You can no longer say that “every market” is unaffordable. It turns out that there are nearly a whole dozen (smell the sarcasm) large markets that have returned to normal affordability – primarily Midwest markets. Purchase demand begins to strengthen as even modestly improved affordability creates opportunities for both buyers and refinance borrowers. Refinance activity jumped by nearly 80% in just four weeks – triggered by a rates dropping to 6.25% – when 3.6 million borrowers become “in the money” for rate-and-term refinances. Housing inventory remains 17-19% below pre-pandemic norms (it got to as low as half nationally and substantially worse in some markets) contributing to continued price pressures in many markets. Nearly half of markets remain below recent price peaks indicating uneven nature of recovery across regions. Major overhaul proposed by US Regulators targeting bank capital rules in the 2023 Basel Endgame framework. The tendency is towards easing reserve requirements for large banks which could boost commercial real estate lending by freeing up capital for new loans. Let’s get you caught up and out the door in 3 minutes. Tim
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KEY TAKEAWAYS
- Mortgage affordability hits 2.5-year high as 30-year rates averaged 6.26% in mid-September, with monthly payments dropping to 30% of median household income 1
- Government shutdown creates data blackout affecting Fed policy decisions, with September jobs report and other key economic indicators delayed indefinitely 2 3
- Trump pressures GSEs on homebuilding, calling on Fannie Mae and Freddie Mac to push builders sitting on “2 million empty lots” to jumpstart construction 4
- HUD seeks major HECM program overhaul through new RFI addressing 59% decline in reverse mortgage endorsements since 2022 5
- Home price growth shows regional divergence with Northeast markets up 6-7% annually while Florida, Texas, California, and other states show negative appreciation 6
- Refinance activity surges 80% over four weeks as 3.6 million borrowers become “in the money” for rate-and-term refinances when rates dipped below 6.25% 1
- Sector Divergence Reaches Historic Levels: CRE return dispersion hits 40-year highs with industrial properties up 12% over five years while office returns dropped 4%, signaling fundamental structural shifts in commercial real estate 1
- Basel Endgame Rollback Could Unleash Billions in CRE Lending: Proposed regulatory changes targeting banks holding half of all commercial real estate loans may significantly ease capital requirements and lower borrowing costs 4
- Texas Leads National Foreclosure Activity: $575 million in CRE loans headed to foreclosure in October, with Houston accounting for $270 million across 11 properties, mostly multifamily assets originated during 2022-2023 low-rate period 5
- Data Centers Emerge as AI Infrastructure Winner: Demand six times higher than 2021 levels drives Prologis to announce $8 billion warehouse-to-data center conversion strategy, highlighting critical infrastructure needs 1 6
RESIDENTIAL REAL ESTATE MARKETS
Residential markets showed mixed signals in September with affordability reaching multi-year highs while regional price divergence intensified. National home price growth ticked up to 1.2% year-over-year, but this modest average masks significant variations across regions, with 80% of markets experiencing price increases.
AFFORDABILITY REACHES MULTI-YEAR HIGH
- Monthly payments drop to 30% of median income – down from 35% peak in late 2023, representing the highest affordability since early 2023 1
- 30-year mortgage rates averaged 6.26% in mid-September, with monthly principal and interest payment on average-priced home at $2,148 1
- Dozen largest markets return to normal affordability – primarily Midwest markets, while Los Angeles still requires 62% of median income for typical mortgage payment 1
- Purchase demand begins to strengthen as improved affordability creates opportunities for both buyers and refinance borrowers 1
REGIONAL PRICE DIVERGENCE INTENSIFIES
- National home price growth at 1.2% annually in September, well below 2.9% inflation rate but up from recent months 1
- 80% of markets show price increases – highest share in nine months, indicating broad-based but uneven recovery 1
- Northeast leads with 6-7% annual appreciation while Florida, Texas, California, Arizona, Colorado, Hawaii, and Washington D.C. show negative price growth 6
- Escrow costs up 45% over five years in negative-growth states due to higher property taxes and insurance premiums 6
INVENTORY DYNAMICS AND MARKET CONDITIONS
- Housing inventory 17-19% below pre-pandemic norms contributing to continued price pressures in many markets 1
- Nearly half of markets remain below recent price peaks indicating uneven nature of recovery across regions 1
- September sales up 7.0% year-over-year in early reporting markets, significant improvement from August’s 1.8% decline 7
- Western markets see inventory backtrack while Northeast maintains deep inventory deficits, driving strongest price firming 1
MORTGAGE MARKETS
Mortgage markets experienced dramatic shifts with refinance volumes surging 80% as rates declined through September. Current rate environment shows median purchase rates at 6.125% while borrower quality metrics reach record highs with average credit scores above 736.
REFINANCE BOOM DRIVES MARKET ACTIVITY
- Refinance volumes surge 80% over four weeks according to Mortgage Bankers Association, with rate-and-term refinances accounting for two-thirds of activity 1
- 3.6 million borrowers “in the money” for refinance when rates dipped below 6.25%, able to cut rates by at least 75 basis points 1
- Average credit score climbs above 736 for purchase locks, reaching record high levels 1
- Debt-to-income ratios fall to two-year lows suggesting current market attracts more creditworthy borrowers 1
RATE ENVIRONMENT AND MARKET OUTLOOK
- Median purchase rate holds at 6.125% in Week 40 2025, according to AEI Housing Finance Watch 8
- Average 30-year rate at 6.38% on October 6th per Mortgage News Daily, up from recent lows but below 52-week average of 6.71% 8
- Freddie Mac 30-year rate at 6.34% as of October 2, 2025, up from 6.30% previous week 9
- Government shutdown expected to pressure rates lower as data blackout and economic uncertainty may prompt additional Fed rate cuts 1
SERVICING MARKET CONSOLIDATION
- Annaly Capital acquires major MSR portfolio from Pennymac Financial Services, enhancing position as leading agency MBS servicer 10
- Pennymac portfolio includes $228.8 billion UPB for PennyMac Mortgage Investment Trust, up 5% from March and 17% from June 2024 10
- Transaction optimizes capital allocation while maintaining customer experience focus in competitive servicing market 10
REGULATORY DEVELOPMENTS IN REAL ESTATE
Regulatory landscape dominated by Trump administration pressure on GSEs for increased homebuilding, HUD’s comprehensive HECM program review, and speculation around potential Fannie/Freddie privatization. Government shutdown significantly impacts federal housing agency operations.
TRUMP ADMINISTRATION PRESSURES GSES ON HOUSING SUPPLY
- Trump calls on Fannie/Freddie to spur construction accusing builders of “sitting on 2 million empty lots, a record” and comparing behavior to OPEC oil control 4
- New houses for sale at 490,000 in August – lowest level this year and 1.4% below July estimates, despite inventory rebound from 2022 lows 4
- Mechanics of GSE homebuilding role unclear with experts pointing to interest rates and regulatory hurdles as key barriers rather than financing availability 4
GSE PRIVATIZATION SPECULATION INTENSIFIES
- Potential “largest IPO ever” speculation with industry observers noting Fannie/Freddie privatization as “a deal that every bank wants to be part of” 11
- Fannie Mae completes $2 billion CAS tender offer for Connecticut Avenue Securities Notes, closing October 3, 2025, with BofA Securities as lead dealer manager 12
- Trump administration previously indicated interest in ending GSE conservatorship, though specific timelines and mechanisms remain unclear 11
HUD SEEKS MAJOR HECM PROGRAM OVERHAUL
- Comprehensive RFI published October 2, 2025 titled “Future of the HECM and HMBS Programs and Opportunities for Innovation in Accessing Home Equity” 5
- HECM endorsements declined 59% since 2022 with Ginnie Mae HMBS program seeing only $6.3 billion securitized in 2024 – same level as decade ago 5
- 21 specific questions across five topics covering Program Performance, Consumer Demand, Origination Volumes, Liquidity, and Program Improvements 5
- Comments due December 1, 2025 for comprehensive review of reverse mortgage program structure and effectiveness 5
FEDERAL AGENCY OPERATIONS DURING SHUTDOWN
- HUD operations largely stopped with 71% of staff furloughed, maintaining only skeleton crew for essential functions and emergencies 13
- FHA closes existing commitments only – will not accept new multifamily applications, with existing deals facing significant delays 13
- Key economic data releases suspended including monthly jobs and inflation reports from BLS, BEA, and Census Bureau 3
ECONOMIC NEWS
Federal government shutdown creates unprecedented economic data blackout complicating Fed policy decisions ahead of October 29 FOMC meeting. Consumer sentiment deteriorates amid economic uncertainty while gold hits record $4,000+ per ounce as safe-haven demand surges.
DATA BLACKOUT COMPLICATES FED POLICY DECISIONS
- September jobs report delayed indefinitely along with other key economic indicators, leaving Fed with limited visibility for October 29 FOMC meeting 14
- “Uneasy period for the economy” with recent months showing sharp hiring slowdown alongside rising inflation – potential “stagflation” conditions 3
- High bar set for FOMC policy changes as absence of data makes it difficult to alter cadence of rate cuts, according to BMO Capital Markets 2
- Labor market and inflation risks top-of-mind for policymakers operating with unprecedented information vacuum 14
CONSUMER SENTIMENT AND MARKET REACTIONS
- Gold futures rise above $4,000 per ounce for first time as investors seek safe-haven assets amid shutdown and economic concerns 15 16
- Americans increasingly pessimistic about financial future expressing concerns about job security and financial prospects 15
- Trump threatens mass federal firings potentially shuttering federal offices permanently as part of government restructuring efforts 17
- Federal employee layoffs to start if negotiations deemed “going nowhere” according to White House National Economic Council Director Kevin Hassett 17
COMMERCIAL REAL ESTATE MARKETS
Mixed signals across CRE sectors as multifamily faces supply pressures while industrial and data centers outperform. Return dispersion reaches 40-year highs.
COMMERCIAL REAL ESTATE MARKETS
- Multifamily Recovery Timeline: CBRE (report from Q1) projects average vacancy rate will end 2025 at 4.9%with rent growth at 2.6%, despite developers adding more units than any period since the 1970s 1
- CRE Returns Hit 40-Year Dispersion: Industrial properties up 12% over five years while office returns dropped 4%, with data centers showing demand six times higher than 2021 levels driven by AI infrastructure 2
- Apartment Rents Drop for First Time Since 2009: Effective asking rents fell 0.3% in Q3 2025, with oversupplied markets like Denver and Austin facing steepest declines 3
COMMERCIAL FINANCING MARKETS
- Basel Endgame Rollback: US regulators preparing most significant bank capital rule overhaul since 2008, targeting institutions holding about half of all commercial real estate loans 4
- CMBS Spreads Tighten: Commercial mortgage-backed securities spreads tightened to multi-year lows, signaling improved market conditions and increased investor appetite 5
COMMERCIAL SERVICING MARKETS
- Texas Foreclosure Volume: $575 million in CRE loans headed to foreclosure in October, down from $710M in September, with Houston leading at $270 million across 11 properties 6
- Multifamily Dominates Distress: Most foreclosure properties are apartments with 2022-2023 origination loans, including $42M Adenine Apartments in Houston and $30.5M Barcelo Apartments in San Antonio 6
- Acore Seeks $80M in Guarantees: Acore Capital filed lawsuits seeking $80.7 million in personal guarantees from Jon Venetos following defaults on $394M in loans tied to 12 Florida apartment complexes 7
- Rescue Equity Goes Selective: S2 Capital deployed $60M in rescue capital for underperforming apartment portfolios in Dallas, Nashville, and Knoxville as investors adopt patient, hands-on strategies 8
INDUSTRY NEWS
Major banking consolidation dominates industry news with Fifth Third’s $10.9 billion acquisition of Comerica creating ninth-largest U.S. bank. Mortgage servicing sector sees continued consolidation while Federal Home Loan Banks expand affordable housing initiatives.
MAJOR BANKING CONSOLIDATION: FIFTH THIRD ACQUIRES COMERICA
- $10.9 billion all-stock deal announced October 6 creating ninth-largest U.S. bank with approximately $288 billion in assets 18
- Comerica shareholders receive 1.8663 Fifth Third shares valued at $82.88 per share, representing 20% premium to 10-day average 18
- Fifth Third shareholders own 73% of combined entity with Comerica shareholders holding remaining 27%, deal expected to close Q1 2026 19
- Operations span Southeast, Texas, California with more than half of branches anticipated in Southeast, Texas, Arizona, and California by 2030 20
- Comerica CEO Curt Farmer becomes vice chair while Chief Banking Officer Peter Sefzik heads Wealth & Asset Management unit 20
CREDIT RATING ACTIONS
- Fitch affirms Adams Homes at ‘B+’ IDR while downgrading revolver rating, citing home price concerns and deteriorating economic conditions 21
- Rating action reflects homebuilding sector pressures as companies navigate challenging market conditions and elevated borrowing costs 21
FEDERAL HOME LOAN BANK UPDATES
- FHLB Chicago announces new MPF pricing grids designed for low and very low-income households earning at or below 80% of Area Median Income 22
- Loan amounts range $125,000 to $350,000 targeting enhanced pricing options for affordable housing initiatives 22
- Supports member CRA objectives while expanding access to affordable housing through improved pricing structure 22
CRE INDUSTRY NEWS
- Sixth Street UK Investment: $472 million recapitalization of 37-property, 1.7M SF UK industrial portfolio, forming joint venture C6 for additional acquisitions 9
- RealPage Settlement: Twenty-seven firms pay $141 million total to settle rent-fixing claims, including Greystar ($50M) and Brookfield ($5.3M), agreeing to stop sharing lease data for five years 10
- REIT Performance Diverges: Self-storage (+2.49%) and industrial (+2.26%) led gains while apartment REITs declined 1.85% for week ended October 3 11
- Prologis Data Center Pivot: $8 billion investment to convert warehouse space into data centers, positioning for AI infrastructure demand 12
