubling UWM’s MSR portfolio to approximately $400 billion 2
- Homeowners face potential $1,000 mortgage payment increases due to “lock-in effect” as those with pandemic-era low rates reluctant to move 3
- Bipartisan Housing for the 21st Century Act introduced in Congress with provisions for federal zoning reform guidance, environmental review exemptions, and updated FHA loan limits for multifamily projects 4
- Multifamily vacancy hits 7.0% nationally with Southern markets reaching 9.0% as oversupply pressures mount 1
- Industrial vacancy expected to reach 8.6% by end of 2026, but small bay properties remain resilient 2
- Blackstone launches $1B small-balance lending program with Harvest Capital targeting SBA-backed commercial loans 3
- Fermi Inc. shares tank 33% after first tenant terminates $150M data center agreement 4
- Data center valuation shifts to power-focused metrics as AI demand reshapes traditional real estate models 5
 RESIDENTIAL REAL ESTATE MARKETS
California’s housing market delivered its strongest performance in over three years, while national trends showed mixed signals heading into year-end. The “lock-in effect” continues to reshape housing dynamics as homeowners with pandemic-era low rates remain reluctant to move, creating inventory constraints and mobility challenges across markets.
CALIFORNIA MARKET SURGE SIGNALS BROADER RECOVERY
- Sales volume reached 287,940 units in November on a seasonally adjusted annualized basis, representing a 1.9% monthly increase and 2.6% year-over-year gain – the highest since September 2022 1
- Statewide median price fell to $852,680, down 3.9% from October but remaining essentially flat compared to the previous year, with regional variations from $490,000 in Central Valley to $1,275,000 in San Francisco Bay Area 1
- Market conditions improved for buyers with inventory rising to 3.6 months from 3.3% a year earlier and days on market increasing to 32 from 26 days, providing more breathing room particularly in higher-priced coastal markets 1
- 25 of 53 counties posted annual sales gains, with Trinity, Imperial, and Mendocino leading with increases of 60.0%, 46.7%, and 43.3% respectively, while price performance varied dramatically across regions 1
LOCK-IN EFFECT RESHAPES HOUSING ECOSYSTEM
- Homeowners with pandemic-era mortgages reluctant to move, creating “lock-in effect” where large numbers hold mortgages far below prevailing rates, leading to chronically low inventory and reduced mobility 3
- Potential $1,000 monthly payment increases face Americans looking to buy new homes in today’s market compared to those who secured historically low rates around 2020 during coronavirus pandemic 3
- Only 22.1% of outstanding mortgages originated through August 2025, with homebuying and refinancing collapsing since rates started rising post-pandemic, according to Realtor.com analysis 3
- Current mortgage holders pay average $1,300 in principal and interest monthly, with locked-in markets slowing home sales and reshaping entire housing ecosystem through reduced turnover 3
NATIONAL MARKET TRENDS AND REGIONAL OUTLOOK
- Builder confidence experienced late-year uptick despite overall weakness throughout 2025, with rising resale inventory creating increased competition for new homes 5
- Purchase application volume typically drops off quickly at year-end, creating a seasonal shift in business mix that favors refinancing activity, evident in latest data showing refinance applications maintaining stable levels
- Economists project mild to moderate growth for both home sales and prices in 2026, with the Federal Reserve’s more cautious approach to rate cuts tempering expectations for dramatic improvements in affordability 1
MORTGAGE MARKETS
The Federal Reserve’s latest rate cut created the familiar paradox of rising mortgage rates, marking the third consecutive instance where Fed easing failed to translate into lower borrowing costs. Application volumes showed seasonal weakness while refinancing activity surged to the highest levels since September, with current rates providing some relief compared to January 2025 peaks.
FED RATE CUT PARADOX CONTINUES
- 30-year fixed-rate mortgages increased to 6.38% from 6.33% despite the Fed’s 25 basis point rate cut, with points rising to 0.62 from 0.60 as investors interpreted FOMC comments to signal the end of the rate cutting cycle 1
- Rate variations across loan types showed jumbo 30-year rates actually decreasing slightly to 6.44% from 6.46%, while FHA 30-year rates rose to 6.12% from 6.08%, with 15-year fixed loans averaging 5.72% and 5/1 ARMs at 5.63%
- Third consecutive instance where Federal Reserve easing failed to translate into lower mortgage rates, highlighting the disconnect between monetary policy intentions and borrowing cost realities
APPLICATION VOLUME AND MARKET DYNAMICS
- Total mortgage applications declined 3.8% on a seasonally adjusted basis, with the Market Composite Index falling 5% on an unadjusted basis compared to the previous week 1
- Refinance index decreased 4% from the previous week but remained 86% higher than the same week one year ago, highlighting significant year-over-year improvement in refinancing conditions
- Purchase applications declined 3% on a seasonally adjusted basis and 7% on an unadjusted basis, but remained 13% higher than the same week in 2024, indicating underlying strength despite seasonal headwinds
- Refinance share increased to 59.0% from 58.2% the previous week, reaching the highest level since September, while ARM share increased to 7.2% of total applications
CURRENT RATE ENVIRONMENT PROVIDES RELIEF
- December 2025 rates at 6.22% represent significant improvement from January 2025 peak of 7.04%, with homeowners saving approximately $201 monthly on median $410,800 home purchase with 10% down 3
- Monthly mortgage costs vary significantly by down payment: 20% down results in $2,017 monthly payment, 15% down at $2,143, and 10% down at $2,296 for median-priced home 3
- Annual savings of approximately $2,412 compared to January 2025 rates, though affordability challenges persist for many potential homebuyers despite rate improvements 3
GOVERNMENT PROGRAM PERFORMANCE
- FHA loan applications represented 19.5% of total applications, down from 20.2% the previous week, while VA applications increased to 16.6% from 16.4%
- USDA applications remained minimal at 0.4%, up slightly from 0.3%, reflecting continued limited rural lending activity
- Year-end pattern emerging with fewer purchase loans, more opportunistic refinances from rate-sensitive borrowers, and market focus on inflation expectations and Federal Reserve policy for early 2026 6
 REGULATORY DEVELOPMENTS
Bipartisan housing legislation gained significant momentum with the introduction of comprehensive reform measures, while banking regulators achieved key deregulatory milestones. These developments signal potential policy shifts that could meaningfully impact housing supply and mortgage lending capacity.
BIPARTISAN HOUSING LEGISLATION GAINS MOMENTUM
- Housing for the 21st Century Act introduced as 120-page bipartisan legislation backed by Representatives French Hill (R-Ark.), Maxine Waters (D-Calif.), Mike Flood (R-Neb.), and Emanuel Cleaver (D-Mo.) to address the nation’s housing crisis 4
- Federal zoning reform guidance provision would direct HUD to create recommendations helping states and localities modernize outdated zoning laws that restrict housing development 4
- Environmental review exemptions proposed for certain multifamily projects, potentially speeding up approvals by bypassing lengthy environmental assessments that delay construction 4
- FHA loan limits updated for multifamily projects to reflect current development costs, while expanding the federal definition of manufactured homes to include modern, factory-built housing types 4
INDUSTRY SUPPORT AND IMPLEMENTATION TIMELINE
- Strong industry backing with Matthew Berger of the National Multifamily Housing Council calling the legislation a “tremendous step forward” for removing key barriers that have stalled new construction 4
- Support expressed by Bob Broeksmit, president and CEO of the Mortgage Bankers Association, while emphasizing the need to align House and Senate efforts for unified legislation 4
- Bipartisan backing provides strong prospects for advancement in 2026, with industry groups committed to supporting negotiations between House and Senate to create unified path forward 4
BANKING REGULATORY DEVELOPMENTS
- Key deregulatory milestones achieved by US bank regulators in Q4 2025, finalizing amendments to existing rules and supervisory processes including modifications to enhanced supplementary leverage ratio 7
- Additional capital relief provided for global systemically important banks’ depository institution subsidiaries, potentially impacting mortgage lending capacity and credit availability 7
- New supervisory operating principles implemented to focus examiners’ work on material financial risks, representing a shift toward more targeted regulatory oversight in the banking sector 7
ECONOMIC NEWS
Mixed economic signals dominated the landscape as inflation expectations showed signs of stabilization while consumer financial stress remained elevated. Economic data maintained traders’ hopes for continued Federal Reserve rate cuts in 2026, with upcoming inflation reports crucial for determining policy direction.
INFLATION EXPECTATIONS AND FED POLICY OUTLOOK
- Consumer inflation expectations stabilized with typical shoppers expecting prices to rise 3.2% over the next year according to November New York Fed survey, while economists project inflation to drift down to 2.6% in 2026 8
- Critical inflation report scheduled for Thursday expected to show that prices for US consumers continue to rise faster than desired, with preliminary data suggesting price pressures are rising sharply 9
- Mixed economic data maintains traders’ hopes for continued Federal Reserve rate cuts in 2026, with inflation data crucial for determining the Fed’s future policy direction
CONSUMER FINANCIAL STRESS AND SPENDING PATTERNS
- Top three financial regrets identified by Americans in 2025: not saving enough for emergencies (38%), emotional or impulse spending (28%), and accumulating too much credit card debt (21%), reflecting impact of major economic events
- 73% of Americans reported saving less for emergencies due to factors like rising prices and elevated interest rates, with approximately 24% of households reporting significant financial stress according to Bankrate survey
- Two-thirds of survey respondents indicated that macroeconomic conditions like inflation and tariffs impacted their spending habits, highlighting widespread economic anxiety among consumers
COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)
The commercial real estate markets show significant geographic and asset class divergence, with multifamily experiencing oversupply pressures in the South while industrial markets face vacancy increases despite strong fundamentals in smaller properties.
MULTIFAMILY MARKET SHOWS GEOGRAPHIC DIVIDE
- National multifamily vacancy reaches 7.0% in Q2 2025, with Southern markets hitting 9.0% due to oversupply challenges 1
- Regional vacancy breakdown: South (9.0%), Midwest (6.6%), West (5.7%), Northeast (5.2%) – showing stark geographic contrasts
- Urban cores struggle most with 7.6% vacancy compared to 6.7% in suburbs and 5.8% in rural areas
- Oversupply persists despite population growth in many Southern metros, creating complexity for investors drawn by job growth and in-migration trends
INDUSTRIAL VACANCY TRENDS FAVOR SMALLER ASSETS
- US industrial vacancy reached 7.8% by September 2025 and could hit 8.6% by end of 2026 following three-year construction surge 2
- Construction boom delivered 1.4 billion SF between 2022-2024, creating current oversupply conditions
- Clear market bifurcation emerges: Large buildings (500,000+ SF) at 11.5% vacancy, mid-size at 7.0%, small bay properties at just 5.2%
- Ten metros accounted for nearly half of new inventory, with Austin expanding 60%, Phoenix growing 40%, and Charleston, Las Vegas, San Antonio seeing 21-36% increases
MAJOR TRANSACTION ACTIVITY
- New York hotel sale closes at $230 million – InterContinental Times Square at 300 West 44th Street sold by Tishman Realty and MetLife to Highgate-Gencom-Argent Ventures JV 6
COMMERCIAL FINANCING MARKETS
Commercial financing markets experienced rate volatility following Federal Reserve signals, while alternative lending programs gained traction with major institutional backing for small-balance commercial loans.
SMALL-BALANCE LENDING GAINS MOMENTUM
- Blackstone Credit partners with Harvest Commercial for $1 billion loan acquisition program focused on small-business commercial real estate 3
- Deal provides Blackstone steady SBA-backed loan pipeline while giving Harvest permanent capital to increase lending capacity
- Harvest’s portfolio composition: 50% industrial, 18% office, 15% retail properties, with California representing 50% of geographic exposure
- Track record shows $1+ billion originated since 2016 launch, with most recent 2025 securitization totaling $264.6 million
CAP RATE AND INVESTMENT TRENDS
- Industrial cap rates held steady in high-6% range despite market pressures, with investors accepting lower rates for large properties due to newer construction and stronger tenant credit
- Small bay and infill assets outperformed in markets with limited new supply, showing resilience against broader vacancy trends
- Investment activity remained 19% above 2014-2019 average despite lower transaction volumes compared to 2021 peak
DATA CENTER MARKET VOLATILITY AND VALUATION SHIFTS
- Fermi Inc. shares plunged 33% after prospective anchor tenant terminated $150 million Advanced in Aid of Construction Agreement for Project Matador AI campus at Texas Tech University 4
- Stock closed at $10.09, nearly 52% below October IPO price of $21/share, prompting Hagens Berman investigation into potential investor disclosure violations
- Data center valuation paradigm shifts from traditional real estate metrics to power-focused models, with investors now underwriting megawatts rather than square footage 5
- Power Purchase Agreements (PPAs) now critical for loan approval, with secured power capacity taking 12-36 months depending on equipment backlogs and transmission upgrades
- Data center transactions reached $13 billion between January-August 2025 across 42 deals, following $52 billion in 2024 transactions, with North America accounting for 50% of activity
- Principal Financial raised $3.6 billion for Data Center Growth & Income fund in February 2025, targeting hyperscaler facilities with Stream Data Centers partnership
INDUSTRY NEWS
Major mortgage servicing rankings revealed market concentration among leading institutions, while UWM’s blockbuster acquisition of Two Harbors represents the largest mortgage industry deal in recent years. Legal developments and technology initiatives continue to shape the evolving industry landscape.
UWM ANNOUNCES MAJOR ACQUISITION OF TWO HARBORS
- $1.3 billion all-stock transaction announced between UWM Holdings Corporation and Two Harbors Investment Corp, with UWM acquiring TWO at fixed exchange ratio of 2.3328 shares of UWMC stock for each TWO share 2
- MSR portfolio nearly doubles to $400 billion, with TWO bringing high-quality $176 billion UPB MSR portfolio through RoundPoint Mortgage Servicing subsidiary, positioning combined company as 8th largest servicer nationwide 2
- $150 million annual cost and revenue synergies expected from transaction, with UWM CEO Mat Ishbia noting “timing of doubling our servicing book as we bring servicing in-house is perfect alignment” 2
- Transaction expected to close Q2 2026 subject to TWO stockholder approval and regulatory approvals, with combined company public float increasing 93% to approximately 513 million shares worth $2.6 billion 2
COMMERCIAL REAL ESTATE INVESTMENT ACTIVITY
- Blackstone’s partnership with Harvest in small-balance lending highlighted continued evolution of commercial real estate debt markets, representing institutional investors’ growing interest in smaller, asset-backed lending strategies 12
- Trend toward smaller-balance lending reflects broader market dynamics where institutional capital seeks safer, more diversified exposure to commercial real estate debt as credit conditions tighten 12
- Increased competition expected in small-balance lending space as other major investors may follow Blackstone’s lead into this niche but growing market segment 12
CONSTRUCTION AND TECHNOLOGY INNOVATIONS
- Modular data center market hit $36 billion in 2025, expected to exceed $85 billion by 2030, with North America holding 43% market share 5
- Factory-built components comprise 40-60% of data center infrastructure, reducing construction time to 2-3 months versus traditional timelines
- Construction industry faces critical labor shortage with 499,000 new workers needed in 2026, driving Google’s $10 million electrician training grant and partnerships by Amazon, Microsoft, and TSMC
INVESTMENT STRATEGY SHIFTS
- Multifamily investors rethink Sun Belt strategies as Southern vacancy pressures mount, leading to more balanced portfolio approaches
- National investors adjust toward mixed portfolios combining higher-growth markets with steadier Midwest, suburban, and coastal city properties
- Builder confidence dropped in 2025 despite late-year uptick, with rising resale inventory creating more competition for new homes 8