Daily Dose of Real Estate for February 6

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

Key Takeaways

• Mortgage applications increased 2.2% week-over-week, driven by a 12% surge in refinance applications, despite ongoing challenges in the housing market 1.
• Home prices continue to rise, with the median U.S. monthly housing payment reaching $2,686, the highest level in nearly seven months 2.
• Commercial mortgage-backed securities (CMBS) issuance more than doubled in 2024, increasing by 167% from $40.6 billion in 2023 to $108.2 billion in 2024 3.
• Mortgage REITs (mREITs) offered a high dividend yield of 12.65% at the end of 2024, compared to 3.96% for equity REITs, highlighting their attractiveness in the current market 3.
• The average loan size for a purchase loan reached $447,300, the highest level since October 2024, indicating a shift towards higher-value properties 4.

Residential Real Estate Markets: Persistent Challenges Amidst Rising Prices

The residential real estate market continues to face headwinds as we move into the spring season of 2025. Despite an increase in listings, homebuyers are showing little enthusiasm, primarily due to stagnant mortgage rates and persistently high home prices.

According to the latest data from Redfin 2, the median U.S. monthly housing payment has reached a staggering $2,686, marking the highest level in nearly seven months. This increase is primarily attributed to rising mortgage rates and home prices, creating a significant affordability challenge for potential buyers.

Longer Selling Times and Increased Inventory

The market is experiencing a notable shift in dynamics:

• The average time to sell a home in January 2025 was 54 days, the longest since March 2020.
• The supply of homes for sale rose 25% compared to a year ago.
• However, the supply is still 25% below where it was in January 2019, indicating a long-term inventory shortage.

These figures suggest that while more homes are available, they are taking longer to sell, potentially due to the mismatch between buyer expectations and seller pricing.

Price Cuts and Seller Strategies

Interestingly, more sellers are offering price cuts in an attempt to attract buyers:

• 15.6% of sellers offered price cuts in January 2025, up from 14.7% in January 2024.
• Despite these cuts, most sellers are still seeing enough competition to maintain their list prices.

This trend indicates a market in transition, where sellers are beginning to adjust to new realities while still benefiting from overall limited inventory.

Mortgage Markets: A Mixed Bag of Trends

The mortgage market is showing signs of both resilience and ongoing challenges, as evidenced by the latest data from the MBA 1.

Surprising Uptick in Applications

Despite the challenging environment, mortgage applications saw an unexpected increase:

• The Market Composite Index, a measure of mortgage loan application volume, increased 2.2% on a seasonally adjusted basis from the previous week.
• This increase was primarily driven by a 12% surge in refinance applications, which reached their strongest level since December 2024.

Interest Rates and Loan Sizes

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.97% from 7.02% the previous week. This slight decrease in rates likely contributed to the uptick in refinance activity.

However, the purchase market continues to face headwinds:

• Purchase applications decreased by 4% from the previous week.
• The average loan size for a purchase loan increased to $447,300, the highest level since October 2024.

Joel Kan, MBA's Vice President and Deputy Chief Economist, noted, "The average loan size for a purchase loan has increased since the start of the year and continued that trend last week with weaker government purchase activity."

Mortgage REITs: A Bright Spot in the Market

In the broader mortgage market, mortgage REITs (mREITs) are offering attractive returns for investors. According to REIT.com 3:

• mREITs had a dividend yield of 12.65% at the end of 2024, compared to 3.96% for equity REITs.
• mREITs paid a cumulative $5.9 billion in dividends by the third quarter of 2024.
• However, mREITs struggled from a total return perspective in 2024, finishing the year with an annual return of just 0.36%.

Economic Releases and News: Housing Market Implications

Recent economic data and news releases have significant implications for the housing market:

Consumer Confidence and Employment

The Conference Board's consumer confidence index for January 2025 showed a slight decline, indicating ongoing concerns about the economy. This sentiment could potentially impact home-buying decisions in the coming months.

Additionally, the upcoming nonfarm payrolls report for January is expected to show an addition of 169,000 jobs, with the unemployment rate holding steady at 4.1%. Strong employment figures could support housing demand, but may also contribute to the Federal Reserve's decision to maintain higher interest rates.

Federal Reserve Policy and Inflation Concerns

The Federal Reserve's recent decision to hold off on cutting rates has implications for the mortgage market. As 5 reports, mortgage costs are significantly higher than they were five months ago when the Fed began cutting its benchmark rate.

Calixto Garcia-Velez, president and CEO at BanescoUSA in Miami, explains, "The 30-year mortgage rates are tied to the 10-year Treasury bonds, and long-term Treasury bonds have been increasing. Therefore, residential loan rates haven't been falling as much as people have expected."

Commercial Real Estate Markets: Signs of Recovery and Challenges

The commercial real estate (CRE) market is showing mixed signals, with some sectors recovering while others face ongoing challenges.

CMBS Market Rebound

One of the most significant developments in the CRE market is the substantial increase in commercial mortgage-backed securities (CMBS) issuance:

• CMBS issuance more than doubled in 2024, increasing by 167% from $40.6 billion in 2023 to $108.2 billion in 2024, according to REIT.com 3.
• This surge in CMBS issuance indicates a growing appetite for commercial real estate debt and potentially improved market conditions.

Sector-Specific Trends

Different sectors within the CRE market are experiencing varying trends:

• Office Market: Continues to face challenges due to remote work trends and oversupply in some areas.
• Multifamily: Showing resilience, but with some concerns about oversupply in certain markets.
• Industrial and Logistics: Remains strong, driven by e-commerce growth and supply chain reconfiguration.
• Retail: Experiencing a mixed recovery, with some formats performing better than others.

Diversified REITs Performance

The performance of diversified REITs provides insight into the overall CRE market. According to Nareit 6, as of February 6, 2025:

• American Assets Trust (AAT) showed a one-year total return of 14.03%.
• Alexander & Baldwin, Inc. (ALEX) had a one-year total return of 9.95%.
• However, some REITs like Armada Hoffler Properties, Inc. (AHH) experienced negative returns, with a one-year total return of -11.11%.

These varied performances highlight the uneven recovery across different property types and locations within the CRE market.

Looking Ahead: Market Expectations and Strategies

As we move further into 2025, the real estate market faces both opportunities and challenges. Homebuyers and investors should consider the following:

1. Monitor Interest Rate Trends: Keep a close eye on Federal Reserve policies and their impact on mortgage rates.
2. Consider Refinancing Opportunities: With the recent uptick in refinance applications, homeowners should evaluate if refinancing could benefit their financial situation.
3. Explore Commercial Real Estate Investments: The rebound in CMBS issuance and attractive mREIT yields may present opportunities for diversification.
4. Stay Informed on Local Market Conditions: Real estate remains highly localized, and conditions can vary significantly between markets.

As the market continues to evolve, staying informed and working with experienced professionals will be key to navigating the complex landscape of real estate in 2025.

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