Home sellers packing up for the season just as lower mortgage rates bring buyers to the table. Mortgage spreads finally cooperating and contributing to the lowest rates of the year (spreads at normal rates would push mortgage rates below 6%). Talks (more like murmurs) about a GSE IPO continue but FHFA claims “there’s no rush.” Mortgage delinquencies moving noticeably higher in the face of weaker consumer spending and employment. The unemployment rate jumped in Friday’s report and exposed weak new hiring numbers and downward revisions from previous reports. NYC pulls off a Cinderella story in CRE with office building leasing rates up 40%. Let’s get you caught up and out the door in 3 minutes. Tim
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KEY TAKEAWAYS
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- Mortgage rates hit year-to-date lows following Friday’s weak jobs report, but Fed policy remains too restrictive for sustained sub-6% rates according to HousingWire analysis 1
- Housing market momentum stalls in late summer with new listings seeing lowest annual growth since April 2025 and median list prices remaining flat for fourth consecutive week 2
- Investor home purchases declined 6% in Q2 2025, marking the biggest drop since 2023 as high borrowing costs and stagnant rent growth challenge investment strategies 3
- Natural disasters caused $8.5 billion in residential property damage in Q2 2025, with 654,000 properties affected nationwide according to ATTOM Data’s comprehensive impact analysis 4
- Trump administration accelerates GSE privatization with continued discussions of 5% Fannie Mae/Freddie Mac IPO that could raise $30 billion 5
- Mortgage delinquencies edge higher to 2.9% in June, up from 2.8% in Q1 2025, though levels remain historically low according to Cotality data 6
- NYC Office Recovery Accelerates: Manhattan leased 6.7 million square feet in July-August, up 40% year-over-year, putting the market on pace to exceed 40 million square feet for 2025 1
- Manhattan Office Discounts Deepen: Amancio Ortega’s sale of 650 Fifth Avenue at a significant discount highlights continued pricing pressure in premium Manhattan office assets 2
- Industrial Real Estate Faces Trade Headwinds: Trade uncertainty is disrupting the US industrial real estate outlook as companies reassess supply chain strategies 3
- Home Depot Signals Consumer Resilience: The retail giant’s latest earnings and strategic initiatives provide insights into commercial real estate demand patterns 4
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RESIDENTIAL REAL ESTATE MARKETS
Overview: The residential housing market is experiencing a pronounced late-summer slowdown with declining inventory growth, increased price reductions, and significant natural disaster impacts affecting hundreds of thousands of properties nationwide.
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LATE SUMMER MARKET DOLDRUMS TAKE HOLD
- New listings hit lowest annual growth since April 2025 with only 64,682 new listings recorded compared to 61,936 in the same period last year 1
- Active inventory declined from 860,728 to 846,516 during the week of August 29-September 5, an unusual August decrease that signals market weakness 1
- Year-over-year inventory growth dropped to 20% from a recent peak of 33%, facing risk of being cut in half as mortgage rates approach 6% 1
- Median list prices remained flat for fourth consecutive week, signaling potential shift toward pricing stability after months of volatility 2
- Price reductions increased to 41.5% of homes compared to 39% during the same period in 2024, creating more buyer-friendly market conditions 1
NATURAL DISASTERS CREATE MARKET DISRUPTION
- 654,000 properties affected nationwide with $8.5 billion in estimated residential property damage during Q2 2025 4
- Florida, Texas, and California bore the brunt of property damage, reflecting both large housing stocks and exposure to hurricanes, flooding, wildfires, and severe storms 4
- Insurance implications expected to ripple through markets for months with increased premiums and reduced coverage availability in affected areas 4
- Climate risk assessment growing in importance for real estate investment and lending decisions as disaster impacts concentrate in high-value coastal and urban markets 4
INVESTOR ACTIVITY SHOWS SIGNIFICANT RETREAT
- U.S. investor home purchases fell 6% in Q2 2025, marking the biggest decline since 2023 due to high borrowing costs and stagnant rent growth 3
- Condominium market hit hardest with investor purchases declining more sharply than single-family homes due to challenging economics 3
- Investors still account for 25-30% of purchases in many markets despite pullback, indicating continued significant market presence 3
- Sun Belt markets experiencing most significant pullbacks while Midwest and Northeast markets show more stable investor participation 3
- Geographic rebalancing may contribute to more balanced conditions in previously overheated markets as yield dynamics shift 3
PRICE DYNAMICS AND MARKET CORRECTIONS
- Pending sales rose just 1.6% year-over-year with median sale price climbing 1.6% to $392,738 despite lower mortgage rates 7
- Monthly payments remained 5% higher than a year ago, continuing to challenge affordability for potential buyers 7
- Vacation home sales slipped 3% year-over-year in July compared to just 1% decline in other locations, with nearly one in ten sales occurring in vacation communities 8
═════════════════════════════════════════════════MORTGAGE MARKETS
Overview: Mortgage rates achieved 2025 lows following weak economic data, but Federal Reserve policy remains restrictive for sustained sub-6% rates. Application trends show mixed signals with modest year-over-year growth despite weekly volatility.
═══════════════════════════════════════════════════════════════RATES HIT LOWS AMID ECONOMIC UNCERTAINTY
- Mortgage rates achieved lowest levels of 2025 following Friday’s disappointing jobs report, approaching the critical 6% threshold 1
- Fed policy remains modestly restrictive, making sustained mortgage rates below 6% challenging despite recent declines 1
- 10-year yield remained within proper range of 3.80% to 4.70% while mortgage rates fluctuated between 6.29% and 7.25% throughout 2025 1
- Mortgage spreads showed significant improvement compared to 2023-2024 levels; if spreads were at 2023 peak, rates would be 0.83% higher today 1
- Best-case scenario for normal spreads would place mortgage rates at 5.82% to 6.02% under current economic conditions 1
APPLICATION AND DEMAND TRENDS
- Mortgage applications declined 3% week-to-week but maintained robust 17% increase year-over-year in latest data 1
- 31 straight weeks of positive year-over-year data with 18 consecutive weeks of double-digit growth compared to previous year 1
- Weekly pending home sales showed 65,168 pending sales compared to 62,181 during same period in 2024, indicating modest growth 1
- Total pending sales reached 359,275 for latest week compared to 357,687 in 2024, showing consistent low-level year-over-year growth 1
- Purchase trends tested over five weeks with rates under 6.64%, historically a key resistance level for sustained market improvement 1
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RESIDENTIAL SERVICING MARKETS
Overview: Mortgage delinquencies edged higher to 2.9% in June while remaining historically low. Natural disaster impacts are creating additional servicing challenges, particularly in Florida, Texas, and California.
═══════════════════════════════════════════════════════════════DELINQUENCY RATES SHOW MODEST UPTICK
- 2.9% of U.S. mortgages at least 30 days past due in June, including loans in foreclosure, up from 2.8% in Q1 2025 6
- Modest decrease from 3% in June 2024 but increase from first quarter, though levels remain below December’s peak of 3.2% 6
- Serious delinquencies holding in narrow range according to Cotality Senior Principal Economist Molly Boesel, indicating stability in most concerning category 6
- Regional variations reflect localized economic pressures though overall national picture remains stable compared to historical norms 6
FORECLOSURE ACTIVITY REMAINS CONTAINED
- No surge in foreclosures expected despite recent house price weakness due to solid mortgage lending and substantial homeowner equity 9
- Residential REO increased 15% year-over-year from $766 million to $852 million for FDIC-insured institutions, but remains historically low 9
- Most homeowners maintain substantial equity with predominantly fixed-rate mortgages at low rates, reducing foreclosure risk 9
- Stable environment persists despite recent market challenges, indicating healthy underlying housing market fundamentals 9
NATURAL DISASTER IMPACT ON SERVICING OPERATIONS
- Enhanced disaster response protocols implemented by servicers to manage forbearance requests and loss mitigation for 654,000 affected properties 4
- Increased volumes of disaster-related forbearance requests reported by servicers in Florida, Texas, and California following $8.5 billion in property damage 4
- Specialized disaster response capabilities required including enhanced communication protocols with borrowers, insurance companies, and government agencies 4
- Operational demands expected to continue influencing servicing costs and procedures through remainder of 2025 4
═════════════════════════════════════════════════REGULATORY DEVELOPMENTS IN REAL ESTATE
Overview: The Trump Administration accelerates GSE privatization efforts while implementing policy changes including expanded LTV ratios and enhanced disaster response programs. Industry opposition to potential GSE merger continues to build.
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POLICY ADJUSTMENTS AND PROGRAM MODIFICATIONS
- Freddie Mac boosted LTV ratios to 95% for 2-4 unit homes, opening new opportunities for “house hacking” strategies 13
- MBA submitted recommendations to FHFA regarding targeted reforms to Fannie Mae’s and Freddie Mac’s Critical Repairs policy 14
- Federal housing agencies expanding disaster relief programs in response to $8.5 billion in Q2 residential property damage affecting 654,000 properties 4
═════════════════════════════════════════════════ECONOMIC NEWS
Overview: Weak August jobs report with unemployment hitting 4-year highs clears path for Federal Reserve rate cuts. Political pressure on Fed independence raises concerns about potential policy effectiveness and inflation expectations.
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LABOR MARKET WEAKNESS CLEARS FED PATH
- Unemployment rate jumped to 4-year high in August jobs report, providing clear justification for Federal Reserve interest rate cuts 15
- Economy added only 142,000 jobs in August, falling short of the 160,000 expected by economists and marking continued deceleration in hiring 16
- Unemployment rate rose to 4.2% from 4.1% in July, reaching the highest level since October 2021 and signaling labor market softening 16
- July job gains revised down to 89,000 from initially reported 114,000, while June was revised down to 118,000 from 179,000, showing weaker momentum 16
- Labor force participation rate held steady at 62.7% but remains below pre-pandemic levels, indicating continued challenges in workforce engagement 16
- Average hourly earnings rose 0.4% month-over-month and 3.8% year-over-year, showing wage growth remains above inflation but moderating from recent peaks 16
- Construction employment declined by 22,000 jobs in August, particularly impacting residential construction and signaling weakness in housing-related employment 16
- Professional and business services lost 8,000 jobs, marking the third consecutive month of declines in this typically resilient sector 16
- Manufacturing employment remained flat with no net job gains, continuing a trend of stagnation in the industrial sector throughout 2025 16
- Bond yields fell to five-month lows as investors price in more aggressive monetary policy easing following weak employment data
═════════════════════════════════════════════════COMMERCIAL REAL ESTATE MARKETS
Overview: Commercial markets show mixed signals with strong leasing activity in select cities offset by continued pricing pressure and trade policy uncertainty affecting industrial demand.
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NEW YORK OFFICE MARKET RECOVERY
- Manhattan leased 6.7 million square feet in July-August combined, representing a 40% increase year-over-year and putting the market on pace to exceed 40 million square feet for 2025 – the first time reaching this milestone since before the pandemic 1
- Deloitte signed massive 807,000 square foot commitment at Related’s 70 Hudson Yards, leading major corporate deals alongside Amazon, Verizon, and Piper Sandler securing substantial space blocks 1
- Office availability rates dropped to lowest levels since early 2021 while sublet supply tightened for 11 consecutive months, with Midtown South accounting for more than half of last month’s leasing deals 1
OFFICE PRICING PRESSURE AND REGIONAL CONDITIONS
- Amancio Ortega’s sale of 650 Fifth Avenue at significant discount demonstrates how even trophy Manhattan assets face valuation challenges, with institutional investors accepting substantial losses to exit office positions 2
- Los Angeles downtown vacancy hits 31% while San Francisco maintains nation’s highest vacancy at nearly 35% with two-thirds of transactions at discounts, contrasting with Century City’s sub-10% vacancy and record $80/sq ft rents 1
- Houston CBD commands top rents but distressed sales like 801 Travis at $54/sq fthighlight value deterioration for older, half-empty properties across major markets 1
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COMMERCIAL FINANCING MARKETS
Overview: Rate cut expectations are driving positive sentiment across commercial real estate financing, with REITs posting gains and homebuilders surging on mortgage rate declines.
FEDERAL RESERVE POLICY AND MARKET PERFORMANCE
- Swaps markets price in 100% probability of September rate cut with 8% chance of 50 basis point cut, as job seekers surpass available openings for first time since April 2021creating “Goldilocks” scenario for monetary easing 5
- Equity REIT Index gained 0.2% while Mortgage REIT Index rallied 3.2% this week, with homebuilders surging over 6% as mortgage rates hit 11-month lows 5
═════════════════════════════════════════════════COMMERCIAL SERVICING MARKETS
DISTRESS AND WORKOUT ACTIVITY
- Texas foreclosure auctions total $710 million this month, up from $670 million in August and $400 million in July, with Harris County (Houston) accounting for 10 properties totaling nearly $350 million in debt 1
- Manhattan office workout activity accelerating as lenders push for resolutions on distressed properties, with the Ortega sale representing broader trend of institutional owners accepting significant losses rather than holding distressed assets 2
═════════════════════════════════════════════════INDUSTRY NEWS
Overview: Major retail and REIT companies are adapting strategies while significant office transactions signal returning investor confidence in select markets.
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MAJOR TRANSACTIONS AND CORPORATE PERFORMANCE
- RXR’s $1.08 billion purchase of 590 Madison Avenue represents the first billion-dollar NYC office deal since 2022, secured with $785 million Apollo financing after heavy bidding, while Silverstein/CalSTRS sold 1177 Sixth Avenue for $571 million all-cash 1
- EPR Properties maintains 6.7% dividend yield with strong fundamentals across its theater and entertainment portfolio, benefiting from industry consolidation and box office recovery 6
- Home Depot’s strategic initiatives provide insights into evolving retail real estate landscape, with the company’s store format and distribution decisions serving as bellwethers for broader retail property trends 4
DEVELOPMENT ACTIVITY
- SL Green contracted Brooks Brothers flagship at 346 Madison for $160 million planning 800,000-square-foot tower, while Boston Properties advances billion-dollar 343 Madison project as major developers including Vornado, Citadel, and Silverstein line up Midtown projects 1
MAJOR M&A ACTIVITY RESHAPES FINANCIAL SERVICES
- Rithm Capital completed $17 billion Crestline Management acquisition, significantly expanding asset management capabilities into private credit and insurance sectors 11
- Newrez forecasts Non-QM production to double in 2025 from under $2 billion last year to $4 billion through wholesale and correspondent growth 11
