Daily Dose of Real Estate for February 11

As always, this newsletter was entirely generated by our AI platform ALFReD. Know Better. Work Smarter. Be More Successful. Tim

Key Takeaways

• Zillow reports typical U.S. rent fell 0.2% year-over-year to $1,964 in December 2024, the largest annual decline since 2010 1
• The Consumer Price Index for Rent of Primary Residence increased 19.6% cumulatively from January 2022 to December 2024 2
• 75% of home builders cite high interest rates as their top challenge for 2025, followed by labor costs/availability (67%) and building material prices/availability (60%) 3
• Trump's tariffs could increase new home prices by $10,000 on average, potentially pricing out 660,000 households from the new home market 4
• Mortgage rates projected to average 6.3% in 2025, with home prices expected to grow by 3.7% 5
• Lightbox CRE Activity Index shows a 5.9% month-over-month increase in January 2025, indicating renewed optimism in the commercial real estate market 6
• The Consumer Financial Protection Bureau (CFPB) faces an unprecedented shutdown, halting all operations temporarily

Residential Real Estate Markets

The residential real estate market in 2025 is experiencing a complex interplay of rental trends, construction challenges, and affordability concerns.

Housing Market Update: Inventory and Sales Trends

A recent analysis by Calculated Risk provides insights into the current state of the housing market, focusing on inventory levels and sales trends:

• Active inventory:Up 4.8% year-over-year as of February 2, 2025Still 38% below pre-pandemic levels (February 2020)
• Months of supply:3.3 months for existing homes (up from 2.9 months a year ago)7.4 months for new homes (down from 8.4 months a year ago)
• Sales trends:Existing home sales down 1% year-over-yearNew home sales up 4% year-over-year
• Prices:Case-Shiller National Index up 5% year-over-yearNew home prices down slightly year-over-year
• Outlook for 2025:Existing home sales expected to increase modestlyNew home sales projected to be flat to down slightlyHome prices anticipated to rise in the 3% to 5% range nationally

The data suggests a gradual normalization of the housing market, with inventory levels improving but still below historical norms. The divergence between existing and new home sales highlights the ongoing impact of higher mortgage rates on the resale market.

Rental Market Trends

Zillow Observed Rent Index (ZORI):

• December 2024: $1,964 (0.2% YoY decrease)
• Largest annual decline since 2010
• 50 of the 100 largest metros saw YoY rent decreases
• Fastest-falling rents: Austin (-7.4%), Phoenix (-4.1%), Las Vegas (-3.6%)
• Fastest-rising rents: Hartford (5.4%), Providence (4.7%), Buffalo (4.5%)?1

Consumer Price Index for Rent of Primary Residence:

• December 2024: 427.488
• January 2022: 357.322
• 19.6% cumulative increase over 3 years
• Consistent monthly increases throughout the period?2

It's important to note that these CPI values represent percentage changes over time rather than direct dollar amounts, making them useful for assessing inflation trends in rental costs.

The divergence between Zillow's reported rent decrease and the CPI's continued increase highlights the complexity of the rental market. While some markets are seeing rent declines, possibly due to increased supply or shifting demand, the overall cost of renting as measured by the CPI continues to rise. This discrepancy may reflect differences in methodology or capture different segments of the rental market.

Home Builder Challenges (NAHB Survey)

Top issues for builders in 2025:

• High interest rates (75%)
• Cost/availability of labor (67%)
• Building material prices and availability (60%)
• Gridlock/uncertainty in Washington (42%)
• Overall state of the economy (36%) 3

These challenges underscore the multifaceted pressures facing the housing construction industry. High interest rates are dampening demand and increasing financing costs, while labor and material issues are constraining supply and driving up construction costs.

Tariff Impact on Home Prices

• Potential price increases due to tariffs:Canadian lumber tariffs: $9,000 per new homeSteel and aluminum tariffs: Additional $1,000 per new homeTotal impact: $10,000 average increaseEstimated 660,000 households priced out of new home market 4

The tariff-induced price increases could exacerbate affordability issues, potentially shifting demand towards existing homes or rentals. This situation highlights the direct impact of trade policies on the housing market.

Mortgage Markets

The mortgage market continues to grapple with elevated interest rates, influencing both homebuyer affordability and builder financing costs.

• Projected average mortgage rate for 2025: 6.3%
• Expected year-end 2025 rate: 6.2%
• Home price growth forecast for 2025: 3.7% 5

These projections suggest a slight moderation in mortgage rates compared to recent peaks, but they remain historically high. The continued home price growth, albeit at a slower pace, combined with these rates, presents ongoing affordability challenges for potential homebuyers.

Economic & Political News

The broader economic and political landscape continues to shape the real estate market's trajectory, with recent developments adding new layers of complexity.

• GDP growth forecast for 2025: 2.3% 7
• Department of Government Efficiency (DOGE) initiative aims to cut $2 trillion from federal budget 8

The moderate GDP growth forecast suggests a stable but not robust economic environment. The DOGE initiative's potential impact on government spending could have ripple effects on infrastructure projects and housing programs, influencing both the commercial and residential real estate sectors.

CFPB Shutdown

In an unprecedented turn of events, the Consumer Financial Protection Bureau (CFPB) has experienced an unexpected shutdown. Employees have been instructed to halt all operations temporarily, causing significant concern among staff and stakeholders. During this period, CFPB workers have been directed to refrain from engaging in any work-related activities, leading to a pause in ongoing consumer protection initiatives and investigations.

This sudden closure has sent shockwaves through the financial industry, raising questions about the immediate future of consumer protection in the lending and real estate sectors. The absence of CFPB oversight, even if temporary, could have significant implications for mortgage lending practices, fair housing enforcement, and overall consumer confidence in the real estate market.

CRE Markets

The commercial real estate market in 2025 exhibits divergent trends across different sectors, reflecting broader economic shifts and changing work patterns. Recent data suggests a potential upturn in market sentiment and activity.

Lightbox CRE Activity Index

• January 2025 index: 95.4 (5.9% month-over-month increase)
• Year-over-year change: 1.3% decrease
• Key findings:Multifamily sector: 13.4% month-over-month increaseOffice sector: 4.7% month-over-month increaseIndustrial sector: 1.5% month-over-month increaseRetail sector: 0.8% month-over-month decrease 6

The Lightbox CRE Activity Index, which measures commercial real estate market activity based on various factors including property marketing, leasing, and sales transactions, shows signs of renewed optimism in the market. The significant month-over-month increase, particularly in the multifamily and office sectors, suggests a potential turning point in market sentiment.

Sector-Specific Trends

• Office sector: Continued adaptation to hybrid work models, with recent data showing a slight uptick in activity
• Industrial and logistics: Strong performance, driven by e-commerce growth and supply chain optimization
• Retail: Mixed signals with low vacancy rates but a slight decrease in recent activity
• Multifamily: Complex supply-demand dynamics influenced by housing affordability, showing the strongest growth in recent CRE activity 9 10

The office sector's ongoing transformation reflects the lasting impact of pandemic-induced work changes, with recent data suggesting a potential stabilization or slight recovery. The strength in industrial and logistics properties underscores the continued growth of e-commerce and the importance of efficient supply chains.

The retail sector presents a mixed picture, with low vacancy rates suggesting potential stabilization after years of disruption, but recent activity data indicating ongoing challenges. The multifamily sector's strong performance in the Lightbox index aligns with the complex interplay between housing affordability and changing demographic preferences, potentially indicating increased investor interest in this sector.

The overall uptick in the CRE Activity Index, despite the year-over-year decrease, suggests that market participants may be adjusting to the higher interest rate environment and finding opportunities across various commercial real estate sectors. However, ongoing economic uncertainties and potential policy changes continue to shape the market landscape, requiring careful monitoring and strategic decision-making in the coming months.

Impact Capitol DC SitusAMC Mortgage Bankers Association The Mortgage Collaborative Guild Mortgage Mr. Cooper PENNYMAC Movement Mortgage National MI National Association of REALTORS? National Association of Home Builders National Mortgage News Federal Reserve Board Federal Reserve Bank of New York Federal Reserve Bank of San Francisco Federal Reserve Bank of St. Louis Federal Housing Finance Agency Federal Housing Administration and HUD Office of Housing Consumer Financial Protection Bureau Fannie Mae Freddie Mac The White House