Today’s newsletter was prepared by our AI platform ALFReD. Know Better. Work Smarter. Be More Successful.

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Key Takeaways

• Housing inventory continues to climb, with active listings up 27.7% year-over-year, marking the 83rd consecutive week of annual gains 1
• Mortgage rates have dropped to the lowest level in over a month, currently averaging 6.91% for a 30-year fixed mortgage 2
• May’s Producer Price Index (PPI) showed a modest 0.1% increase, with construction costs rising 0.3% 3
• Homeowners near Oakmont Country Club are capitalizing on the U.S. Open by renting out their driveways for up to $100 per day 4
• FHFA’s Q1 2025 Prepayment Monitoring Report reveals a 15% quarter-over-quarter increase in prepayment activity 5
• Nearly 60% of recent homebuyers experienced buyer’s remorse according to ListWithClever’s 2025 survey 6
• CRE – The Q2 2025 Real Estate Roundtable Sentiment Index registered 54, down 14 points from Q1, reflecting growing caution about policy direction, rising costs, and execution risks. 1
• CRE – Market opinions remain divided with 37% of respondents believing conditions have worsened compared to last year, 37% seeing improvement, and 26% perceiving conditions as unchanged. 1
• CRE – Small investors now dominate the real estate investment landscape, accounting for 59% of all investor purchases in 2024 – the highest share in recorded history – while large investors’ share fell to a 17-year low of 21.7%. 2
• Industrial property rents are stabilizing nationwide, with asking and effective rents growing by just 0.3% in Q1 2025, marking the first time since 2020 that rent growth was less than 0.5% in back-to-back quarters. 3
• CMBS loan losses increased in April 2025, with six loans totaling $134.2 million resolved with $64.7 million in losses, representing an average loss severity of 48.22%, down from 81.27% in March. 4

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Residential Real Estate Markets

Overview: The housing market is showing signs of becoming more buyer-friendly with growing inventory and moderating price growth, though buyer’s remorse is at record levels and affordability remains a challenge.

• Inventory reaches post-pandemic high: Active listings are up 27.7% year-over-year, with more than 1 million homes for sale for six consecutive weeks – the highest level since December 2019 1
• Slower market pace benefits buyers: Homes are taking six additional days to sell compared to last year, giving buyers more time to make decisions and potentially negotiate better terms 1
• New listings continue to grow: New listings rose 5.2% year-over-year last week, continuing the positive momentum that began earlier this spring 1
• Widening price gap favors negotiation: The median home sale price ($397,000) is now 7% below the median list price ($425,950), with only 28% of homes selling above asking price – the lowest level for this time of year since 2020 7
• Buyer’s remorse hits record levels: 59% of recent homebuyers report some form of regret, up from 52% in 2024, with unexpected maintenance costs (28%), purchasing a too-small home (27%), and undesirable location (22%) being the top complaints 6
• First-time buyers struggle most: First-time homebuyers are 1.5 times more likely to experience regret than repeat buyers, and 31% of all buyers reported spending an average of $42,000 more than initially budgeted 6
• Creative real estate monetization: Homeowners near Oakmont Country Club are charging $40-$100 per day to let U.S. Open golf fans park in their driveways, with some expecting to earn over $2,000 during the week-long tournament 4

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Mortgage Markets

Overview: Mortgage rates have eased slightly while prepayment activity is increasing, suggesting improved refinance opportunities for some homeowners as the market stabilizes.

• Rates drop to one-month low: The current average rate for a 30-year fixed mortgage is 6.91%, representing the lowest level in over a month and translating to $2,254 in annual savings on a $340,000 loan compared to the national average 2 8
• Prepayment activity surges: FHFA’s Q1 2025 report shows a 15% increase in prepayment activity compared to the previous quarter, with highest rates among loans originated in 2022 and early 2023 when rates peaked 5
• Regional and loan size variations: West Coast and Northeast show highest prepayment rates, while jumbo conforming loans (above $647,200) have prepayment rates nearly twice as high as loans below $300,000 5
• Application volume increases: Mortgage applications jumped 12.5% for the week ending June 6, with purchase applications up 10% week-over-week and 20% year-over-year 8
• Fed outlook remains uncertain: Despite softer inflation data, there is essentially no chance of a Fed rate cut at next week’s meeting, though traders are betting on an additional cut by year-end 2

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Economic & Political News

Overview: Economic indicators show modest inflation and moderating job growth, while real estate industry sentiment has declined significantly from the previous quarter.

• Producer prices edge up slightly: The Producer Price Index advanced 0.1% in May after declining in both March and April, with the 12-month increase at 2.6% 3
• Construction costs continue to rise: Prices for final demand construction increased 0.3% in May, indicating continued but moderating inflation in building materials 9
• Job growth moderates: The economy added 139,000 jobs in May with the unemployment rate unchanged at 4.2%, showing a resilient but cooling labor market 10
• Regional inflation varies: The Midwest region’s Consumer Price Index advanced 0.2% in May and 2.4% year-over-year, with housing costs being a significant contributor to the increase 11
• Real estate sentiment declines: The Q2 2025 Real Estate Roundtable Sentiment Index registered 54, down 14 points from the previous quarter, reflecting uncertainty around policy direction, rising costs, and execution risk 12

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Commercial Real Estate Markets (including Multifamily)

Overview: The commercial real estate landscape continues to evolve with significant legislative developments, shifting market dynamics, and emerging sector trends. Recent data shows mixed sentiment among industry leaders, while capital availability has improved despite ongoing challenges in certain sectors.

“The One Big Beautiful Bill” – Potential CRE Impact

Overview: The House-passed tax legislation, currently under Senate review, contains several provisions that could significantly impact commercial real estate investment and development.

• 100% Bonus Depreciation: The bill would reinstate 100% bonus depreciation for eligible property purchased and placed in service between January 19, 2025, and January 1, 2030, up from the current 40% deduction that was set to phase out by 2027. 5
• 199A Deduction Enhancement: The legislation not only seeks to make permanent the 20% qualified business income deduction from passthrough entities (scheduled to expire in 2025), but also increases it to 23%, benefiting real estate investors and developers. 5
• Opportunity Zone Revival: The bill extends and modifies the Qualified Opportunity Zone Program, potentially breathing new life into real estate opportunities in designated zones by expanding tax benefits. 5
• Foreign Investment Concerns: The Section 899 “revenge” tax could impose a 5%-20% withholding tax on foreign businesses operating in the U.S. whose home countries impose “unfair foreign taxes” on U.S. businesses, potentially impacting foreign CRE investments. 5
• Carried Interest Unchanged: Despite previous discussions about eliminating preferential tax treatment for carried interests, the current bill doesn’t include any changes to the three-year holding period for capital gains rates qualifications. 5

Industrial Real Estate Trends

Overview: The industrial sector is showing signs of stabilization after years of explosive growth, with emerging trends and property types gaining investor attention.

• Market Equilibrium: After years of demand outpacing supply, industrial markets are stabilizing with national vacancies remaining at or above 6.0% since Q3 2023—still well below pre-pandemic averages. 3
• Rent Growth Moderation: Asking and effective rents grew by just 0.3% in Q1 2025 nationwide, matching Q4 2024 growth and marking the first time since 2020 that rent growth was less than 0.5% in consecutive quarters. 3
• AI and Proptech Adoption: Technology is transforming industrial operations by helping identify viable locations, manage inventory, automate repetitive tasks, and predict maintenance needs, while AI adoption is driving increased demand for data centers. 3
• Reshoring Impact: New construction is expected to expand U.S. manufacturing space by 6% to 13% by 2034, with the Midwest and Southeast seeing growing demand for production-ready industrial space due to reshoring initiatives. 3
• Emerging Property Types: Industrial outdoor storage (IOS) and cold storage facilities are seeing increased demand, with some urban locations building multi-story facilities with truck ramps to maximize space in densely populated areas. 3

Multifamily Market Update

Overview: The multifamily sector is showing signs of recovery in certain regions while facing challenges in others, with geographic variations becoming more pronounced.

• Regional Variations: Multifamily is showing encouraging signs of recovery, particularly in the Midwest region, with industry executives noting, “While it’s still not a healthy market, multifamily is in a better place than a year ago.” 1
• Sunbelt Challenges: The Sunbelt region faces near-term challenges due to elevated supply and softened demand, though long-term prospects remain positive as “multifamily demand trends still look healthy in the long run – we’re still underbuilt nationally.” 1
• Compressed Returns: In Manhattan, multifamily properties are trading at cap rates as low as 4.75%, making it difficult to generate positive leverage from mortgage financing despite the overall cautious market sentiment. 6

Office Sector Bifurcation

Overview: The office sector continues to show a stark division between high-end and commodity space, with significant implications for investors and developers.

• Trophy vs. Commodity: Approximately 25% of office assets are performing well, primarily trophy buildings with amenities that are attracting tenants, while commodity space continues to struggle with occupancy. 1
• Repositioning Challenges: Office repositioning remains difficult due to the substantial gap between functional obsolescence and the capital required for renovation, suggesting many older office buildings may face demolition rather than conversion. 1

Capital Markets

Overview: Despite cautious sentiment, capital availability has shown improvement across various sources, though deployment remains selective.

• Increased Lending: Bank lending has surged more than 100% and investment sales volume has increased by 60%, with closed-end funds now holding over $360 billion in dry powder ready for deployment. 6
• Debt Capital Improvement: 43% of respondents to the Q2 RER Sentiment Survey indicate that debt capital availability has improved compared to last year, with 39% anticipating better conditions in the coming year. 1
• CMBS Market Evolution: The CMBS market remains structurally sound but has seen its influence diminish, with conduit issuance now accounting for less than one-third of the market and deal sizes shrinking significantly. 6