Daily Dose of Real Estate

Daily Dose of Real Estate for October 7

Starter homes (median price of $260k) are leading the residential home sales market in terms of appreciation and the rate of sales. Surprisingly, the inventory levels for the starting home market have been expanding with “a lot” on the market. Housing affordability gets a bump from lower rates as it sees its highest levels in 2.5 yrs. Single Family residential continues to generate HPA above historical averages but condos are in the red YoY. President Trump calls on Fannie Mae and Freddie Mac to spur homebuilding, posting that major builders are “sitting on 2 million empty lots.” Such lending did occur for a limited time once before (pre FHFA) but it was shut down by HUD and later OFHEO – is was essentially a construction to perm loan – so this not without precedent. UWM beats out a RICO case as a US District Judge dismisses the racketeering case brought by 8k brokers (don’t see that every day). BLS report shows that Housing accounted for 63.5% of total Consumer Price Index increase in 2024, establishing shelter costs as dominant force behind persistent inflation. Legacy CRE loan struggles as loans originated in 2021-2022 facing refinancing challenges amid higher rates. CRE Lending volume has surged in the first half of 2025 jumping 13% quarter-over-quarter, with CMBS activity surging 110% year-over-year. Let’s get you caught up and out the door in 3 minutes. Tim

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Table of Contents

KEY MARKET TAKEAWAYS

Home affordability reaches 2.5-year high as mortgage rates averaged 6.26% in mid-September, with monthly payments now representing 30% of median household income, down from 35% peak in late 2023 1
Housing drove 63.5% of total inflation in 2024, with shelter costs alone contributing 58% of overall price increases, highlighting supply-side pressures as the primary inflation driver 2
Home prices accelerate to 1.2% year-over-year growth in September from 1.0% in August, with single-family homes leading at 1.5% while condos remain soft at -1.8% 3
Starter homes dominate market for 12th consecutive month, outpacing higher-priced properties as affordability concerns drive buyer behavior toward entry-level housing 4
Government shutdown creates economic data blackout, suspending key releases including September jobs report while Treasury yields rise amid policy uncertainty 5
CMBS distress rates decline to 8.59% in September from 9.44% in August, signaling modest market stabilization despite ongoing office sector challenges 6
Multifamily fundamentals improving: CBRE projects 4.9% vacancy rate and 2.6% rent growth for 2025, with construction starts expected to be 74% below 2021 peak 1
CMBS distress declining: September delinquency rates dropped to 8.59% from 9.44% in August, with special servicing falling to 10.63% 2
Data center consolidation accelerates: Brookfield-backed Centersquare deploys $1 billion cash for 10 data centers, expanding to 80 facilities globally 3
Massive industry pivot: Prologis announces $8 billion investment to convert warehouses into AI data centers, targeting 100 facilities globally 4

RESIDENTIAL REAL ESTATE MARKETS

The residential market is experiencing a significant affordability improvement driven by falling mortgage rates, leading to accelerating price growth and improved market breadth. Starter homes continue dominating sales activity while regional variations persist across the country.

AFFORDABILITY REACHES MULTI-YEAR HIGHS

Monthly mortgage payments drop to $2,148 representing just 30% of median household income, down from 35% peak in late 2023 1
Mortgage rates averaged 6.26% in mid-September following the Federal Reserve’s quarter-point rate cut on September 17th 7
Rates briefly touched 6.22% in mid-September, their lowest level in nearly a year, before rebounding to current levels around 6.34% 1

PRICE GROWTH SHOWS ACCELERATION SIGNS

Home prices accelerated to 1.2% year-over-year growth in September, up from revised 1.0% in August, marking first re-acceleration after eight consecutive months of slowing 3
Single-family homes increased 1.5% year-over-year, up from 1.3% in August, while condo market remains challenged with prices down 1.8% 3
Seasonally adjusted prices rose 0.17% in September, equivalent to annualized rate of 2.1%, suggesting annual growth may tick higher in coming months 3

MARKET BREADTH IMPROVES DRAMATICALLY

Only 20% of markets experienced price declines in September, representing fewest in nine months and substantial decrease from 55% two months prior 3
80% of markets saw price increases, highest share in nine months, indicating broad-based market stabilization 1
Market correction may be reaching trough across most metropolitan areas based on improving breadth metrics 3
Starter homes leading market for twelfth consecutive month, significantly outpacing sales of higher-priced properties 4

REGIONAL VARIATIONS PERSIST

Northeast emerges as strongest performer with Connecticut and New York both posting 7.5% annual increases in Q2 2025 8
Florida markets show significant weakness with Colorado recording slowest growth at 0.9% and Florida at just 1.0% 8
24 of 337 metro areas experiencing price declines, with steepest drops in Florida markets including Punta Gorda at -7.4% and Cape Coral-Fort Myers at -6.6% 8
Sumter, South Carolina leads growth at 18.0%, followed by Auburn-Opelika, Alabama at 11.8% 8

MORTGAGE MARKETS

The mortgage market continues navigating complex interest rate dynamics with expectations of further Federal Reserve cuts. Credit quality remains at historic highs while delinquency trends show mixed signals and CMBS markets demonstrate stabilization.

RATE ENVIRONMENT REFLECTS FED EXPECTATIONS

Current 30-year fixed-rate mortgages at 6.34% as of October 2nd, representing modest increase from recent low of 6.22% in mid-September 7
Federal Reserve odds makers reveal near certainty of another 25 basis point rate cut during this months FOMC meeting according to CME Group’s FedWatch tool 7
Mortgage rates often reflect anticipation rather than actual Fed actions, as demonstrated when rates increased following September’s rate cut 7

CREDIT QUALITY REACHES HISTORIC LEVELS

Average credit scores for purchase locks climb above 736, representing highest level in ICE’s six-year dataset 1
Debt-to-income ratios for purchase loans fell to 2.5-year low of 38.5%, while rate-and-term refinance DTI ratios dropped to 34.1%, lowest in 3.5 years 1
Borrower profiles continue strengthening across mortgage market with improved financial metrics 1

DELINQUENCY TRENDS SHOW MIXED SIGNALS

National delinquency rates rose 16 basis points in August to 3.43%, representing 10 basis point increase from same period last year 1
Calendar effects influenced August uptick as month ended on Sunday, pushing some last-day payments into September and creating temporary distortions 1
Servicing landscape presents nuanced picture of borrower performance with mixed regional variations 1

REGULATORY DEVELOPMENTS

Regulatory activity focuses on Trump administration pressure on GSEs for homebuilding support, FHFA implementing operational changes, and significant legal victories for major lenders. Government shutdown creates operational disruptions across housing agencies.

TRUMP PRESSURES GSES ON HOMEBUILDING

President Trump calls on Fannie Mae and Freddie Mac to spur homebuilding, posting that major builders are “sitting on 2 million empty lots, A RECORD” 9
GSEs primarily buy loans and set creditworthiness standards rather than directly supporting builders, making mechanics of homebuilding incentives unclear 9
Lower interest rates would be more effective in spurring construction activity as builders face elevated completed inventory levels 9

UWM SECURES MAJOR LEGAL VICTORY

U.S. District Judge dismisses most charges in high-profile racketeering lawsuit against United Wholesale Mortgage 10
Judge tosses all but two claims against megalender accused of steering borrowers to higher-cost loans through captive broker relationships 10
Over 8,000 independent brokers sending 99% of loans to UWM according to Hunterbrook Media report that sparked lawsuit 10
Plaintiffs failed to meet RICO violation requirements as underlying fraudulent acts focused on broker conduct rather than UWM’s actions 10

GOVERNMENT SHUTDOWN IMPACTS OPERATIONS

Significant disruptions across housing agencies with potential delays in FHA and VA loan processing 5
Federal workers face potential layoffs if negotiations fail to progress according to White House National Economic Council Director 5
Key economic data releases suspended including September jobs report scheduled for Friday 5

ECONOMIC NEWS

Economic data reveals housing as the primary inflation driver in 2024, while government shutdown creates data blackout. Federal Reserve officials will provide crucial market guidance amid mixed macroeconomic signals and rising Treasury yields.

HOUSING EMERGES AS PRIMARY INFLATION DRIVER

Housing accounted for 63.5% of total Consumer Price Index increase in 2024, establishing shelter costs as dominant force behind persistent inflation 2
Shelter component contributed 58% of total inflation in 2024 despite moderating from 6.2% to 4.6% between 2023 and 2024 2
Housing inflation moderated from 4.8% in 2023 to 4.1% in 2024 yet remained key obstacle preventing Fed from reaching 2% inflation target 2

SUPPLY-SIDE CONSTRAINTS DRIVE PERSISTENT PRESSURES

Shelter inflation driven by lack of affordable supply and rising construction costs, factors monetary policy alone cannot address effectively 2
Shelter inflation continued rising despite mortgage rates surging from 3% to 7%, demonstrating limited effectiveness of demand-side interventions 2
Construction costs matter for both housing and overall inflation, with tight monetary policy hurting housing supply by increasing financing costs 2

SHUTDOWN CREATES DATA VOID AND UNCERTAINTY

Suspension of major federal data releases makes asset prices especially sensitive to narrative shifts and sentiment volatility 11
Treasury yields moved higher Monday with 10-year yield rising 4+ basis points to 4.16% and 30-year bond climbing 4+ basis points to 4.757% 5
2-year Treasury yield increased 2 basis points to 3.592% as investors grapple with limited economic visibility 5

FED OFFICIALS TO PROVIDE MARKET GUIDANCE

Fed Governor Stephen Miran speaks Wednesday and Chair Jerome Powell speaks Thursday, providing crucial policy guidance 5
Federal Open Market Committee meeting minutes release Wednesday will offer insights into recent policy decisions 12
Chicago Fed President Austan Goolsbee and St. Louis Fed President Alberto Musalemscheduled to speak later in week 5

MIXED MACROECONOMIC INDICATORS

Consumer Price Index inflation cooled to 2.9% year-over-year, approaching Fed’s target while Fed’s target range sits at 4.00-4.25% 6
Nonfarm payrolls grew by 22,000 while unemployment held steady at 4.3%, indicating modest but stable economic conditions 6
Rail traffic data shows concerning trends with both intermodal and carload shipments decreasing year-over-year in September 13
Gold prices hit fresh record highs with experts predicting metal could reach $4,000 per ounce by early 2026 14

COMMERCIAL REAL ESTATE MARKETS

The commercial real estate markets are showing mixed signals with multifamily fundamentals improving while government disruptions create localized pressures.

MULTIFAMILY RECOVERY SIGNALS

Vacancy rates stabilizing: CBRE projects 4.9% vacancy rate for 2025 with 2.6% rent growth as construction starts fall 74% below 2021 peak 1
Regional rent divergence: U.S. rents fell 0.8% year-over-year in September, with Sun Belt markets leading declines while San Francisco posted fastest growth 4
Supply pipeline peaking: Ten of 16 markets with largest supply pipelines have reached peak deliveries, with remaining six (Charlotte, Fort Lauderdale, Phoenix, Raleigh, Riverside, San Antonio) expected to peak in 2025 1
Construction activity declining: New construction starts projected 30% below pre-pandemic averages by mid-2025, signaling supply relief ahead 1

RENTAL DEMAND

Homeownership affordability crisis: Average newly originated mortgage payments 35% higher than average apartment rents as of Q3 2024, driving rental demand 1
Cost premium persisting: Buy-versus-rent premium expected to ease only slightly to 32% by end of 2025, maintaining strong rental market fundamentals 1

COMMERCIAL FINANCING MARKETS

The financing landscape shows stabilization in interest rates but faces uncertainty from government data blackouts. Lending activity is surging while legacy loans struggle with refinancing pressures, creating a bifurcated market environment.

LENDING MARKET BIFURCATION

Legacy loan struggles: Loans originated in 2021-2022 facing refinancing challenges amid higher rates, while new originations increase with stronger terms 7
Lending volume surge: Early 2025 lending jumped 13% quarter-over-quarter, with CMBS activity surging 110% year-over-year 7
Private lender growth: Private lenders now account for 24% of US CRE lending, driving much of the recent growth in origination activity 7

MATURITY WALL

$957 billion coming due: CRE markets face massive refinancing wave in 2025, including $450 billion from banks and $230 billion from CMBS/CRE CLOs 2
REIT strategic positioning: Annaly Capital acquiring PennyMac mortgage servicing rights portfolio, reflecting broader REIT strategies to capitalize on below-market opportunities 8

CMBS MARKET DEMONSTRATES STABILIZATION

CMBS delinquency rates declined to 8.59% in September from 9.44% in August, while specially serviced loans dropped to 10.63% 6
Private-label CMBS issuance reaches $91.4 billion year-to-date, representing 26% year-over-year increase 6
Agency CMBS volumes surge 39% to $105.7 billion, while CRE CLO issuance jumps 234% to $22.7 billion 6
Office assets remain primary source of distress while retail and hotel sectors show recovery signs 6

COMMERCIAL SERVICING MARKETS

Servicing markets are showing improvement with declining CMBS distress rates, though sector performance varies dramatically. Issuance activity remains robust despite elevated distress levels, indicating continued investor appetite for structured products.

CMBS DISTRESS

September metrics decline: Delinquency rates fell to 8.59% from 9.44% in August, while special servicing dropped to 10.63% from 10.95% 2
Combined distress rate: Total distress rate decreased to 11.28%, showing meaningful improvement across CMBS markets 2

SECTOR PERFROMANCE

Office properties: Continue leading distress volumes with elevated delinquencies across major markets 2
Multifamily distress: Rising distress levels but outperforming office sector in relative terms 2
Retail and hotel improvement: Both sectors showed relative improvement in September distress metrics 2
Industrial strength: Remains strongest-performing sector with lowest distress rates 2

ISSUANCE ACTIVITY

Private-label CMBS: Reached $91.4 billion year-to-date, up 26% year-over-year despite market headwinds 2
Agency CMBS surge: Climbed 39% year-over-year to $105.7 billion, showing strong government-backed issuance 2
CRE CLO explosion: Surged 234% year-over-year to $22.7 billion, reflecting investor appetite for higher-yield structured products 2

INDUSTRY NEWS

The industry is experiencing massive capital deployment in data centers while traditional sectors navigate strategic partnerships and refinancing waves. Government shutdown impacts are creating operational challenges and market uncertainty.

DATA CENTER CAPITAL DEPLOYMENT

Centersquare $1 billion acquisition: Brookfield-backed firm completed all-cash purchase of 10 data centers across Boston, Minneapolis, Dallas, Toronto, Montreal, Nashville, Raleigh, and Tulsa 3
Portfolio expansion: Acquisition brings total to 80 facilities spanning U.S., Canada, and UK, adding 71 MW capacity in Canada and 26 MW in U.S. 3
AI infrastructure positioning: Company now serves 200+ customers across 3.5 million square feet and 400 MW capacity, focusing on AI workloads for generative AI, machine learning, and advanced analytics 3

PROLOGIS INFRASTRUCTURE TRANSFORMATION

$8 billion AI pivot: Industrial REIT announced investment to build 20 data centers, scaling to 100 facilities globally in shift “from real estate to infrastructure” 4
Energy diversification: Pursuing “all of the above” energy approach with nuclear, natural gas, and solar sources while expanding rooftop solar across 1.3 billion square foot warehouse network 4
Capacity pipeline: Company already consuming 3.4 gigawatts of capacity in development pipeline 4

MAJOR REFINANCING ACTVITY

Starlight $1 billion refi: Joint venture with PSP Investments and Future Fund finalizing refinancing for nearly 6,000 multifamily units across eight states 5
CMBS loan structure: Includes $972 million, two-year interest-only CMBS loan at 5.35% with three one-year extension options 5

MARKET MILESTONES & TRENDS

Global real estate valuation: Total value reached $393.3 trillion, surpassing equities, debt, and gold combined, with U.S. and China leading 9
Strategic partnership acceleration: M&A cooling driving alliance formation as institutional investors align with private capital, sovereign wealth funds, and insurers for specialized sector access 7

MAJOR BANKING CONSOLIDATION ANNOUNCED

Fifth Third Bancorp announces $10.9 billion acquisition of Comerica, creating ninth-largest bank in United States 15
Deal expected to close by end of Q1 2026, significantly enhancing Fifth Third’s presence in high-growth markets, particularly Southeast and Texas 15
Comerica shares rose 11% in pre-market trading while Fifth Third shares declined 2% following announcement 15

CHICAGO BROKERAGE LANDSCAPE SHIFTS

Compass gains seven-agent team from Dream Town in Chicago, forming Terra Group with $55 million in combined sales 17
Baird & Warner emerges as largest independent brokerage following acquisition of Dream Town earlier this year 17
Agent migration demonstrates Compass’s technology platform and exclusive listing strategy continues attracting top talent 17

MULTIFAMILY REFINANCING MILESTONE

Starlight Investment’s joint venture secures over $1 billion refinancing for nearly 6,000 multifamily units across eight states 18
Financing consists of $972 million, two-year interest-only CMBS loan at 5.35% with extension options plus $50 million mezzanine component 18
Deal underscores continued institutional appetite for quality multifamily assets despite broader market challenges 18