March 28th, 2025
We wrap up March with overriding themes of tariffs, consumer confidence waning, and uncertain political policies creating a difficult to predict economic environment going into Q2. There is still an expectation that a 50bp reduction in the Fed Rate will happen by the end of 2025. Q4 GDP was revised for the 3rd time to 2.4%, up from 2.3% in Q3.
Bill Pulte, Director of the Federal Housing Finance Agency (FHFA), announced that several policies introduced by the Biden administration were being rescinded. Key changes included ending special purpose credit programs (SPCPs), removing an advisory about addressing unfair practices (UDAP), and rescinding policies that would have imposed additional tenant protections in multifamily loan agreements. The Mortgage Bankers Association (MBA) supported the removal of the UDAP advisory, arguing that it wrongly placed consumer protection oversight on Fannie Mae and Freddie Mac, which could lead to higher costs.
The National Association of Industrial and Office Properties (NAIOP) has expressed concerns that several congressional committees are considering restrictions on business deductions as part of efforts to increase federal income. According to the group, such changes to tax deductions could reduce commercial property values and create difficulties in financing, managing, and selling properties. Property taxes account for 40% of the operating expenses for U.S. commercial real estate, surpassing costs for utilities, maintenance, and insurance combined and eliminating this deduction would be a monumental problem for CRE owners and property values. NAIOP was one of 17 real estate associations that sent a joint letter this month to key congressional committees, urging them to reject any proposals to cap or eliminate deductions related to property taxes.
Lenders have extended $384 billion in loans from previous years into 2025, according to a new report from Colliers, based on data from the Mortgage Bankers Association.
This marks a 42% increase from the $270 billion extended in 2024 and represents about 40% of the $957 billion in commercial real estate debt set to mature in 2025. The trend of loan extensions suggests that loans are being deferred rather than paid off, as highlighted by Colliers' analysis. The extend and pretend narrative came back to life this week as there continues to be concern regarding pending loan maturities.
Consumer confidence dropped for the fourth consecutive month, with the latest Conference Board survey revealing that respondents' economic outlook for the year ahead has fallen to its lowest point in 12 years. The survey found that overall consumer confidence for March stood at 92.9, a decrease of 7.2 points from February, with 1985 serving as a base of 100. Contributing factors included uncertainty surrounding trade tariffs and government job cuts. A separate index tracking consumer views on current business and labor market conditions also fell, dropping 3.6 points to 134.5, while another measure of year-ahead expectations dropped by 9.6 points to 65.2. Consumers likely responded to recent market volatility by becoming more pessimistic about the stock market for the first time since late 2023," said Stephanie Guichard, Senior Economist at the Conference Board, in a statement. "In March, only 37.4% of consumers expected stock prices to rise over the next year, down nearly 10 percentage points from February and 20 percentage points from the peak in November 2024." Similar declines in consumer sentiment have been observed in other monthly surveys, including one from the University of Michigan. The Conference Board noted that the drop in confidence in March was most pronounced among consumers over age 55, while those under 35 had a slightly more optimistic view of their current situation.
The number of U.S. single-family homes under contract to be sold increased by 2% in February compared to the previous month, bolstered by factors such as slightly lower mortgage rates, according to a report from the National Association of Realtors (NAR) on Thursday. However, the trade group noted that contract signings were down year-over-year across all four U.S. regions, contributing to a national decline of 3.6%. "Although there was a modest uptick in contract signings from the prior month, they still remain significantly below typical historical levels," said NAR Chief Economist Lawrence Yun in a statement. "A notable reduction in mortgage rates would stimulate both demand and supply—by making homes more affordable and reducing the impact of the mortgage rate lock-in effect on existing homeowners." As of Thursday, the average 30-year, fixed-rate mortgage stood at 6.65%, according to Freddie Mac's latest weekly survey of national lenders. This marked a slight decrease from 6.67% the previous week and 6.79% a year ago. Looking ahead, the NAR, expects 30-year fixed mortgage rates to continue to decrease throughout 2025, reaching an average of 6.4%. Additionally, sales of existing homes are projected to grow by 6% from 2024.
U.S. residential construction lending fell by 7.6% in the fourth quarter of 2024 compared to the same period the previous year, totaling $89.5 billion. Based on data from the Federal Deposit Insurance Corp. (FDIC), the NAHB noted that the volume of construction and land development loans was significantly lower than the peak of $105 billion seen in the first quarter of 2023. These loans cover the development of single-family homes as well as multi-unit projects like townhouses, which can have up to four units per building.
The majority of residential construction loans in the fourth quarter—nearly 57%—were held by banks with assets under $10 billion. “Small community banks are essential in providing financial and lending support to builders across the country,” said Jesse Wade, an economist with the NAHB, in the group’s latest quarterly report.
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