1. CPI INFLATION
- The Consumer Price Index (CPI) rose 0.2% month-over-month and 2.7% year-over-year in July. It marked the third consecutive month that prices accelerated on an annual basis, following three consecutive decreases to begin the year.
- Price pressures rose for items such as used cars and trucks, transportation services, and new vehicles, but fell for gasoline, fuel oil, and shelter. Food prices were relatively unchanged.
- Core-CPI prices, which strip out food and energy and more closely resemble what the Fed considers for monetary policy decisions, were even higher, clocking in at 0.3% month-over-month and 3.1% year-over-year.
- Reemerging core-CPI price pressures, which saw their sharpest rise in six months, add to the notion that tariffs and US trade actions made during the spring are beginning to show their effects on consumer prices.
- Despite the uptick, inflation came in slower than many feared, causing futures markets to raise the probability of a September rate cut from 85.9% one day before CPI was released to 94.2% following the report.
2. FOMC’S JULY INTEREST RATE DECISION
- The FOMC held the federal funds rate unchanged at its July policy meeting, a widely expected decision despite some signs of division about the ideal timing of a potential cut.
- Fed Chair Jerome Powell expressed the majority view on the committee that inflation remained modestly above target, and that while job growth has slowed compared to one year ago, so has labor supply— leaving the labor market relatively balanced, which is reflected in the relatively low headline unemployment numbers.
- Nonetheless, Powell’s remarks came days before a lackluster US jobs report that showed only 75,000 new payrolls were added in July and massive downward revisions for May and June.
- Many officials on the committee continue to note the uncertainty around tariffs and their potentially inflationary effects as a reason to leave rates moderately restrictive. However, while CPI data confirms that these pressures exist, emerging risks to the labor market have significantly increased the likelihood that officials will move forward with a September rate cut.
3. JULY JOBS REPORT
- The US added just 73,000 jobs in July, while May and June saw a combined revision of -258,000, the most significant two-month downward revision since the 2020 onset of the pandemic.
- After the revisions, May’s job growth was revised down to +19,000 from the original +144,000, while June’s payrolls were revised to +14,000 from an initially estimated +147,000.
- Employment trended upward in health care and social assistance, while federal government payrolls continued to decline. The unemployment rate ticked up to 4.2% while labor force participation was unchanged.
- Hiring has dropped across most age groups in recent months, but job postings for entry-level positions are especially weak. July saw the largest increase in the unemployment level among new entrants on record (+275,000) and rose to its highest level since January 2015.
4. THE GEOGRAPHY OF MULTIFAMILY GROWTH
- A recent briefing from Chandan Economics shows that since 2013, apartment household growth in semi-urban communities has outpaced that in both urban and suburban zip codes.
- Between 2013 and 2023, the number of semi-urban multifamily households rose by 25.5% compared to 23.7% in central city districts. Suburban multifamily households grew by a more modest 15.0%.
- While suburban apartment household growth trailed other geographies, it still outpaced total US household growth over the same period, which was just 13.5%.
- Semi-urban multifamily has emerged as one of the sector’s primary growth engines, with room for new construction and a cost structure that remains more favorable than dense downtown areas.
5. GDP
- Real US GDP rose by a seasonally adjusted annualized rate (SAAR) of 3.0% in the second quarter of 2025, following a 0.5% decline during the first quarter.
- Second quarter growth was primarily driven by a decrease in imports and an increase in consumer spending, which was partly offset by declines in exports and investment.
- Though growth came in higher than the first quarter, imports fell by a sharp SAAR of 30.5%, led by a decline in goods imports such as medicinal, dental, and pharmaceutical goods.
- Further, a significant part of the increase in consumer spending was expenditures on non-discretionary services such as health care services. In contrast, an alternative final sales measure that sums consumer spending and gross fixed investment increased by 1.2% compared to 1.9% in the first quarter.
6. LOGISTICS ACTIVITY
- Logistics activity dropped in July, indicating a broader slowdown in the sector as the effects of a new trade normal begin to settle in.
- A deceleration in inventory cost growth primarily drove the decline, as inventory levels expanded at a slower rate than in the spring, leading to a shift in warehousing capacity back into expansion.
- According to the researchers for the Logistics Managers’ Index, each of these shifts was driven by changes in activity by upstream firms or smaller retailers (less than 1,000 employees)
- Downstream and larger firms are reporting falling inventories, increased capacity, and lower price expansion.
- Transportation utilization rose in July while transport capacity and prices remained fairly consistent as freight activity gradually recovers.
7. INDUSTRIAL SUPPLY CLOSE TO PRE-2020 LEVELS
- According to a recent analysis by Commercial Café, the volume of industrial space being built is nearly equal to pre-pandemic levels, though with a different composition.
- 341.8 million square feet of industrial space is currently under construction nationally, while 146.6 million square feet has been completed so far this year.
- E-commerce and omnichannel retail continue to be the primary force driving post-pandemic industrial development, but over-development has pushed up the national vacancy rate.
- The average industrial vacancy rose 50 basis points in July to 9.0%. The vacancy rate is up 290 basis points year-over-year.
- Orange County, CA, charts the highest average in-place rent per square foot, while Dallas-Fort Worth and Houston each doubled their year-over-year pipelines, signaling a new expansion boom in the ‘Texas Triangle’.
8. COMMERCIAL PROPERTY PRICES
- Commercial property prices were mostly unchanged from June, according to MSCI-RCA’s Commercial Property Price Index; however, prices fell 0.7% year-over-year. The annual rate of decline has slowed substantially over the past two years.
- Retail properties continue to be the leading sector for price growth on an annual basis, climbing 3.5% year-over-year but flat from May.
- Industrial prices climbed 1.6% year-over-year and gained 0.3% from May. Monthly rates in the industrial sector have risen over the past three months.
- Apartment prices posted a 0.1% annual increase in June but were flat on a month-over-month basis.
- Office was the only major property type in June to post a year-over-year decline, falling 1.9% while dropping 0.2% from May.
9. CONSTRUCTION SPENDING
- According to the Census Bureau, US construction spending fell by 0.4% between May and June to a seasonally adjusted annualized rate of $2.13 billion—extending monthly declines that began last November.
- Construction spending has fallen this year as restrictive borrowing rates increasingly limit new real estate demand and curb credit activity for new projects.
- Residential construction plummeted by 0.7% in June to an annualized rate of $952 billion, while non-residential construction ticked lower by 0.1% to an annualized rate of $1.2 trillion.
10. BUILDER SENTIMENT
- Builder confidence in the single-family home market edged higher in July, according to the NAHB/Wells Fargo Housing Market Index.
- Current sales conditions rose marginally, while sales expectations for the next six months saw a higher boost. Reported traffic of prospective buyers fell slightly from June.
- 38% of builders reported cutting prices in July, the highest share since NAHB began tracking the figure on a monthly basis in 2022, following a previous record high in June. The share of builders cutting sales prices has gradually climbed over the past several months
- The average sales price reduction was 5% in July, on par with cuts seen since last November
SUMMARY OF SOURCES
1. FACTORY ACTIVITY EXPANSION
- US factory activity experienced its sharpest expansion in over three years during June, according to indicators from S&P Global and the US Census Bureau.
- According to the Census Bureau, new orders for manufactured goods increased by 8.2% in May and have risen in five of the past six months.
- More recently, the S&P Global US Manufacturing PMI indicates a significant expansion in US factory output during June, driven by a combination of increased new orders and a surge in exports.
- The Manufacturing PMI also indicates that higher demand for capacity prompted firms to increase staff the most since September 2022. Meanwhile, input costs accelerated the most on a monthly basis in nearly three years.
2. ONE BIG BEAUTIFUL BILL ACT AND CRE
- On July 4th, President Trump signed into law the ‘One Big Beautiful Bill Act’, a sprawling tax and spending bill with several provisions related to Commercial Real Estate but with complex, not easily defined implications.
- Key among them is the permanent establishment of Opportunity Zones, which will now operate in 10-year cycles with stricter eligibility requirements than previously.
- A return of 100% bonus depreciation has been celebrated by many in the real estate industry, expected to drive significant tax savings by enabling owners to deploy it strategically for certain building purchases and tenant improvements.
- The law also alters the calculation of Adjusted Taxable Income, allowing for the addition back of depreciation, amortization, and depletion, which is expected to increase the basis for deducting interest expenses.
- Others view the law as mostly neutral for Commercial Real Estate, with some increases in SALT deductions potentially becoming a boost to real estate values, while deep spending cuts could partly offset this with weakened demand.
3. GEOPOLITICAL RISKS
- According to BlackRock’s tracking of market attention to geopolitical risks, the risk of global trade protectionism remains the issue that drives the most attention from financial markets, out of those tracked. At the same time, concerns around the Middle East have increased in recent months.
- Uncertainty and volatility have dominated the geopolitical landscape in 2025, but have impacted markets to varying extents. Global trade risks remain the scenario most likely to materialize, as despite a pause to several tariffs and ongoing trade negotiations, the market expects effective tariff rates to stay above 2024 baselines.
- The outbreak of war between Israel and Iran in June, which saw direct US involvement, threatens both regional and global energy market stability. While a recent ceasefire has dampened market attention to these developments, BlackRock still views these risks as high, given the uncertainty surrounding damage to Iran’s nuclear program and the mutually incompatible red lines between the parties involved.
- The US-China strategic competition risk remains high despite some signs of progress on trade talks between the two nations in June. Both countries continue to take steps toward export controls and decoupling of key technology sectors, while hawkish sentiments in each government raise the chances of military miscalculation.
4. LOGISTICS ACTIVITY
- US logistics activity rose only modestly in June but reached its third-highest reading in the past two years, according to the latest reading of the Logistics Managers’ Index (LMI).
- Supply chain activity during the first half of 2025 has somewhat defied typical seasonal patterns. The only months when logistics activity expansion has been higher over the past two years were January and February of this year, which resulted from wholesalers rushing in new orders to get ahead of potential tariffs.
- While activity later reverted to its pre-January trend, it continued to expand healthily, growing in each month since March.
- June’s increase in the LMI was primarily driven by a sharp rise in inventory levels during the first half of the month as importers took advantage of a pause in many punitive tariffs.
- Inventory costs rose significantly as a result, reaching their highest level since October 2022, when supply chains were still dealing with COVID-related disruptions.
5. MORTGAGE APPLICATIONS RISE
- Mortgage applications soared by 9.4% during the week ending on July 4th, 2025, according to data from the Mortgage Bankers’ Association.
- Application volumes have now grown for three consecutive weeks, marking their longest streak of expansion since December 2024, at a time when benchmark mortgage rates were softening.
- Both refinance applications, which tend to be more sensitive to short-term interest rate changes, and purchase applications jumped by 9% during the week.
- Refinance applications are up 56% from the same time last year, while purchase activity is up 25%—a key signal that housing market activity is gradually thawing.
6. JUNE JOBS REPORT
- The US economy added 147,000 new jobs in June, narrowly above May’s revised total of 144,000 additions, according to the latest data from the Bureau of Labor Statistics (BLS). The unemployment rate ticked down to 4.1%.
- Job growth has been steady during the first half of 2025, proving resilient in the face of rising economic uncertainty over the past several months, including the rise of AI investment and increasing trade and geopolitical tensions.
- Following the release of the June jobs report, the probability of a July rate cut by the Federal Reserve reduced considerably. June’s job data appeared to validate policymakers’ wait-and-see approach further, causing futures markets to revert toward a projection of fewer and further-out rate cuts.
- However, the June jobs report showed government jobs accounted for a significant share of June’s growth, with strong state and local hiring leading to a 73,000 increase in public sector roles.
- The private sector still added 74,000 jobs in June, according to initial estimates. Still, these more subtle shifts in the labor market will be key to policymakers’ assessment of how rate policy should evolve.
7. COMMERCIAL PROPERTY PRICES
- Commercial property prices fell 0.2% month-over-month and 1.0% year-over-year in May, according to the latest Commercial Property Price Index (CPPI) update from MSCI-RCA.
- Nationally, commercial property prices extended a trend of mild annual decreases experienced over the past year, with the index posting its fifth consecutive monthly decline.
- Retail led all property types during May, rising 0.2% from April and 4.0% year-over-year. Retail prices have risen monthly for 12 consecutive months.
- Industrial prices declined by 0.2% and rose just 0.1% year-over-year as the sector’s post-pandemic momentum continues to fade. May marked the seventh consecutive monthly decline in industrial prices.
- Apartment prices fell 0.4% from April and experienced a 1.1% drop year-over-year. Declines in Apartment prices have moderated somewhat in the past year and are gradually trending more positively.
- The CBD Office sector continues to be the weakest tracked property sector, but the pace of decline eased in May. CBD office fell 0.4% from April and is down 6.2% year-over-year, a significant improvement over a nearly 30% decline this time last year.
- Suburban Office prices climbed 0.4% month-over-month and are up 1.5% year-over-year.
8. BUSINESS OPTIMISM
- Business optimism was mostly unchanged in June from a month prior but fell slightly below forecasts, according to the latest data from the National Association of Independent Business (NFIB)
- There was a substantial increase in respondents reporting excess inventories, which drove a slight decline in the overall index month-over-month. Meanwhile, the net percent of business owners expecting better business conditions also fell, dropping three points to 22%.
- The net percentage of owners expecting higher sales volumes ahead fell three points to 7%, while a net 21% of owners plan capital outlays in the next six months, down one point from May.
- Business uncertainty also declined in June, while the share of small business owners reporting taxes as their single most important problem rose 19%, its highest since July 2021.
9. CMBS DELINQUENCIES RISE
- According to Trepp, the CMBS delinquency rate rose five basis points to 7.13% in June, with four of the five main property types registering increases during the month.
- The highest delinquency rate increase during June was in the Office sector, which climbed 49 basis points to 11.09%, reaching a record high and surpassing previous peaks in July 2012 and December 2024.
- Lodging continued to display volatile delinquency trends, rising 42 basis points to 6.81% after shedding nearly 150 basis points during May, according to the report.
- The delinquency rate for Industrial loans ticked up just three basis points and remains at an industry low of 0.51%. The Retail delinquency rate climbed by five basis points to 6.69%.
- Multifamily loans were the only major property sector to buck the trend, with the delinquency rate falling by 20 basis points from May.
10. APARTMENT SUPPLY TRENDS
- A new analysis by RealPage suggests that many large construction markets have reached their peak, but that at least 13 of the nation’s 50 largest apartment markets won’t reach their highest supply volumes until at least the second half of 2024.
- The report identifies Boston, Detroit, Fort Lauderdale, Kansas City, and Memphis as metros expected to hit their construction peaks during the third quarter of this year. Cleveland, Columbus, and New York are expected to peak during the fourth quarter.
- Looking ahead to 2026, Newark is expected to reach its high during Q1, while Anaheim, Los Angeles, and San Diego are projected to reach their supply peaks in Q2. Finally, Greensboro, NC, is expected to peak during Q3 2026.
SUMMARY OF SOURCES
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1. SMALL BUSINESS OPTIMISM DECLINES
- According to the National Association of Independent Business (NFIB) in March, small business optimism experienced its most substantial decline in nearly three years, driven by a collapse in expectations around future business and sales conditions.
- The share of owners who expect better future business conditions fell by its largest monthly amount since December 2020, declining to just 21%. Meanwhile, just 3% of owners expect real sales to be higher in the short term, down from 14% in February.
- Notably, the identical items that saw the largest boost to sentiment following the November 2024 election experienced the steepest declines in March.
- Other components that measure ongoing business conditions, such as the share of owners reporting plans to increase employment, capital outlays, or expand their business, remain roughly in line with where it was pre-election.
2. CONSUMER CONFIDENCE TRACKING
- Morning Consult’s daily index of consumer sentiment (ICS) shows that from April 3rd to April 7th, consumer confidence experienced its second-largest three-day drop since tracking began in 2018, behind only reactions to the onset of COVID-19 in March 2020.
- The April 7th reading was the lowest since July 2024. Following the 2024 election, US consumer confidence experienced a rapid upswing, reaching a five-year high by January 21st, but has fallen steadily in the past several weeks.
- Consumer and business confidence indices have recently reacted to the US administration’s tariff announcements, but the impact on spending is less clear. Consumer spending was weaker than expected in February, but some forecasters foresee an Easter spending pick-up despite higher uncertainty.
3. LOGISTICS MANAGERS’ INDEX
- The US Logistics Managers’ Index (LMI), a leading indicator for Industrial Real Estate activity, fell from 62.8 in February to 57.1 in March. A mark above 50 indicates that logistics activity is expanding.
- This month’s drop is the third largest in the index’s history and marked the shortest expansion in logistics activity in seven months. However, for context, February’s LMI reading was the highest since June 2022.
- The decline was led by an across-the-board drop in index components prices, including inventory costs, warehouse prices, and transportation prices.
- The broad price decrease lends credibility to the view that logistics activity ramped up to start the year in anticipation of tariff risks, but that activity has since subsided.
- Additionally, inventory levels and warehouse and transportation capacity each expanded at a slower pace in March.
4. MEDICAL OUTPATIENT SPACES
- Medical outpatient buildings (MOB) are emerging as an opportunity in an otherwise challenging market, as explored in a recent piece by Globe Street.
- Asking rents rose 2.5% in 2024, slower than the 3.7% in 2023, but premium properties continue to drive rent growth in the sector.
- Properties with rents in the 90th percentile of Revista’s top 100 markets achieved an average of 2.4% in NOI growth between 2019 and 2024 compared to an average of 1.8% growth for properties near the 50th percentile.
- Tenant retention has also been key to MOB’s appeal. Healthcare providers typically operate on longer lease terms while renewing at high rates.
- According to data from Green Street, over 80% of tenants renewed MOBs in Q3 2024. New leases average a commitment of 107 months, nearly nine years. Meanwhile, vacancy rates remain relatively low, at just 6.9% through Q4 2024.
5. APARTMENT CONSTRUCTION & DEVELOPMENT ACTIVITY
- According to the National Multifamily Housing Council (NMHC)’s latest quarterly construction survey, 58% of respondents reported experiencing construction delays during the first quarter, down from 78% at the end of Q4 2024.
- The Southeast stands out as an area where delays are more widespread, followed by Texas and, to a slightly lesser extent, the mid-Atlantic and the Rockies.
- Of those experiencing delays during Q1, 79% are experiencing permitting delays, a drop from a record high of 95% of respondents in Q4 2024. The share of respondents reporting delays in starts rose from 90% to 93%, its highest share since June 2022.
- The most frequently cited causes of delays in starting during the first quarter were economic uncertainty and economic feasibility, each at 68% of respondents. Permitting, entitlement, and professional services are also cited to a slightly lesser extent but still affect more than half of all respondents.
- Availability of construction financing and staffing shortages continue to decline as reasons for delayed starts.
6. MARCH JOBS REPORT
- According to the Bureau of Labor Statistics (BLS), the US added 228k jobs in March, well above projections of 140k jobs and climbing from 117k in February. The unemployment rate increased 10 basis points (bps) to 4.2%.
- Health care, transportation, and warehousing were once again among the key sectors driving employment growth.
- Federal government jobs continued to shrink in March as large cuts to the federal workforce that began in February continued to take shape. Federal government jobs declined by 4,000 in March following an 11,000 decline in February.
- Despite payrolls coming in higher than expected, futures markets shifted toward a more dovish outlook for policy following the data release.
- Year-end projections for the Federal Funds rate went from a 78.7% probability of no more than four (4) rate cuts between now and the end of the year to a 51.1% probability of at least five rate cuts.
7. EASTER SHOPPING SEASON
- The National Retail Federation projects that Easter shoppers are expected to spend $23.6 billion during the spring 2025 holiday, up from the $22.4 billion estimated total in 2024.
- The report forecasts that Americans will increase their spending this year despite a recent uptick in economic uncertainty.
- Discount stores are expected to once again be the top destination for seasonal shopping. The price of eggs, a traditional item used for Easter festivities, has nearly doubled in the past year.
- Major retailers, who experienced robust sales numbers during the December 2024 holiday season, are expecting a similar pattern during the upcoming holiday, believing that consumers who feel constrained by other costs may view the holiday season more favorably.
8. TOP STATES FOR UNDER-35 HOMEOWNERS
- According to a Chandan Economics analysis of the American Community Survey, Texas, California, and Florida have the greatest number of households headed by someone under 35.
- Meanwhile, Utah (11.6%), Alaska (10.2%), and Iowa (10.1%) maintain the highest proportion of U35 homeowners as a share of all households in the nation, with North Dakota (10.0%) and Wyoming (9.6%) rounding out the top 5.
- The states with the highest totals tend to also have the most homeowners under 35 and generally rank near the top for renters.
- Conversely, the highest shares of U35 homeowners as a percent of all households reveal where young, first-time homebuyers face fewer barriers to ownership.
- States that rank in the bottom ten for a share of U35 homeowners are among some of the highest for average hourly wages. This includes DC, which is the lowest in terms of U35 homeowner share (3.5%) but highest in average hourly wage ($55.02). Also ranking in the bottom five are California (4.6%) and New York (4.8%), followed by Hawaii (5.1%) and Nevada (5.4%).
9. WFH RENTAL DEMAND
- According to a Chandan Economics analysis of the US Census Bureau’s American Community Survey, there are 4.0 million rental units in the US headed by someone who works from home (WFH), down from 4.5 million in 2022, representing a 9.9% decline.
- It’s the second consecutive year that WFH rentals have fallen, following the peak of 5.0 million households in 2021. Between 2021 and 2023, WFH rental demand has slid by a total of 1.0 million households (-20.1%).
- WFH renters skyrocketed by more than 200% in 2020 and rose again by about 18% in 2021.
- Despite the past two years of declines, the nature of remote vs. in-person work remains in a very different place than it was entering the pandemic. Through 2023, the total number of full-time WFH workers (22.6 million) remains up by 152% compared to pre-pandemic.
- The disentanglement of local rent prices from local wage dynamics had a major impact on rental markets in the aftermath of the pandemic. Now, while the reversion process will be more gradual, a re-anchoring appears underway.
10. FOMC MEETING MINUTES
- According to the recently released minutes from the Fed’s March policy meeting, there was broad agreement to keep rates unchanged while policymakers continue to assess the outlook for labor markets and growth in 2025.
- Members, on average, expect inflation to be pushed higher this year due to the impact of tariffs. However, the committee collectively acknowledges that there is much uncertainty around the magnitude of tariff effects or their duration.
- Meanwhile, a majority of officials believe that inflation pressures more broadly could be more persistent than previously anticipated.
- Most FOMC members view inflation risks as tilted to the upside, while employment risks are facing the downside.
SUMMARY OF SOURCES
1. CPI INFLATION
- The Consumer Price Index (CPI) rose 0.2% in February and 2.8% year-over-year, cooling more than expected and potentially providing some relief to markets and policymakers on guard about price pressures.
- Core-CPI, which removes the more volatile food and energy components, mirrored the headline 0.2% month-over-month figure but arrived slightly higher on an annual basis at 3.1%. Nonetheless, Core CPI also fell short of Wall Street’s consensus forecast, with economists expecting a 0.3% month-over-month increase in both the headline and core numbers.
- Shelter costs notably decelerated from January (+0.35 month-over-month) but remain responsible for roughly half the monthly increase in headline CPI. Further, since shelter makes up about one-third of the CPI weight, it managed to push core inflation above the headline metric this month even as food and energy prices were on the rise.
- Food and energy prices each rose by 0.2% in February, with eggs soaring another 10.4% in the month—taking its 12-month increase to a massive 58.8%. Beef prices also rose 2.4%
- This month’s CPI release comes amid a flurry of economic policy moves by the White House that could have both short- and long-term implications on growth and inflation. Both stock market futures and treasury yields rose following the Wednesday CPI release.
2. BUSINESS OPTIMISM DECLINES
- Business optimism took a significant dive in February, according to the National Federation of Independent Businesses (NFIB). The Business Optimism Index fell 2.1 points from January, which puts it at its lowest level since October, just prior to the 2024 presidential election.
- Also notable, a supplemental indicator of the index that measures uncertainty has surged to its second-highest level on record, beaten only by the initial uncertainty surrounding COVID-19.
- Expectations for the next six months declined, as did the share of business owners who believe now is a good time to expand their business. Labor quality and inflation continue to be the main concerns of business owners.
3. TARIFFS, UNCERTAINTY, AND REAL ESTATE
- The US Logistics Managers’ Index (LMI) came in at 58.4 in November, a slight downtick from October’s level but marking the 12th consecutive month of growth for the logistics industry. Logistics activity is a leading indicator of Industrial Real Estate demand.
- Inventory levels were down, in line with seasonal patterns, which saw warehouse utilization fall and capacity rise. The drop off in inventory also caused transportation capacity to expand and prices to fall.
- According to the reporting, inventory costs and warehousing prices saw the fastest growth, reflecting higher costs as more inventory is now held closer to consumers.
4. MARCH JOBS REPORT
- According to the Bureau of Labor Statistics, the US economy added 151k jobs in February, a rebound from a downwardly revised 125k additions in January but short of the 170k job additions that were expected.
- Job growth in health care, finance, as well as transportation and warehousing led job growth for the month, while federal government and retail trade drops saw some of the most notable declines.
- Average hourly earnings rose 0.3% month-over-month and rose annually by 4%.
- Treasury yields fell slightly, and fed futures forecasts consolidated around a projection of two rate cuts in 2025. However, with a flurry of economics-related developments arriving in the days since, the jobs data had little lasting impact on markets.
5. COMMERCIAL PROPERTY PRICES
- Commercial real estate prices edged into year-over-year growth in January and posted their third consecutive monthly increase, according to the latest Commercial Property Price Index (CPPI) data from MSCI-RCA.
- Overall, commercial prices are up 0.5% from December and 0.3% over the past twelve months. Moreover, monthly price growth is accelerating, implying a faster annualized growth pace if the trend continues.
- The Retail sector led all property types in price momentum during both January and over the past year, rising 1.5% and 3.8%, respectively.
- Prices in the Industrial sector were unchanged on a monthly basis but Industrial joined Retail as the only property type to experience an annual increase in prices through January, climbing 3.4%.
- Apartment prices in the CPPI rose 0.7% in January, and though still negative year over year, the sector is gradually beginning to show positive momentum since prices hit a floor in August 2024.
- CBD office properties fell 0.6% from December despite signs during the fourth quarter that price declines were slowing. Suburban office prices are up 0.1% month over month and down 1.5% year over year.
6. FALLING CRE DISTRESS
- According to reporting from CRED iQ, distress for both conduit and single-borrower large loan deal types dropped for the first time in five months during February.
- This comes after MSCI reported in its January US distress tracker, which combines delinquencies and special servicing rates, that levels had reached their highest in a decade.
- Distress levels dropped 70 basis points in January to 10.8%, breaking a streak of four consecutive highs.
- Office distress continues to climb, however, reaching 19.3%.
- Looking at the components of the distress metric, delinquencies, as measured by CRED iQ, fell from 8.9% to 8.0% in February. The special servicing rate dropped 20 basis points to 10.1%. For context, one year ago, the delinquency and special servicing rates were 5.4% and 7.0%, respectively.
- Among property types, self-storage saw the largest downward move, but this was caused by a $2 billion portfolio reaching maturity, drastically skewing results.
- Elsewhere, Industrial distress fell 110 basis points to a CRE-low 0.5%. Hotel distress fell 20 basis points to 10.2%, with Retail dropping by the same amount but hovering a bit higher at 10.7%. Multifamily distress rose 10 basis points to 13.0%.
7. LOGISTICS ACTIVITY
- Logistics activity rose for a second consecutive month in February and, like in January, charted its strongest growth since June 2022, according to the Logistics Mangers’ Index (LMI)
- A notable uptick in inventory levels drove logistics activity growth, with both upstream and downstream firms expanding. LMI researchers note that expanding inventories across the supply chain is similar to a dynamic observed last year, but overall, expansion levels are elevated.
- According to the report, February’s inventory increases were at least partially driven by shifting trade dynamics. As a result, inventory and warehousing prices rose at their fastest pace in several years.
- Further, transportation capacity started to loosen during the latter half of the month, suggesting that much of the trade-related inventory buildup occurred at the start of the month before becoming more static as uncertainty rose among firms and consumers.
8. CONSTRUCTION PLANNING ACTIVITY FLATTENS
- According to the Dodge Construction Network’s momentum index (DMI), construction activity grew 0.7% in February while planning activity moderated.
- Commercial planning rose 3.3% during the month, while institutional planning fell 4.6%, leading to a mostly flat period for overall activity.
- Data center activity is propping up growth in the overall DMI, which, according to the researchers, would have contracted by 2% in February if data center growth had been removed.
- Increased uncertainty around material prices and fiscal policies is believed to be weighing on planning decisions, but for now, existing plans are moving forward.
- On the commercial side, data center, traditional office building, and retail planning led gains, while weaker education planning placed downward pressure on industrial planning actvitiy.
- The DMI remains up 27% compared to one year ago, but this has been driven by the commercial segment, where activity is up 43% year-over-year, while the institutional segment is up by a tepid 2% over the same period.
9. HOUSEHOLD UTILITY COSTS
- According to a recent analysis by Chandan Economics, the average US renter household pays $220 per month in utilities, and the costs vary widely by property type.
- On an absolute basis, tenants living in single-family rentals (SFR) pay considerably more in average utilities—about $327 per month, 56% higher than the next closest property type.
- These higher costs are typical for homes with larger square footage, explaining the consistently higher totals for SFR, but utility costs remain higher for SFR even on a relative basis.
- Utilities account for 18.3% of gross SFR housing costs, but this figure falls to 14.8% for 2-4 family rentals, 10.5% for small multifamily units, and 7.9% for large multifamily units.
- Because larger property types have more unit density, average utility costs fall in absolute and relative terms due to synergies gained from shared walls and centralized energy systems, which allow for more energy efficiency.
- While technological advances have helped level the playing field across residential property types, density remains a powerful driver of efficiency and cost savings.
10. GEOGRAPHIC DIFFERENCES IN CREDIT ACCESS
- A recent study by the New York Federal Reserve finds that residents in urban areas, specifically West Coast metros, have better access to credit on average than residents of other regions of the country.
- The study reports that between 2018 and 2023, rural areas had consistently worse credit health than urban areas. Further, 85% of the top 25 cities for credit access were on the West Coast or in the region near Minneapolis.
- Outside of these regions, credit security was highest in and around Chicago, Indianapolis, Washington D.C., and Raleigh.
- Cities with the least credit access were more geographically distributed, but many were around former industrial towns, such as Detroit and Syracuse, or college towns, including Gainesville (FL), Tuscaloosa (AL), and College Station (TX). In the latter cases, a larger share of the population is made up of students who are less likely to have a credit history, explaining some of the pattern.
SUMMARY OF SOURCES
1. CPI INFLATION
- Consumer prices rose 0.5% from December and 3.0% year-over-year, according to the latest data from the Bureau of Labor Statistics.
- The typically more volatile food and energy prices were key contributors to the increase, but core prices, which remove the items, were also up 0.4% on the month and 3.3% over the past year.
- Food price increases mostly reflected an uptick in grocery prices, which rose 0.5% in January, primarily driven by a nationwide egg shortage following an outbreak of avian flu. Egg prices are up 15.2% over the past four weeks.
- Gasoline prices also climbed, up 1.8% in January, but are down 0.2% from one year ago. Fuel oil rose 6.2% month-over-month.
- The shelter index continues to add upward pressure to CPI, accounting for roughly 30% of the monthly increase in the headline index. The shelter price increase in January is accelerated relative to its November and December levels.
2. CONSUMER SENTIMENT
- Consumer sentiment declined for a second consecutive month and dropped to a seven-month low, according to preliminary data from the University of Michigan. The index is down by 4.8% from January and 11.8% year-over-year.
- Sentiment fell across all key cohorts measured, including among consumers of different age groups and wealth levels and voters of both parties.
- The index also deteriorated among all of its sub-components but was led by falling sentiment surrounding buying conditions for durable goods. This was partly due to a perception that it may be too late to avoid the negative impacts of tariff policy.
- Expectations around personal finances also fell, while consumers increasingly worry that higher inflation could return within the next year, though alternate measures of inflation expectations dispute the latter.
3. INFLATION EXPECTATIONS
- According to the New York Federal Reserve’s Survey of Consumer Expectations, consumer inflation expectations appear stable, conflicting with signals from the University of Michigan’s assessment over a similar period.
- Both the one- and three-year-ahead expectation indices remained unchanged at 3.0% year-over-year. Households also expect to spend less relative to their sentiment one month ago, amounting to an expectation of 4.4% spending growth over the next year— the lowest reading since January 2021.
- The NY Fed index historically tracks better with inflation metrics compared to the University of Michigan measure. While the NY Fed index currently shows that inflation expectations are stable, its index of inflation uncertainty remains significantly elevated relative to pre-pandemic levels.
4. INTEREST RATE FORECASTS
- Forecasts for the median year-end federal funds rate shifted significantly in the past week as consumer prices accelerated more quickly than expected in January, causing markets to adopt a more hawkish outlook for rates.
- By the end of the trading day on February 12th, the same day that the January CPI data was released, futures markets placed a majority 40.1% probability on just one rate cut by the end of the year. Just one week ago, markets placed a majority 32.4% probability of two rate cuts.
- While January’s inflation report follows several months of encouraging data, the acceleration will certainly test an FOMC already keeping its eyes peeled for a dislocation of forward-looking inflation expectations.
- Assuming the Fed’s preferred gauge, the PCE price index, mirrors the rise in core consumer prices; it will at least keep policymakers on hold through their next rate decision.
- Inflation expectations appear stable now, but January’s price acceleration risks filtering into those expectations.
5. POWELL TESTIFIES TO CONGRESS
- On February 12th, Fed Chair Jerome Powell testified in front of the new Congress for the first time, offering clues to the central banker’s outlook on the US economy and policy expectations.
- Powell reiterated the consensus FOMC view that the economy remains on a firm footing, supported by a less restrictive policy stance that he expects will hold for some time.
- Echoing comments made during his post-meeting press conference in January, Powell said that the combined potential for changes to trade, immigration, fiscal, and regulatory policies make it nearly impossible for the central bank to make clear policy judgments at this time.
- In the Fed’s upcoming framework review researchers will examine pandemic-era rate strategies where policymakers contended with trying to accommodate the economy while rates remained at historically low levels.
- Officials took a flexible approach to inflation targeting during the 2020 rebound, with some viewing that a brief period of above-target inflation could offset the long-term effects of historically low inflation during the last decade. Following a sustained period of above-average inflation, the approach was challenged, but Powell signals it’s a key part of a once-every-five-year review.
6. OFFICE VACANCY FORECASTS
- According to recent reporting from Hines, a leading global property manager, researchers expect the Office sector to continue to see rising vacancies through at least 2028 in most scenarios, though second-tier assets will continue to experience increased absorption over the next year.
- Illustrating the sector’s progress in finding its bottom, Hines points out that its own tenants returned an average of about 10% of leased space following lease expirations during 2024 compared to roughly 33% returned 12-18 months prior.
- Looking more medium-term, Hines forecasts that in a medium-case scenario where office usage gets halfway back to its pre-pandemic trend, vacancy rates will fall by about 1000 basis points by 2028. The national vacancy rate stands at 19.8% year-over-year.
7. LOGISTICS ACTIVITY
- In January, US logistics activity, a key indicator of Industrial Real Estate demand, rose at its fastest pace since June 2022, according to the Logistics Managers’ Index report.
- Reflecting activity seen toward the end of 2024, January’s increase comes amid a spike in imports driven by North American firms ramping up purchases ahead of anticipated tariffs. It also reflects further expansion in the US economy, with consumer spending helping propel fourth-quarter growth.
- The sub-index measuring inventory levels surged during the month, driven by increases at downstream firms, which was the opposite of activity in December that found upstream firms with inventory upticks.
- The shift led to cost increases for downstream firms, including inventory, warehousing, and transportation prices, collectively rising to their highest levels since April 2022.
- Capacity expansion slowed, signaling that strong consumer demand is providing a floor to inventory levels and that price pressures aren’t simply a reflection of supply chain considerations.
8. JANUARY JOBS REPORT
- According to the Bureau of Labor Statistics (BLS), US employers added 143,000 jobs in January while the unemployment rate ticked down to 4.0%.
- The report fell short of expectations, with the market consensus coming into the release projecting an increase of 175,000 payrolls. Nonetheless, the BLS upwardly revised the job additions from November and December by a total of 100,000 payrolls.
- Real wages continued to climb, with the average hourly wage up 0.5% during the month and 4.1% year-over-year.
- Healthcare and related jobs saw employment increases during the month, adding 44,000 payrolls. Retail trade employment was up 34,000, while social assistance and government jobs also rose.
- More cyclical sectors, such as construction and manufacturing, remain tepid. However, the Institute for Supply Management reported in its January Manufacturing PMI report that sector activity expanded for the first time in 26 months, potentially foreshadowing a rebound in manufacturing employment.
9. CONSTRUCTION SPENDING
- According to the latest data from the Census Bureau, US construction spending rose 0.5% month-over-month to a seasonally adjusted annual rate of $2,192 billion in December, surpassing the consensus estimate of 0.2%. Construction spending is up 4.3% year-over-year.
- Following an upwardly revised 0.2% monthly increase in November, this is now the third consecutive monthly increase in construction spending. Spending contracted twice in 2024, once in June and once in September.
- Private spending rose by 0.9% from November, led by the residential segment, which rose 1.5% mainly due to an increase in spending on single-family projects. The non-residential segment increased by just 0.1%.
- Public spending declined by 0.5%, driven by decreases in both residential and non-residential spending, which both contracted by 0.5%.
10. THE DIGITAL RETAIL TRANSFORMATION
- A recent look at the Retail landscape by Deloitte describes the industry as shifting from macro focuses to micro focuses in recent years, which references retailers moving away from a supply-driven approach that matches goods to the masses to a more data-driven approach that is personalized to the individual consumer.
- This Retail transition has come with high costs, and some of those headwinds are expected to continue in 2025. Meanwhile, retailers employing increased automation are experiencing a boost above the stagnant growth that the industry has experienced on average in recent years. Those offering gen AI tools during the Black Friday weekend noted a 15% conversion rate compared to those that didn’t.
- Increased digital efficiency will be critical to industry growth in 2025. According to the firm’s research, 7-in-10 retail executives expect to have AI capabilities in place within the next year.
SUMMARY OF SOURCES
1. END-OF-YEAR LOGISTICS ACTIVITY
- The Logistics Managers’ Index (LMI) fell to 57.3 in December, its lowest level in four months.
- According to the LMI report, a seasonal slowdown in inventory levels mostly drove the monthly decline. Still, underlying trends show that upstream firms, such as manufacturers and wholesalers, experienced an import-driven uptick in inventory levels, while downstream retailers saw inventory fall.
- The import spike is partly due to North American manufacturers ramping up buying activity before potential tariffs. According to GEP & S&P market data cited in the report, purchases by these firms hit their highest level in December of more than a year.
- Activity from Chinese firms supports this further, with the country’s customs authority reporting a 15.6% year-over-year increase in exports to the United States through December.
- Falling overall inventory also led to slowing growth in warehouse capacity compared to the previous month.
- Meanwhile, transportation prices accelerated by their fastest pace since April 2022 due to strong consumer demand and higher transportation needs as the holiday shopping season ramped up.
2. OUTDOOR SHOPPING VACANCIES HIT TWO-DECADE LOW
- Recent reporting by the Financial Times, utilizing data from Co-Star, details how vacancies at open-air shopping centers have recently fallen to historic lows, contradicting long-held concerns about the Retail real estate sector becoming saturated and sluggish.
- According to the data cited, just 6.2% of open-air shopping centers are available for rent, the lowest level since vacancy tracking began in 2006.
- Booming occupancy in outdoor retail spaces contrasts with trends in indoor mall space, which have seen vacancies rise in recent years as a rise in e-commerce dampens foot traffic at malls.
- It appears that falling mall activity does not imply similar shifts in consumer activity in outdoor spaces. According to Visa’s tracking of the holiday shopping season, despite the pandemic-era shift in online purchasing during the holidays, physical stores still accounted for 77% of all sales in 2024.
- Several retailers, particularly discount stores, are planning expansions in 2025. New demand generated from these plans will continue to place downward pressure on vacancies and upward pressure on pricing in tight markets.
3. TREPP YEAR-END ANALYSIS
- According to Trepp’s 2024 year-end commercial real estate report, market liquidity appears to have reached its inflection point last year. While risks remain, lenders continue to gradually pour back into capital markets.
- The report notes that the private-label CMBS loan market jumped nearly 165% to $103.6 billion in 2024, roughly three times the increase from 2023 and the third largest annual increase in issuance on record, behind just 2010 and 2011.
- Refinancing accounted for much of the activity. Property sales remained relatively slumped while maturing deals require new financing. $96.83 billion of them will mature by the end of 2026.
4. TOP INBOUND MIGRATION STATES IN 2024
- According to rental van tracking by U-Haul, the Carolinas, and Arizona, among other key standouts, saw increases in their inbound migration rates in 2024.
- Texas and Florida, which have attracted large inflows of new residents from out-of-state since 2020, were knocked from the top but remain high on the list. The top 5 include South Carolina, Texas, North Carolina, Florida, and Tennessee.
- Rounding out U-Haul’s top ten rankings are Arizona, Washington, Indiana, Utah, and Idaho.
- Dallas topped all other metro areas for incoming Uhauls in 2024. Zooming in on the Carolinas, Charlotte carried much of the weight, experiencing the second-largest increase of incoming movers compared to any other US metro in 2024.
- Rounding out the top 5 metros for incoming movers were Phoenix, Lakeland (FL), and Austin.
5. CPI INFLATION
- Consumer prices rose 0.4% month-over-month in December and 2.9% over the past 12 months, according to the latest release by the Bureau of Labor Statistics.
- Both headline and core CPI prices experienced month-over-month disinflation in December, each falling 10 basis points from November.
- Core-CPI grew 0.2% during the month, down from 0.3% in November, the first month-over-month disinflation in core prices since July. Core-CPI is up 3.2% year-over-year.
- Wednesday’s CPI report is the final key inflation indicator released before the FOMC’s January policy meeting. Meetings from their December meeting showed that officials discussed the above-expectations inflation pressures of recent months but continue to expect price pressures to trend downward overall.
- Stock futures surged in response to the release, which followed producer price data that also arrived under expectations. Treasury yields tumbled as bond markets recalibrate rate cuts and inflation expectations.
6. FOMC MEETING MINUTES
- The latest FOMC meeting minutes show that participants discussed the slowing pace of disinflation in 2024 and higher-than-expected readings to close the year. Nonetheless, the majority underscored the across-the-board progress in price pressures and an expectation that inflation will continue to move towards the committee’s two-percent target.
- Some officials highlight that apart from housing, prices in core goods and market-based core services categories are now increasing at similar rates to those seen during previous periods of price stability.
- However, some observe recent positive sentiment in financial markets and economic momentum as potential risks to re-anchored price stability.
- Participants described the uncertainty around the scope and timing of changes to trade and immigration policies as elevated but are accounting for its effect to varying degrees, suggesting that as moves by the incoming Trump administration become clearer, FOMC projections will increasingly reflect their potential longer-term impact.
7. Q1 2025 ECONOMIC OUTLOOK
- A recent outlook produced by Capital Economics foresees relatively healthy global GDP growth during 2025, a lesser tariff effect than prevailing consensus, and geopolitical contours that’s effects are more likely to be stretched over years rather than abruptly in 2025.
- The outlook expects soft landings to continue to be a central theme in 2025, with the world’s major economies, including the United States, seeing slowing GDP growth, but private balance sheets projected to remain strong.
- The outlook forecasts a pick-up in growth in China during the first half of 2025 as fiscal and monetary support from the central government takes hold. Euro-zone GDP is expected to expand slowly in 2025 as inflation slows, opening room for further rate cuts.
- Demand is not expected to provoke new inflation pressures in 2025, but if labor markets remain tighter than previously projected, wage pressures could remain.
- President-elect Donald Trump’s proposed tariff and immigration policies are expected to temporarily boost US inflation and limit the Fed’s ability to cut interest rates, but recent reports that the incoming administration may gradually roll out tariffs could push some of its potential price impacts beyond 2025.
8. DECEMBER JOBS REPORT
- According to the Bureau of Labor Statistics, the US economy added 256k jobs in December, beyond consensus expectations and the largest monthly job gain since March 2024.
- The overall unemployment rate edged down to 4.1% from 4.2%, while wage growth charted at 3.9%, roughly in line with its readings over the past three months.
- Supplemental unemployment measures also improved. The U-6 measure, which includes discouraged or underemployed workers and those who are unemployed, fell 0.2 points to 7.5%.
- Markets declined in response to the report as investors reassess the interest rate outlook, with futures markets now pricing in fewer rate cuts for 2025 than before the employment report’s release.
9. US ECONOMIC OPTIMISM
- US economic optimism declined in January following a large post-election bump, according to the RealClearMarkets/TIPP Economic Optimism Index.
- The index, which measures Americans’ six-month outlook on the economy, opinions of their personal financial outlook, and confidence in federal economic policies, rose from a contractionary 46.9 in October to 53.2 in November. This was followed by a reading of 54 in December, but the reading has since fallen to a more modest 51.9 in January.
- A reading above 50 indicates that, on balance, Americans remain optimistic in their outlook. The reduction may represent the fading effect of post-election optimism typically found around key issues for voters but may also show how concerns around tariffs and trade policies are beginning to feed into sentiment data.
10. SPECIAL SERVICING HITS FOUR-YEAR HIGH
- According to Trepp, the CMBS special servicing rate rose near 10% for the first time since November 2024, pushed higher in December by sizable increases in accommodations for loans in the mixed-use and multifamily sectors.
- Roughly $2.9 in loans entered special servicing in December. Loans of mixed-use properties saw the most significant monthly increase, climbing 182 basis points to 11.72%. It’s the first time the sector had more than 11% of its loans in special servicing since 2013.
- Multifamily also saw a large monthly increase, rising 136 basis points to 8.72%. Office increased 15 basis points to 14.73% and could breach the 15% mark within a few months, a level the sector hasn’t seen since the year 2000.
- Industrial experienced an uncharacteristically large bump in special servicing by 18 basis points to 0.56%, but the overall rate remains extremely low.
- The Retail special servicing rate fell 12 basis points to 11.67%, while the rate for lodging rose 14 basis points to 8.29%.
SUMMARY OF SOURCES
1. BLACK FRIDAY ACTIVITY
- According to data from Mastercard’s SpendingPulse indicator, US Black Friday sales (excluding automotive sales) were up 3.4% this year compared to 2023.
- Online retail sales rose 14.6%, while brick-and-mortar stores rose by a more modest 0.7% year-over-year.
- Jewelry, electronics, and apparel remained atop the list of goods most sold throughout the black-weekend discount window.
- Diving deeper, SpendingPulse points out notable themes throughout the black-week period. Apparel stores saw an uptick in in-store activity this year, which could be in part due to a warmer fall that delayed many seasonal purchases, while online sales maintained their post-pandemic strength. Meanwhile, footwear sales were stronger compared to 2023.
2. HOLIDAY SPENDING PROJECTED TO BOOST CRE
- According to recent reporting by Globe Street, several industry analysts expect this year’s holiday spending to grow, potentially boosting the retail, industrial, self-storage, and multifamily real estate sectors. Still, looking ahead, questions over consumer confidence remain a concern.
- The reporting notes that consumer savings are up 20% in real terms compared to 2019, while forecasts from the National Retail Federation ICSC expect retail sales growth to finish 2024 at roughly 2.5% to 3.5%% above last year’s level.
- Meanwhile, this year’s uptick in Black Friday sales and resurging logistics activity represent bullish signals for retail and interrelated sectors.
- Nonetheless, while consumer sentiment, as measured by the University of Michigan, has recovered from the lows experienced two years ago, it remains below pre-pandemic levels, which could limit the ceilings of related CRE sectors until the clouds of uncertainty clear.
3. LOGISTICS MANAGERS INDEX
- The US Logistics Managers’ Index (LMI) came in at 58.4 in November, a slight downtick from October’s level but marking the 12th consecutive month of growth for the logistics industry. Logistics activity is a leading indicator of Industrial Real Estate demand.
- Inventory levels were down, in line with seasonal patterns, which saw warehouse utilization fall and capacity rise. The drop off in inventory also caused transportation capacity to expand and prices to fall.
- According to the reporting, inventory costs and warehousing prices saw the fastest growth, reflecting higher costs as more inventory is now held closer to consumers.
4. THANKSGIVING INFLATION
- According to Chandan Economics ‘ annual Thanksgiving Inflation reporting, some of the major staples of the Thanksgiving feast saw their prices decline compared to last year. Nonetheless, cumulative post-pandemic price increases mean the feast has inflated more than just our waistlines in recent years.
- Turkey prices were down 3.9% year-over-year heading into the Thanksgiving holiday, while ham prices were down by an average of 2.0%. Potatoes fell by 1.5%. Meanwhile, eggs, a key input for baked desserts during Thanksgiving, saw a significant price increase, up by an average of 30.4%.
- Since 2020, the prices of Thanksgiving staples have cumulatively skyrocketed. Eggs are up 61.9% over the past four years, while flour and prepared flour mixed are up 35.6%. This is followed by bakery products (+27.0%), sauces and gravies (+25.4%), and turkey (+22.5%).
5. BEIGE BOOK
- According to Federal Reserve’s latest Beige Book summary, economic activity rose across most districts during the six weeks ending on November 22nd.
- National growth in economic activity was relatively small over the past six weeks, but expectations for growth rose across most regions and sectors as businesses expressed optimism that demand would rise in the coming months.
- Commercial real estate lending fell, but respondents to the beige book reported that financing remained generally available. Capital spending and materials purchases were flat or down in most districts.
- Demand for mortgages was low, but more recent indicators tells a more mixed picture, with mortgage applications increasing in recent weeks.
- Consumer spending was stable while many consumer-oriented businesses reported higher price and quality sensitivity from consumers.
- Electricity generation demand continues to grow at a robust rate as rapid expansions in data centers increase consumption.
6. JOB OPENINGS & LABOR TURNOVER
- According to the latest JOLTS report from the Bureau of Labor Statistics (BLS), the number of job openings in the United States changed little month-over-month through October, registering at 7.7 million on the last business day of the month.
- The hires rate ticked down in October while the quits rate rose slightly. Total hires were 5.3 million during the month, while quits ticked up to 3.3 million. Nonetheless, hires remained higher than quits across all sectors of the economy.
- Layoffs fell 169,000, the most in any month since April 2023. In aggregate, despite a slowdown in hiring, historically low layoffs are keeping the labor market anchored, stabilizing wages, and driving consumer spending.
7. FOMC MEETING MINUTES
- According to the minutes of the FOMC’s November policy meeting, officials expressed confidence about the path of easing inflation and the prospect for more rate cuts — but with a steady labor market, they expect cuts to come gradually.
- The minutes state that “if the data came in about as expected,” which to officials is an indication of inflation moving toward 2% with the economy remaining near maximum employment, then “it would likely be appropriate to move gradually to a more neutral stance of policy over time.”
- As of the end of the trading day on December 3rd, futures markets are pricing in a 74% probability of a 25-basis point cut at the Fed’s next meeting later this month.
8. CBD OFFICE VACANCIES
- According to recent data by Moody’s, the national office vacancy rate declined slightly in Q3 2024, sliding ten basis points to 20.0%. While the decline was modest, it’s a positive development for the sector as it works through systemic distress.
- Moody’s forecasts that the path ahead for office vacancies is nonlinear, and they expect vacancies to peak in late 2025 or early 2026.
- Entering 2025, capital markets are signaling that we’re nearing a bottom, but in addition to the evolving financing environment, other uncertainties such as inflation, geopolitics, and US federal policy will continue to produce downstream effects on the office market.
9. MORTGAGE APPLICATIONS
- Mortgage applications have now climbed for four consecutive weeks following a month and a half of declines, according to latest data from the Mortgage Bankers Association of America.
- During the week ending November 29th, US mortgage applications rose by 2.8% compared to the previous week and by 6.3% during the week before. The growth has been the result of resurging purchase activity in recent weeks.
- Meanwhile, refinancing activity fell for the second consecutive week and has declined in nine of the past ten weeks.
- The average rate for 30-year fixed-rate mortgages fell to 6.69% from 6.86%.
10. HOUSING AFFORDABILITY UPDATE
- According to Moody’s Q3 2024 Housing Affordability Update, US median household incomes rose by an average of 3.6% over the year, which has eased the average rent-to-income (RTI) ratio for renters over the same period, which has declined to 26.7%.
- Migration-related population growth in the South and Sun Belt region has drastically changed income demographics and impacted local housing affordability. States with higher population churn reflect a stronger appeal to new residents and are where affordability challenges have emerged the most.
- Student housing is also experiencing steep cost increases. Nationally, rent growth in the student segment has outpaced multifamily rent growth over the past two years. Moreover, several universities are experiencing higher rents for campus housing relative to the local multifamily market, reflecting demand pressures specific to this segment.
SUMMARY OF SOURCES
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