Fannie Mae jogs its way to another $4B quarter (pre conservatorship Fannie would have made that in a whole year – a great year). Housing market continues to grind slower with pending home sales down in all regions. As the market slows – investor activity picks up. Home prices continue to accelerate but disinflation has settled in. The FOMC maintained the federal funds rate at 4.25%-4.5% for the fifth consecutive meeting. Additional signs that the CMBS market is in distress. Let’s get you caught up and out the door in 3 minutes. TimÂ
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KEY TAKEAWAYS
Home Price Growth Hits Historic Lows: The FHFA House Price Index declined 0.2% in May and shows year-over-year growth of just 2.8%, marking one of the slowest appreciation rates in over a decade as market conditions continue to normalize 1
- Fannie Reports Strong Q2 Performance: The GSE posted net income of $4.1 billion in Q2 2025, up from $2.9 billion in Q1, while maintaining exceptional credit quality with serious delinquency rates at just 0.47% 2
- Housing Market Stagnation Deepens: Pending home sales dropped 0.8% monthly and 2.8% annually in June, with the West region experiencing the steepest decline at 7.3% year-over-year as buyers remain sidelined 3
- Federal Reserve Maintains Hawkish Stance: The Fed held rates steady at 4.25%-4.5% for the fifth consecutive meeting, with two governors dissenting in favor of cuts amid growing political pressure for relief 4
- Mortgage Applications Hit Two-Month Low: The MBA’s Market Composite Index fell 3.8% with purchase applications declining 6% as the 30-year fixed rate remained elevated at 6.83% 5
- Investor Activity Reaches Record High: Home investors accounted for 30% of all single-family purchases in 2025, the highest percentage on record, fundamentally reshaping the housing landscape 6
- Housing Market Indicators Show Mixed Signals: AEI’s July indicators reveal year-over-year home price appreciation projected to decelerate significantly, with some metropolitan areas experiencing the slowest growth since the financial crisis 7
- $23 billion in CMBS loans now sit past maturity without resolution, creating unprecedented “maturity drag” in commercial real estate markets, with office loans carrying the highest baseline risk 1
- Industrial vacancy rates climbed to 7.3% in Q2 2025—the highest since 2013—as net absorption of 23 million square feet lagged far behind 71 million square feet of new supply 3
- Multifamily development momentum is shifting dramatically, with Miami and Houston breaking away from the pack while New York, Austin, and Phoenix construction starts slow sharply 4
RESIDENTIAL REAL ESTATE MARKETS
Overview: The housing market continues its cooling trajectory with historic lows in price appreciation, declining sales activity, and mixed regional performance. Despite increased inventory levels in many markets, persistent affordability challenges are keeping potential buyers on the sidelines.
PRICE TRENDS
FHFA House Price Index Shows Dramatic Slowdown: Home prices declined 0.2% in May 2025, with year-over-year growth at just 2.8% – representing one of the slowest appreciation rates in over a decade and signaling a fundamental shift from post-pandemic price surges 1
Regional Price Variations Emerge: The Mountain division continues to lead with 4.8% annual growth, while the Middle Atlantic posts the weakest performance at just 0.8%; the historically strong Pacific division shows modest 2.4% growth, reflecting broad-based cooling 1
AEI Housing Indicators Project Further Deceleration: The comprehensive analysis projects continued slowdown in price appreciation across most metropolitan areas, with some markets experiencing the slowest growth rates since the financial crisis as affordability pressures intensify 7
SALES ACTIVITY
Pending Home Sales Continue Decline: Sales declined 0.8% month-over-month and 2.8% year-over-year in June, marking a continuation of the market’s sluggish performance throughout 2025 as buyers remain hesitant despite improving inventory conditions 3
Regional Performance Shows Sharp Contrasts: The Northeast bucked the trend with a 2.1% monthly increase though remaining flat annually, while the West region posted the worst performance with a 3.9% monthly and 7.3% annual decline, reflecting varied local market conditions 3
Market Freeze Conditions Persist: Industry analysts describe current conditions as a “housing market freeze” with high mortgage rates and elevated home prices creating a perfect storm of affordability challenges that increasing inventory has failed to resolve 8
MARKET SEGMENTS
Starter Homes Show Surprising Resilience: Sales increased 3.9% year-over-year in June, marking the tenth consecutive month of growth in this segment, with the typical starter home price reaching a record $260,000 as first-time buyers find ways to enter the market 9
Washington DC Market Experiences Supply Surge: Housing supply rose 23% year-over-year in June due to federal job cuts and employee relocations, representing one of the largest inventory increases since data collection began in 2012 10
Investor Dominance Reaches Historic Levels: Home investors now account for 30% of single-family purchases, the highest percentage on record, with small investors leading at 25% of investor purchases as large institutional firms scale back operations due to rising costs and regulatory pressures 6
MORTGAGE MARKETS
Overview: Mortgage applications decline to two-month lows while government-sponsored enterprises report exceptionally strong financial performance. Interest rates remain elevated despite mounting political pressure, though credit quality metrics demonstrate remarkable resilience.
GSE PERFORMANCE
Fannie Mae Delivers Strong Q2 Results: Net income reached $4.1 billion, representing a significant increase from $2.9 billion in Q1, while the company’s book of business grew to $4.5 trillion in unpaid principal balance, demonstrating continued market leadership 2
Credit Quality Remains Exceptionally Strong: Serious delinquency rates improved to 0.47% from 0.50% in the previous quarter, with credit loss rates remaining minimal at 0.01%, reflecting the quality of underwriting standards and borrower resilience 2
Business Volume Shows Market Strength: Single-family acquisitions totaled $95.2 billion during the quarter, while multifamily new business volume reached $18.7 billion, reflecting continued demand for rental housing financing amid challenging homeownership conditions 2
APPLICATION ACTIVITY
MBA Index Hits Two-Month Low: The Market Composite Index fell 3.8% to its lowest level since May, with purchase applications declining 6% despite slow home price growth and increasing inventory levels in many regions 5
Refinance Activity Shows Mixed Trends: The refinance index decreased 1% from the previous week but remained 30% higher than the same week last year, with the refinance share rising to 40.7% of total applications as borrowers seek relief 5
ARM Activity Increases: Adjustable-rate mortgage share rose to 8.3% of total applications as borrowers explore alternatives to high fixed rates, indicating growing interest in variable rate products 5
INTEREST RATES
30-Year Fixed Rates Remain Elevated: The rate held relatively steady at 6.83%, down slightly from 6.84% the previous week, but this level remains high enough to discourage both purchase and refinancing activity among rate-sensitive borrowers 5
Rate Variations Across Loan Types: FHA rates increased to 6.56% from 6.52%, while jumbo loan rates decreased slightly to 6.74%; 15-year fixed rates declined to 6.12%, and 5/1 ARM rates increased to 6.22% from 6.01% 5
August Rate Predictions: Industry experts predict limited movement in rates for August, with most analysts expecting no significant changes until September as the Fed maintains its cautious stance on inflation 11
COMMERCIAL LENDING OUTLOOK
• CRE Lending Set for Strong Rebound: CMBS conduit issuance is expected to reach $35 billion, representing a 6.4% increase from the previous year, while CRE collateralized loan obligations are projected to grow 274% year-over-year to $32.5 billion 12
• Agency Lending Shows Strength: Freddie Mac and Fannie Mae lending is expected to rise to $65 billion each, reflecting nearly a 19% increase from 2024, with these GSEs continuing to offer the most affordable financing options in the market 13
ECONOMIC & POLITICAL NEWS
Overview: The Federal Reserve maintains its cautious stance despite internal dissent and mounting political pressure for rate cuts. GDP growth exceeds expectations while employment data shows mixed signals, and consumer confidence improves despite persistent job availability concerns.
FEDERAL RESERVE POLICY
Rate Decision Maintains Status Quo: The FOMC maintained the federal funds rate at 4.25%-4.5% for the fifth consecutive meeting, reflecting continued concern about inflation risks particularly from tariff policies and strong economic growth 4
Internal Dissent Emerges: Two governors dissented from the decision, with Michelle Bowman and Christopher Waller preferring to lower the target range by .25 percentage points, while Adriana Kugler was absent and not voting 4
Policy Rationale Emphasizes Caution: The FOMC statement noted that “uncertainty about the economic outlook remains elevated” and emphasized the Committee’s attention to “risks to both sides of its dual mandate” 4
ECONOMIC PERFORMANCE
GDP Growth Exceeds Expectations: Second quarter growth reached 3.0% annualized, significantly exceeding forecasts and rebounding strongly from a 0.5% decline in the first quarter, largely attributed to changes in import levels influenced by tariff policies 14
Consumer Spending Shows Resilience: Consumer spending rose 1.4% in the quarter, contrasting with slower growth in the previous period, though economists caution that underlying economic conditions may not be as strong as the headline figure suggests 14
Investment Activity Declines: Gross private domestic investment fell sharply during the quarter, particularly in non-residential structures and residential investment, indicating potential weakness in business confidence and housing market conditions 14
POLITICAL PRESSURE
Presidential Response Intensifies: President Trump posted on Truth Social that rates “MUST NOW LOWER” and emphasized “No Inflation! Let people buy, and refinance, their homes!” representing continued tension between the administration and the central bank 15
FHFA Director Commentary: Bill Pulte described the Fed’s decision day as “a big day for Jay Powell, and of course, America,” while political pressure mounts amid concerns about high interest expenses for the government 15
EMPLOYMENT MARKET
Job Openings Continue Decline: Openings fell to 7.4 million in June from 7.7 million in May, indicating continued cooling of the labor market attributed to lingering effects of Fed rate hikes and trade policy uncertainties 16
Friday Employment Report Expectations: The unemployment rate is expected to tick up to 4.2% in July from 4.1% in June, with businesses, government agencies, and nonprofits expected to have added 115,000 jobs, representing a slowdown from June’s 147,000 16
Consumer Confidence Shows Improvement: The Conference Board’s index rose to 97.2 in July, a two-point increase from June, with consumers showing more positive short-term outlook regarding income and business conditions, while inflation expectations decreased to 5.8% 17
COMMERCIAL REAL ESTATE MARKETS (INCLUDING MULTIFAMILY)
DISTRESSED DEBT & MATURITY CRISIS
Overview: Commercial real estate is experiencing an unprecedented maturity drag crisis as borrowers and lenders struggle to resolve troubled loans, creating significant market stress.
$23 billion in CMBS loans now sit past maturity without payoff, liquidation, or extension—up from virtually zero in 2019 1
$42 billion total in delinquent CMBS loans, with $13 billion already beyond maturity and another $18 billion maturing within six months
Office properties carry highest baseline risk of exceeding maturity dates, followed by multifamily assets
Resolution delays increasingly tied to low debt yield rather than debt service coverage ratios as markets reassess property viability
Traditional workout mechanisms proving inadequate for current market conditions, signaling deeper structural financing issues
LENDING MARKET REBOUND
Overview: Despite maturity challenges, CRE lending is experiencing dramatic growth across key debt products, led by explosive CLO issuance and strong agency lending activity.
CRE CLO issuance projected to reach $32.5 billion in 2025—a staggering 274% increase from 2024’s $8.7 billion 2
CMBS conduit volumes expected to hit $35 billion, representing 6.4% growth from last year’s $32.9 billion
Single-borrower large loans rebounding to $90 billion—a robust 28% increase from 2024’s $70.5 billion
Agency lending surging 19% with Freddie Mac and Fannie Mae each expected to originate $65 billion by year-end
Interest rate spreads vary significantly by risk: Agency loans at 5.7%, CMBS conduits at 6.63%, CRE CLOs at 7.62%, single-borrower large loans at 8.30%
DEVELOPMENT PIPELINE SIGNALS
Overview: Architecture firms report declining billings, serving as an early indicator of potential challenges ahead for commercial real estate development activity.
AIA/Deltek Architecture Billings Index fell to 46.8 in June from 47.2 in May, remaining in negative territory (below 50 indicates declining conditions) 3
Business conditions soft nationwide with only the South showing slight billing increases for first time since October
Concerns about tariffs and broader economy impacting commercial real estate development spending decisions
Inquiries for new projects increased for second consecutive month, though value of newly signed design contracts continues decreasing
Architecture billings typically lead construction activity by 9-12 months, suggesting potential development slowdown ahead
MULTIFAMILY MARKET DYNAMICS
Overview: The apartment sector shows contradictory trends with individual asset sales rising while portfolio transactions plummet, reflecting a more selective investment environment.
National Transaction Trends
Q2 apartment sales fell 14% year-over-year to $35.1 billion, but first half 2025 volume reached $66.6 billion (5% increase) 4
Individual asset sales rose 15% to $28 billion, nearly matching pre-pandemic quarterly averages
Portfolio sales plunged 57% to $7.1 billion, reflecting challenging environment for large-scale transactions
Major markets (Boston, NYC, DC, LA, SF, Chicago) saw combined sales climb 6% to $6.7 billion
Regional Development Shifts
Miami and Houston gaining momentum while New York, Austin, & Phoenix construction starts slow sharply 5
Miami construction starts jumped 1,100+ units quarter-over-quarter and nearly 2,500 year-over-year
Eight of top 10 permitting metros saw fewer starts in Q2 2025 versus Q1, with only Miami and Houston posting gains
Twin Cities Case Study
6.9% vacancy rate with $1,560 average asking rents attracting outside investors 6
COVID-era owners selling at losses as debt matures after five- to seven-year holds with low interest rates
5,828 units under construction with Q2 marking lowest new deliveries in five years due to “supply cliff”
Buyers projecting 3-4% rent growth immediately upon acquisition, considered unique for Twin Cities market
INDUSTRIAL REAL ESTATE CHALLENGES
Overview: The industrial sector faces significant headwinds with vacancy rates hitting 13-year highs as new supply dramatically outpaces tenant demand.
Vacancy climbed to 7.3% in Q2 2025—highest level since 2013, marking 12th consecutive quarter of increases 7
Supply-demand imbalance stark: Net absorption at 23 million sq ft while new supply reached 71 million sq ft (3.1x gap)
Construction activity dropped 60% with just 281 million sq ft under construction versus Q4 2022 peak of 711 million sq ft
Lease rates still rose 4% year-over-year to $10.54 per sq ft despite vacancy pressures
Market stabilization expected by late 2025 with vacancy forecast to peak near 7.5% as construction slows
INDUSTRY NEWS
Overview: Mixed Q2 earnings results across real estate companies reveal strategic pivots toward merger and acquisition activity. The technology sector demonstrates strength in data centers while regional operators show resilience amid challenging market conditions.
STRATEGIC SHIFTS
Rithm Capital Pivots Strategy: The company announced it is delaying plans for a Newrez initial public offering, instead focusing on merger and acquisition opportunities despite macroeconomic uncertainty, with CEO Michael Nierenberg prioritizing business growth over separate listings 22
Strong Financial Position for M&A: Rithm reported robust Q2 performance with net income of $318 million, up from $80.7 million in Q1, while maintaining $2.1 billion in cash and liquidity specifically earmarked for strategic acquisitions 22
Newrez Operating Performance: The mortgage origination subsidiary posted a 19% pretax return on its $5.8 billion in equity, with funded loan volume totaling $16.3 billion compared to $14.6 billion in the same period last year 22
