Daily Dose of Real Estate for February 25

As always, this newsletter and the associated analysis were generated by our AI platform ALFReD. Know Better. Work Smarter. Be More Successful. Tim

Key Takeaways

• Existing home sales dipped 4.9% in January, but prices climbed for the 19th straight month 1
• The median sale price of homes in major markets continues to rise, with Seattle up 2.7% to $796K and Phoenix up 6.7% to $460K year-over-year 2 3
• Mortgage rates remain elevated, with the average 30-year fixed rate at 6.93% as of February 25, 2025 4
• The Market Composite Index for mortgage applications increased by 3.1% month-over-month in January, driven primarily by purchasing activity 5
• Confirmation hearings for Jonathan McKernan (CFPB) and Bill Pulte (FHFA) are set to take place amid fiscal uncertainty 6
• Global office leasing volumes rose by 9% in 2024 to the highest annual level since 2019 and are expected to increase further this year 7
• Global investment volumes in commercial real estate increased by 37% year-over-year in the fourth quarter of 2024, bringing full-year 2024 activity to US$703 billion 7

Residential Real Estate Markets

Mixed Signals in Major Markets

The residential real estate market continues to show mixed signals across different regions. In Seattle, the housing market remains very competitive, with homes receiving an average of 3 offers and selling in around 45 days. The median sale price in Seattle rose 2.7% year-over-year to $796K in January 2025. Despite the price increase, homes are staying on the market slightly longer compared to last year (45 days vs. 42 days) 2.

Phoenix presents a different picture, with a somewhat competitive market. Homes in Phoenix receive 2 offers on average and sell in around 65 days. The median sale price increased by 6.7% year-over-year to $460K in January 2025. Interestingly, the time on market has increased significantly from 54 days last year to 65 days this year, indicating a potential slowdown in buyer activity 3.

San Francisco, traditionally one of the most expensive markets in the country, is showing signs of cooling. The median sale price in San Francisco dropped 7.7% year-over-year to $1.2M in January 2025. However, the market remains very competitive, with homes receiving 4 offers on average and selling in around 61 days, which is faster than the 81 days observed last year 8.

National Trends: Prices Up, Sales Down

On a national level, existing home sales experienced a dip in January 2025, falling 4.9% from December to a seasonally adjusted annual rate of 4.08 million, according to the National Association of Realtors (NAR). Despite this decline, the market showed a 2% year-over-year increase in sales volume 1.

The median existing-home price for all housing types reached $379,100 in January, marking a 5.1% increase from January 2024 ($360,800). This represents the 19th consecutive month of year-over-year price gains, highlighting the persistent upward pressure on home prices despite challenges in the market 1.

First-Time Buyers and Inventory Challenges

First-time buyers continue to face significant hurdles in entering the housing market. In January, they accounted for 28% of sales, a slight decrease from December's 31%. This represents a continuation of a downward trend, with first-time buyers accounting for just 24% of all transactions in 2024, the lowest ever recorded by NAR 1.

Inventory remains a critical issue in the housing market. Total housing inventory at the end of January was 1.01 million units, up 3.1% from December but down 3.8% from the previous year. This translates to a 3.0-month supply at the current sales pace, up from 2.9 months in December but down from 3.1 months in January 2024 1.

Mortgage Markets

Rates Remain Elevated, Slight Downward Trend

As of February 25, 2025, the average 30-year fixed mortgage rate stands at 6.93%, showing a slight decrease of 4 basis points over the last seven days. The 15-year fixed mortgage rate is currently at 6.27%, while the 5/1 ARM rate is at 6.23% 4.

Despite hopes for significant rate cuts, mortgage rates have lingered at or above 7% throughout early 2025.

The recent inflation report showing a 3% rate has dampened expectations for immediate rate reductions. However, there's a consensus among experts that rates may ease down later in 2025, potentially providing some relief to homebuyers 4.

Mortgage Applications Show Slight Increase

The Mortgage Bankers Association's (MBA) weekly survey revealed that the Market Composite Index, a measure of mortgage loan application volume, increased by 3.1% month-over-month on a seasonally adjusted basis in January. This increase was primarily driven by purchasing activity, with the Purchase Index experiencing a monthly gain of 3.8%. Refinancing, on the other hand, decreased by 2.3% 5.

The average loan size for purchases increased by 1.8% to $429,400, while refinance loans experienced a 5.4% decrease, reaching an average of $288,200.

Adjustable-rate mortgages (ARMs) saw a continued decline in average loan size for three consecutive months, down 0.6% from $1.074 million to $1.068 million 5.

Affordability Concerns Persist

The combination of high mortgage rates and rising home prices continues to create a challenging environment for potential buyers, especially those looking to enter the market for the first time. The NAR's REALTORS? Confidence Index indicates that properties, on average, stayed on the market for 41 days in January, up from 35 days in December, signaling a slight cooling of the market 1.

Commercial Real Estate Markets (including Multifamily)

The commercial real estate (CRE) landscape is showing signs of resilience and recovery as we move further into 2025, with sector-specific variations and emerging opportunities. Here's a comprehensive look at the current state and future outlook of the CRE market based on the latest data and trends:

Overall Market Outlook

The 2025 commercial real estate outlook is cautiously optimistic, with JLL's Global Real Estate Perspective for February 2025 indicating a gradual recovery in investment volumes and occupier activity across various sectors 7. The economic outlook for the remainder of 2025 is broadly positive despite persistent uncertainty, with labor markets remaining tight and real wage growth positive in most countries.

Key highlights from recent market data include:

• Global office leasing volumes rose by 9% in 2024 to the highest annual level since 2019 and are expected to increase further this year 7.
• Global investment volumes increased by 37% year-over-year in the fourth quarter of 2024, bringing full-year 2024 activity to US$703 billion, a 14% increase from the previous year 7.
• Dry powder globally remains high, most recently at US$600 billion, which is expected to support growth through 2025 7.

Sector-Specific Trends

1. Office Market: Manhattan's office leasing market is showing signs of recovery, with tenants signing deals for 3.6 million square feet of office space in January 2025, nearly a million more than in January 2024 2. The average asking rent in Manhattan was around $73 per square foot in January, 8% below March 2020 rates 2.
2. Retail Sector: Retail REITs are reporting record leasing activity and improved occupancy rates. For example, Simon Property Group leased over 6.1M SF in Q4 2024 and over 21M SF for the entire year 3. National retail vacancy remained near a record low at 5.4% during the fourth quarter of 2024, according to Cushman & Wakefield 3.
3. Industrial Market: The industrial sector, especially warehouses, continues to benefit from e-commerce and logistics demands 1.
4. Multifamily Sector: The multifamily market is experiencing strong demand, with some REITs projecting occupancy rates to grow to around 95% by the end of 2025 3.

Investment Volumes and Pricing Trends

Investment activity is expected to pick up in 2025 as buyer and seller expectations increasingly converge. The flow of product to the market is anticipated to increase, and more stable pricing should allow investors to underwrite returns with greater confidence 7.

REITs have shown resilience in both rising and falling interest rate environments. A recent analysis by Nareit, using data from 1992 to 2024, demonstrates that REIT performance is more closely tied to economic growth than to interest rate movements 11.

Financing and Loan Market Conditions

The commercial real estate financing landscape is showing signs of improvement, with debt markets strengthening in the fourth quarter of 2024. Further compression in spreads is expected, and most lenders anticipate higher allocations in 2025 7.

However, challenges remain, particularly for properties facing maturity walls. According to the Mortgage Bankers Association's 2024 Commercial Real Estate Survey of Loan Maturity Volumes, 20% ($957 billion) of $4.8 trillion of outstanding commercial mortgages held by lenders and investors will mature in 2025, a 3% increase from the $929 billion that matured in 2024 12.

Economic & Political News

Latest Inflation Data Shows Persistent Price Pressures

The U.S. Bureau of Labor Statistics has released its latest Consumer Price Index (CPI) report, revealing that inflation remains a significant concern for the economy. In February 2025, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent on a seasonally adjusted basis, following a 0.5 percent rise in January. Over the last 12 months, the all items index has increased 3.2 percent before seasonal adjustment 1.

Key highlights from the February 2025 CPI report include:

1. Shelter costs continue to be a major driver of inflation, with the index for shelter rising 0.4 percent in February, accounting for nearly 30 percent of the monthly increase in the all items index.
2. The energy index rose 2.3 percent over the month, with all of its component indexes showing increases. Notably, the gasoline index saw a significant uptick.
3. The food index remained unchanged in February, as did the food at home index, providing some relief for consumers in this category.
4. The index for all items less food and energy, often referred to as "core inflation," rose 0.4 percent in February, indicating persistent underlying inflationary pressures 1.

These figures suggest that while inflation has moderated from its peak in 2022, it remains above the Federal Reserve's target of 2 percent. The persistent nature of price increases, particularly in shelter and energy costs, may influence the Federal Reserve's decisions regarding interest rates in the coming months.

Implications for Monetary Policy and Real Estate

The latest inflation data presents a complex picture for the Federal Reserve as it navigates monetary policy decisions. While the overall trend shows some moderation in inflation, the pace of price increases remains above the Fed's target. This persistent inflation could potentially delay any plans for interest rate cuts, which would have significant implications for the real estate and mortgage markets.

Fannie Mae's Economic and Strategic Research (ESR) Group has recently revised its mortgage rate predictions upward, anticipating rates of 6.6% for 2025 and 6.5% for 2026. This adjustment reflects the ongoing inflationary pressures and their potential impact on the Federal Reserve's monetary policy decisions 2.

Budget Negotiations and Government Shutdown Concerns

As of February 25, 2025, the United States is approaching a critical juncture in its fiscal policy, with the March 14 deadline for a potential government shutdown looming. The Republican-controlled Senate has passed a $340 billion budget framework, focusing on border security, defense spending, and energy production. However, the House of Representatives is grappling with a more ambitious and controversial package, including substantial tax cuts and spending reductions across various government programs 3.

The likelihood of a government shutdown has increased due to the significant differences between the House and Senate budget proposals and the limited time remaining to reconcile these differences. This political brinkmanship could have severe implications for the housing and mortgage markets, potentially disrupting federal housing programs and causing delays in mortgage processing 4.

Confirmation Hearings for Key Housing Finance Positions

Amid this fiscal uncertainty, two key confirmation hearings are set to take place on Thursday, which could significantly influence the direction of housing finance policy:

1. Jonathan McKernan for CFPB Director: President Trump has nominated Jonathan McKernan, a former Federal Deposit Insurance Corporation (FDIC) board member, to lead the Consumer Financial Protection Bureau (CFPB). Senator Elizabeth Warren (D-Mass.) is expected to press McKernan on his views regarding consumer protection and financial regulation, focusing on how he plans to balance consumer interests with the Trump administration's deregulatory agenda 5.
2. Bill Pulte for FHFA Director: Bill Pulte, grandson of the late homebuilding icon William Pulte, has been nominated to lead the Federal Housing Finance Agency (FHFA). As CEO of Pulte Capital Partners, Pulte brings a background in construction investments to the role. The Mortgage Bankers Association has endorsed Pulte's nomination, citing his real-world, private sector experience 6.

These confirmation hearings will be closely watched by the housing and finance industries, as the leadership of these agencies will play a crucial role in shaping policies that affect mortgage lending, housing affordability, and the overall stability of the housing finance system.

Closing

The interplay between economic growth, interest rates, and property performance will be crucial in shaping investment decisions. As always, local market knowledge, coupled with a keen understanding of broader economic trends, will be key to success in the commercial real estate landscape of 2025 and beyond.

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