Economic Factors in Real Estate

Back on recession watch, Leading Indicator #2 – the FHA mortgage delinquency rate. This isn’t typically in lists of leading economic indicators, but it may be a proverbial canary in the coal mine in the current context. FHA borrowers have low to moderate incomes, with a median income of about $75,000 a year, and most are first-time homebuyers. Judging from the recent increase in the delinquency rate on FHA loans, these households are under mounting financial stress. This is despite the exceptionally low 4% unemployment rate and goes in part to the credit characteristics of the borrowers, including lower credit scores and downpayments. Even more important may be their high debt-to-income ratios. With mortgage rates and house prices as high as they are, borrowers have to shell out a big share of their income to their mortgage payment to get into a home. They may have gambled that rates would fall and could refinance, bringing down their payment. However, the Fed’s higher-for-longer rate policy and quantitative tightening have forestalled that exit strategy. Combine this with higher homeowner insurance premiums and property taxes, and borrowers struggle to make mortgage payments. What happens when the job market wobbles even a little bit? Thus, why this is a good statistic to include in our recession watch. Not that the financial troubles of FHA borrowers are enough to push the economy into recession. Indeed, high and middle-income mortgage borrowers are having no trouble making their payments at this time – the gap between the FHA delinquency rate and those on Fannie and Freddie loans has never been as large. But if the economy is headed for trouble, it is FHA borrowers who will signal it first. And they are. #rates #FHA #income #recessionwatch #fed

One trend I'm curious to watch: What happens with construction jobs, and what impact will that have on housing demand and affordability? Particularly as apartment starts plummet -- as do other types of commercial real estate construction. Six observations/thoughts: 1) Current data shows overall construction employment continuing to expand, though at a moderating pace of 2.8%, the slowest since 2021 when the industry was climbing out of the COVID-era freeze. 2) Multifamily construction has been even more impacted. After surging from 2021-23, multifamily construction job growth has flattened off in recent months. That correlates with the plunge in new starts. We've completed 218,500 more multifamily units than we've started so far in 2024, which means far fewer jobs available for construction workers as they wrap up the current pipeline. (Note this BLS data excludes many trade jobs, which are tracked in other categories.) 3) The tailwinds for construction employment are increasingly giving way to headwinds. High rates = expensive debt = lesser construction (though single-family appears less sensitive to those trends than CRE). Apartment starts have plunged due to not only high rates, but flat/falling rents and slugging lease-up velocity across much of the country. 4) Potentially higher tariffs for construction materials could be another complicator in already complicated math. And any major shifts in immigration (whether deportations or further restrictions) in the next presidency could impact the construction labor pool (where immigrants comprise 40%+ of the jobs in many trades, per NAHB). That scenario might put upward pressure on wages even if construction levels continue to go down, which could (theoretically) delay a rebound. 5) The combination of variables points to prolonged headwinds in new construction and therefore construction employment. One counter factor could be single-family home construction, particularly if the new administration prioritizes a major incentive program to boost the supply of new starter homes. In that scenario, we could see rents rebound even as for-sale home affordability/availability improve to some degree. That would narrow the rent-or-buy affordability gap (currently at long-term highs), but probably only moderately -- not erasing the hump created in recent years given the unlikelihood of near-zero rates returning. 6) But bottom line is there are a lot of unknowns, including the potential for a construction employment drop to lead to a broader slowdown in national employment and wage growth. Thoughts? #housing #affordability #construction

The Evolving Face of the US Homebuyer The National Association of Realtors' (NAR) 2024 report provides a fascinating snapshot of the US housing market’s buyer profile that looks significantly different than it did just a few years ago. The data reveals a changing homebuyer. The average buyer age has climbed to a record 56, underscoring the impact of high housing costs and rising interest rates that have sidelined younger would-be buyers. For first-time buyers, the average age is now 38, nearly a decade older than it was in the early 1980s. These changes signal a more mature buyer who brings accumulated wealth and likely more significant financial security to the table. Additionally, a fifth of all home purchases were made by single women, a notable demographic shift reflecting both a societal change in homeownership goals and an economic shift in who can afford to buy. By contrast, single men comprised only 8% of recent buyers. This snapshot highlights what many are calling a “bifurcated housing market,” where those able to buy homes are increasingly established, wealthier individuals, often using home equity from previous properties to secure cash purchases or make substantial down payments. This market has been largely inaccessible to younger buyers, who continue to face affordability challenges, limited savings, and reduced opportunities for financial support in the form of lower mortgage rates. With affordability gauges near record lows, first-time homebuyers hold a mere 24% share of the market, down dramatically from the 40% share held in pre-Great Recession years. Rising prices and interest rates have compounded these barriers, leading to a market where nearly three-quarters of all buyers have no children under 18 at home, reflecting an older and more established buyer profile than in decades past. While this report offers a look back, the trends it captures underscore a potential turning point. Recent mortgage application data suggests that prospective buyers who had previously been priced out or sidelined may begin to re-enter the market as interest rates stabilize. If these sidelined buyers do return, particularly younger and more diverse demographics, the profile of the typical buyer could again start to shift, gradually increasing diversity in age, household composition, and race among homebuyers. At Havas Edge, we’re continually analyzing these demographic shifts to support brands in delivering timely, targeted strategies that meet the realities of today’s buyers and the anticipated resurgence of those who’ve been waiting on the sidelines. #RealEstate #Homebuyers #MarketTrends #HousingEconomics #ConsumerInsights

📊 Uneven Labor Market Trends & What They Mean for Housing The latest Bureau of Labor Statistics data shows that U.S. unemployment stands at 4.1% (June 2025), but the picture looks very different depending on where you zoom in: Lowest unemployment: South Dakota (1.8%), North Dakota (2.5%), Vermont (2.6%). Highest unemployment: Washington D.C. (5.9%), California (5.4%), Nevada (5.4%), Michigan (5.3%). For those of us in residential real estate investment and development, this unevenness matters. Labor market health directly impacts: Rental demand & absorption: Stronger employment in certain Midwest and Mountain states often translates into more stable occupancy. Affordability pressures: Higher unemployment in markets like California or D.C. could soften short-term rent growth, but also create opportunities for thoughtfully priced housing solutions. Long-term resilience: States with consistently low unemployment may signal healthier local economies and stronger household formation trends. As developers and investors, it’s important that we balance financial performance with the real housing needs of communities. While lower unemployment markets may look like safe bets, higher unemployment areas might be where innovative, affordable, and workforce housing solutions can have the greatest impact and also unlock long-term value. ➡️ What markets are you seeing as most resilient in today’s labor landscape? #RealEstateInvesting #ResidentialDevelopment #MultifamilyHousing #HousingMarket #EconomicTrends #UnemploymentRate #MarketInsights #RealEstateInvestors #CommunityImpact #HousingDemand

The Federal Reserve held interest rates steady today, as expected, while signaling that uncertainty about the economic outlook remains elevated. The latest projections point to a slower economy, a softening labor market, and sticky inflation. In today’s press conference, Fed Chair Jerome Powell acknowledged ongoing housing market weakness, emphasizing that housing challenges are structural and not something that monetary policy alone can resolve. He cited a combination of persistent supply shortages and elevated mortgage rates as key headwinds. Powell reiterated that the best way the Fed can support the housing market is by restoring overall price stability and fostering a strong labor market. The housing market has endured a roller coaster over the past five years, with a pandemic-fueled boom giving way to weaker sales and affordability strains. Existing-home sales remain sluggish, and while home price growth has slowed, affordability remains a significant barrier. A positive development is that income growth is now outpacing house price growth nationally— a necessary step toward easing affordability pressures. The Fed’s latest projections call for 50-basis points of rate cuts in the second half of the year. However, Powell stressed that these projections are subject to significant uncertainty. If rate cuts do materialize, they could place some downward pressure on mortgage rates, supporting affordability. If affordability improves alongside greater macroeconomic certainty and increased inventory, we could see a modest rebound in housing activity by year’s end.

Never so Strong/Never so Weak These two conditions are both true. First, the housing market is strong with prices at a record high. While this “high price” condition is true, owning a home has never been so unattainable. The U. of Michigan Survey reports that “Buying Conditions for Homes” is the weakest on record, since the late-1970’s (graph below). Last week, it was reported that Housing Starts declined 5.5% seasonally adjusted to an annualized rate to 1.28M, which equates to a decline of 19.3% year-over-year. The mortgage purchase applications reported by Mortgage Bankers Associate report consistent data as the application rated has declined 11.8% y-o-y, and even more when including refinancings. Bottom line: ZIRP enabled homeowners to attain ultra-low mortgages, thus creating a lock-in effect, that lowers supply, pushes prices higher which reduces the percentage of home buyers that can afford the higher priced homes financed at higher mortgage rates. Home insurance, RE taxes, maintenance has risen in line with inflation costing the homeowner 20% more than pre-COVID which is in addition to the cost of the home and the cost of financing. Affordability has become a greater factor influencing housing market dynamics as it lower ‘D’ sufficiently in the Supply-Demand equation. The good news is that help is on the way. Later this year, the Fed will begin to lower rates, however, they will lower the Fed Funds rate and a 30-year mortgage is priced off the 10-year treasury, so although the front end will come down, what happens to intermediate UST rates is the key to the equation. When looking at U of Michigan Survey, I take comfort knowing this is likely what a trough looks like. It is a healthy condition too that household net worth relative to income is near record high levels. If mortgage rates decline, hosing activity will pick up due to affordability, and while more homes will come on to the market for sale, prices, I do not expect this increased supply to drive home prices lower since there is still a 3M shortage of homes. Home builders will build/deliver, however, they will be disciplined not to over-supply the market and maintain profit margins despite higher cost for land, labor, and materials. Multi-family rentals have also surged and continue to be firm given how more affordable it is to rent than to buy. Data released today from Zillow show nationwide rents have advanced 30.4% since COVID, above the 20.2% rise in incomes over this period. Last week, the Federal Reserve Bank of Kansas City released their economic bulletin on Housing that discusses housing inflation and its impact; this graph from the KC Fed (below) focusses on lack of mobility for a large cohort of homeowners that would face significantly higher housing costs if they were to move, with the knock on effect that this dynamic creates less available supply of housing stock, and as a result higher prices given demand for housing.

The Power Is in the Land: Understanding Ricardo’s Law and the 18.6-Year Real Estate Cycle 🌎🏗️ If you’ve been paying attention to real estate trends, you know we’re in the late-stage expansion phase of the 18.6-year real estate cycle—a cycle that has repeated for over 200 years. 🔹 Land prices are soaring. 🔹 Speculative investments are rampant. 🔹 Mega-developments are being announced at record highs. But why does this always happen? The answer lies in Ricardo’s Law of Economic Rent—a concept that explains why land, not buildings, is the primary driver of wealth and economic cycles. 📜 David Ricardo’s Core Idea (1817): Land value is determined by its productivity relative to the least productive land in use. As economies expand, the best land becomes more valuable—not because of improvements made by owners, but because of external demand. Investors, developers, and governments bid up land values, creating booms, bubbles, and inevitable busts. 🚨 History repeats itself. The last time we were here? 2007—right before the Great Financial Crisis. And before that? 1989. 1929. 1873. Each time, land speculation peaked, leading to a market correction. The best investors understand this cycle. They know that land price inflation signals the final stretch before a correction, and they position themselves accordingly. 📉 What happens next? As land prices peak, development overshoots demand. Businesses and investors stretch themselves too thin. The inevitable correction resets the market—and those who are prepared capitalize on the next cycle. So, what should you do? 🤔 ✅ Study the cycle. The best opportunities come from understanding when to buy, sell, and hold. ✅ Follow the data. We’re in the Winner’s Curse phase—high prices, speculative deals, and a market near its peak. ✅ Think long-term. The smartest investors don’t chase trends—they anticipate them. The power is in the land. It always has been. What do you think—are we nearing the peak? How are you preparing for the next phase of the cycle? Let’s discuss. ⬇️ #RealEstate #CRE #RicardosLaw #MarketCycle

With Interest Rate Cuts Imminent, Where Are Family Offices Looking to Deploy Their Dry Powder in Real Estate? With interest rate cuts on the horizon, Family Offices are strategically positioning themselves to capitalize on new opportunities in the real estate market. Because of patient capital, Family Offices can play the long game. Here’s where they are looking to deploy their dry powder: The ongoing boom in e-commerce has kept demand for logistics and warehousing high. Family Offices are targeting properties in strategic locations near major urban centers and transportation hubs. Lower borrowing costs will make these acquisitions even more attractive, offering solid returns in the long term. The multifamily housing market, particularly in growing urban areas and tech hubs, remains resilient. Family Offices are eyeing value-add opportunities where they can purchase properties that need renovations or improved management. These properties can be acquired at a discount and repositioned for higher rental income, with the added benefit of more affordable financing. As universities continue to attract students back to campus, student housing is seeing strong occupancy rates. Family Offices are looking at properties near expanding campuses and in cities with robust student populations. These investments offer stable returns and can be financed more cheaply with imminent interest rate cuts. The hotel sector, still recovering from the pandemic, offers numerous opportunities for well-capitalized Family Offices. Distressed hotel properties are available at significant discounts. With travel and tourism rebounding, these assets can be renovated and repositioned for future growth. Lower interest rates will facilitate these acquisitions and renovations, enhancing potential returns. Strategies for Success • Focus on Value-Add Investments: Look for properties that require improvements or better management to increase returns. • Strategic Locations: Prioritize investments in urban areas, tech hubs, and near major transportation nodes. • Distressed Assets: Seek out distressed sellers who may be under financial pressure, providing opportunities to buy at below-market prices. • Partnerships and Joint Ventures: Collaborate with experienced operators who have deep sector knowledge to mitigate risks and enhance returns. • Long-Term Perspective: Utilize the inherent advantage of patient capital to weather short-term market fluctuations and capitalize on long-term growth trends. With imminent interest rate cuts, Family Offices can find attractive real estate bargains across various sectors. By focusing on strategic investments and leveraging their long-term perspective, they can uncover opportunities for strong returns and portfolio diversification. Industrial, multifamily, student housing, and hotel properties each offer unique growth potential, making them valuable in today's evolving market.

I’ve worked with thousands of first-time homebuyers and the loan officers who serve them. What I’m seeing right now is a mindset shift, away from “revenge spending” to what I’d call “revenge saving with purpose.” Millennials and Gen Z aren’t just cutting back on lattes. They’re taking on “no-buy challenges,” cutting travel, skipping festivals, not out of frugality, but because they know what they’re up against. The median home price is over $400,000. Rent hikes, inflation, and lingering student loans have made saving not optional, but existential. The harsh realtity is that the real cost of buying a home isn’t just the down payment. It’s also closing costs, moving expenses, utility deposits, home maintenance, and higher insurance premiums. That’s where most first-time buyers get blindsided. But “revenge saving” can close that gap if it’s intentional. That means: Categorizing spending and building flexible budgets Automating deposits into a high-yield savings account Tracking credit and financial progress with real tools And most importantly, starting 12–24 months before they’re ready to apply That’s the mission behind the KeySteps, powered by FinLocker which lets homebuyers build financial fitness in real time, with budgeting, credit monitoring, and a homeownership readiness plan all in one place. As for what to do with the savings? High-yield savings accounts (HYSAs) are a smart move for near-term liquidity. But I’d avoid locking it in a CD or IRA unless the home purchase is several years out. Flexibility matters. Revenge saving works best when it’s paired with guidance. That’s why I tell every aspiring buyer: talk to a mortgage advisor before you’re “ready.” The best time to build your plan was a year ago. The second-best time is today. #VieauxPoint

Early 2025 is painting a clear picture for multifamily real estate—and it's one of quiet resilience. Vacancy rates have fallen to 5%, the lowest in over two years, as renter demand has outpaced new supply by a significant margin. In Q1 alone, 147,000 units were absorbed, far exceeding the 116,000 units delivered. This shift is happening as developers slow their pace and renters return in force, driven by a combination of economic and demographic forces. What’s fueling this demand? A labor market that’s still holding firm. Despite broader economic uncertainty, employers added over 220,000 jobs recently, and unemployment remains low at 4.2%. For real estate investors, that’s meaningful—because job growth tends to go hand-in-hand with rental demand. And let’s not forget the long game. As millions of Gen Z adults begin forming households and Millennials remain in their prime renting years, we’re looking at a built-in base of renters that could sustain demand for years to come. So while headlines may focus on interest rates and volatility, the fundamentals of multifamily are quietly reminding us why this asset class remains a pillar in the real estate world. #cpicapital #wealthbuilding #realestateinvesting #multifamilytrends #housingmarket2025 #rentaldemand #passiveincome