Joel Berner of Realtor.com starts this week by reporting that mortgage rates continued climbing into 2025. Freddie Mac reported a 6-basis-point increase in the 30-year mortgage rate to 6.91%, the highest since July 2024 and nearly 30 points above early 2024 levels. This rise follows the Federal Reserve’s December meeting, which signaled fewer rate cuts for 2025 amid persistent inflation pressures.

Source: Realtor.com (January 2025)

“Though these high mortgage rates are a serious affordability headwind for prospective homebuyers who are already struggling with high listing prices that continue to grow, there are some positive indicators that the market is still chugging along. The most recent releases of pending home sales, new-home sales, and existing-home sales data showed growth from a year ago.”

Diana Olick of CNBC reports on rates, noting that mortgage demand plunged 21.9% in late December 2024. Rising mortgage rates—up to 6.97% for 30-year fixed loans—combined with the typically slow holiday season to dampen activity. Refinance applications dropped 36%, while purchase applications fell 13%, reflecting annual declines despite more homes on the market. High prices and rates have left many listings unsold as the housing market faces persistent affordability challenges.

Mortgage rates, a key factor shaping the housing market, are expected to decline gradually in 2025, according to Zillow, after their erratic behavior heavily influenced 2024. While rates provided a late-summer boost to sales in 2024, with an estimated 4.06 million transactions, forecasts for 2025 project a slight increase to 4.16 million sales and a modest 2.2% home value appreciation.

Similarly, Kara Ng of Zillow reports that the market expects mortgage rates to remain elevated in 2025. “Zillow expects mortgage rates to continue to bounce around in 2025…Moving forward, the Fed is going to be even more reliant on economic data as they determine whether to cut further or hold rates steady. As data flows, markets and the Fed will react, potentially causing volatility in mortgage rates.”

Jobless claims aren’t helping the desire for lower rates, according to Logan Mohtashami of HousingWire. Jobless claims data highlights the labor market’s resilience, keeping mortgage rates elevated. Despite signs of softening, the labor market has yet to experience the significant breaks typically seen before recessions. This strength has prevented the 10-year Treasury yield from sustaining lower levels, with today’s better-than-expected claims pushing the yield to 4.59%. As long as the labor market holds steady, mortgage rates will likely remain in the 6%-8% range that has persisted over the past two years.

DOGE

Thomas Taylor and Orest Mandzy of Trepp report on the quasi-governmental Department of Government Efficiency (DOGE), which aims to trim substantially from the federal budget. DOGE may seek to reduce federal office leases, which total 149.39 million square feet and $5.23 billion annually. Such cuts could profoundly impact Washington, D.C., where the government occupies one-third of office space, and ripple across housing, retail, and lodging sectors tied to government employment. Older, class B, and C buildings may face additional challenges attracting private tenants, heightening risks for commercial real estate.

Indeed, Jory Heckman of the Federal News Network discusses how DOGE will cut federal real estate costs by addressing underutilized office buildings, which currently include $5 billion in annual leases. Plans include selling excess properties, consolidating federal office space, and modernizing facilities to meet workforce needs. These efforts could reportedly save billions, reduce inefficiencies, and revitalize urban areas, though challenges persist in overcoming bureaucratic resistance and outdated infrastructure.

Vanessa Brown Calder of the CATO Institute reports on this topic, highlighting that a target for DOGE could be the Community Development Block Grant (CDBG) program, a $3 billion federal initiative under HUD. CDBG faces criticism for its ambiguous goals, poor targeting, and lack of measurable outcomes. Designed to give local governments discretion in community development, it often funds projects unrelated to low-income needs, such as festivals and corporate subsidies. 

That said, Calder notes that critics argue that eliminating the program, which serves political interests more than disadvantaged communities, would better align responsibilities with state and local governments and foster meaningful reforms.

AJ Fabino of Yahoo! News reports that Elon Musk and Vivek Ramaswamy’s DOGE initiative under Trump could reshape real estate through the following:

• Office Vacancies: Potential lease cancellations could flood markets like D.C., worsening CRE challenges.
• Privatization Opportunities: Monetizing federal real estate through REITs may attract private investment.
• Housing Uncertainty: Possible privatization of GSEs and staffing shortages could disrupt housing finance and programs.

Multifamily

Chuck Ehmann of RealPage reports on multifamily, highlighting that multifamily permits surged 22.1% month-over-month in November to an annualized rate of 481,000 units. However, the year-over-year increase was just 4.8%, highlighting the volatility of seasonally adjusted data. Multifamily starts dropped sharply by 24.1% from October and 28.8% year-over-year, signaling a slowdown in new construction. Regional trends showed growth in multifamily permitting in the Northeast (+91.2%) and Midwest (+23.6%), while the West saw a 32.7% decline. 

Source: RealPage (January 2025)

“Texas still leads all states with six of the top 20 individual permitting places on November’s list, two in the Austin area and one for the city of Fort Worth. Four of New York’s five boroughs made the top 20 with two in the top 10, while the remaining five top 10 spots are geographically diverse.”

Philippa Maister of Globe St reports that despite concerns over multifamily oversupply and slowing rent growth, investors are targeting the sector for its long-term fundamentals and recovery potential. Firms like Portman Holdings and Waterton are launching funds to acquire or reposition properties in key markets, focusing on areas with strong population and job growth. Blackstone’s $10 billion acquisition of AIR Communities and Dune Real Estate Partners’ $1 billion office-to-residential conversion fund underscore growing confidence in multifamily as a resilient asset class during market uncertainty.

Leslie Shaver of Construction Dive reports on multifamily starts, noting that they plummeted 28.8% year-over-year in November to an annualized rate of 264,000, while completions rose 13.6% to 544,000 units, marking a slowdown from October’s 61% jump. Developers pulled permits for 481,000 units, a 22.1% year-over-year increase, suggesting potential future growth. With 2025 expected to mark the bottom of the cycle for new starts, some developers see opportunities for projects targeting delivery in 2026 and beyond amidst a broader housing shortage.

Paul Bubny of ConnectCRE reports on commercial debt, highlighting that commercial and multifamily mortgage debt rose by $47.7 billion (1.0%) in Q3 2024, reaching $4.75 trillion, with multifamily debt increasing $29.8 billion (1.4%) to $2.12 trillion.

Mario Marroquin of Globe St highlights that the multifamily market is set to remain a top investment sector in 2025, driven by strong rental demand from household formation and high home prices, according to a new Colliers report. While rising insurance, labor, and materials costs challenge profitability, a new construction and supply-side pressure slowdown is expected to boost rent growth in high-demand markets. Investors are targeting assets below replacement costs in the Southeast and Southwest, with properties in desirable locations and strong fundamentals poised to outperform.