From Nick Villa at Moody's The Office Sector’s Double Whammy

The ongoing challenges affecting the office sector have not only resulted in deteriorating space market fundamentals—evidenced by the record-high national office vacancy rate in the second quarter of 2025—but have also had a direct negative impact on capital market activities, including the performance of commercial mortgage-backed securities (CMBS). Figure 1 illustrates the office sector’s “double whammy”—in particular, record-high vacancy rates and CMBS conduit delinquency rates. Specifically, the chart benchmarks the cumulative change in each of these metrics going back to the end of 2019. While the U.S. office vacancy rate has increased by nearly four percentage points over this period, the rise in office-backed CMBS delinquency has been significantly higher at around 11 percentage points.

As one would expect, vacancy rates have slowly inched higher from weaker tenant demand and new supply entering the market, while the long-term nature of most office leases has helped delay the full impact on net operating income. Consequently, this has temporarily masked the underlying CMBS distress, which has recently become more apparent through rising loan delinquencies and declining property valuations. For example, the office-backed CMBS delinquency rate increased by approximately 600 basis points in 2024, which was the fastest annual increase on record since data collection began in 2000. In other words, 2024’s full-year delinquency spike even outpaced levels seen during the Global Financial Crisis (GFC). Concerningly, however, the first six months of 2025 reflected the fastest midyear increase on record, underscoring the unique structural challenges now facing the sector.

The second graph shows the office vacancy rate over time.

Moody’s Analytics reported that the office vacancy rate was at 20.7% in Q2 2025, up from 20.4% in Q1 2025, and up from 20.1% in Q2 2024.

This is the highest vacancy rate on record and is above the 19.3% peak during the S&L crisis.

What this means: On a weekly basis, Realtor.com reports the year-over-year change in active inventory and new listings. On a monthly basis, they report total inventory. For May, Realtor.com reported inventory was up 28.9% YoY, but still down 12.9% compared to the 2017 to 2019 same month levels. 
Here is their weekly report: Weekly Housing Trends: Latest Data as of July 5

• Active inventory climbed 26.7% year-over-year

The number of homes actively for sale remains on a strong upward trajectory, virtually unchanged from last week, at 26.7% higher than this time last year. This represents the 87th consecutive week of annual gains in inventory. There were more than 1 million homes for sale again last week, marking the ninth week in a row over the threshold and the highest inventory level since December 2019.

• New listings—a measure of sellers putting homes up for sale—rose 9.3% year over year

New listings rose again last week on an annual basis, up 9.3% compared with the same period last year.

• he median list price was up 0.2% year over year

The median list price climbed again this week but is still down 0.3% year to date. The median list price per square foot—which adjusts for changes in home size—rose 0.8% year over year. With inventory on the rise and more than 1 in 5 sellers cutting prices, the market is tilting back toward balance, marked by slowing price growth and increasing buyer leverage.

With inventory climbing, and sales depressed, months-of-supply is at the highest level since 2016 (excluding the start of pandemic) putting downward pressure on house prices in an increasing number of areas.

From BofA:

Since our last weekly publication, our 2Q GDP tracking is down two-tenths to 2.3% q/q saar. [July 11th estimate]
emphasis added

From Goldman:

[W]e have lowered our Q2 GDP tracking estimate by 0.6pp to +3.0% (quarter-over-quarter annualized). Our Q2 domestic final sales estimate stands at +0.7%. [July 3rd estimate]

And from the Atlanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2025 is 2.6 percent on July 9, unchanged from July 3 after rounding. After this morning's wholesale trade report from the US Census Bureau, the nowcast of second-quarter real residential fixed investment growth decreased from -6.4 percent to -6.5 percent, while the nowcast of the contribution of inventory investment to annualized second-quarter real GDP growth decreased from -2.13 percentage points to -2.15 percentage points. [July 9th estimate]

Today, in the Calculated Risk Real Estate Newsletter: 2nd Look at Local Housing Markets in June

A brief excerpt:

Closed sales in June were mostly for contracts signed in April and May, and mortgage rates, according to the Freddie Mac PMMS, averaged 6.73% in April and 6.82% in May (slightly higher than for closed sales in May).
...
In June, sales in these early reporting markets were up 4.5% YoY. Last month, in May, these same markets were down 4.7% year-over-year Not Seasonally Adjusted (NSA).

Important: There were more working days in June 2025 (20) as in June 2024 (19). So, the year-over-year change in the headline SA data will be lower than for the NSA data.
...
Many more local markets to come!

There is much more in the article.

From Dodge Data Analytics: Dodge Momentum Index Expands 7% in June

The Dodge Momentum Index (DMI), issued by Dodge Construction Network, grew 6.8% in June to 225.1 (2000=100) from the downwardly revised May reading of 210.9. Over the month, commercial planning grew 7.3% while institutional planning improved 5.7%.

“Nonresidential planning steadily improved in June, alongside strength in warehouse, recreational and data center planning,” stated Sarah Martin, associate director of forecasting at Dodge Construction Network. “Planning momentum in other key sectors – like education, hotels, and retail stores – was more subdued. Expectations for weaker consumer spending and travel demand, as well as volatility around funding, is likely contributing to weaker momentum of projects entering the planning queue for those sectors.”

Warehouse activity gained substantive momentum in June, and data center planning levels remain robust. On the institutional side, large recreational projects propped up the month-over month gain, while healthcare planning momentum continued to accelerate. In June, the DMI was up 20% when compared to year-ago levels. The commercial segment was up 11% from June 2024, and the institutional segment was up 46% after a weak June last year. If all data center projects between 2023 and 2025 are excluded, commercial planning would be up 12% from year-ago levels and the entire DMI would be up 23%.
...
The DMI is a monthly measure of the value of nonresidential building projects going into planning, shown to lead construction spending for nonresidential buildings by a full year.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 225.1 in June, up from 210.9 the previous month.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year".  This index suggests a pickup in mid-2025, however, uncertainty might impact these projects.  
Commercial construction is typically a lagging economic indicator.

From STR: U.S. hotel results for week ending 5 July

The U.S. hotel industry reported negative year-over-year comparisons, according to CoStar’s latest data through 5 July. ...

29 June through 5 July 2025 (percentage change from comparable week in 2024):

• Occupancy: 61.1% (-0.4%)
• Average daily rate (ADR): US$156.71 (-0.9%)
• Revenue per available room (RevPAR): US$95.80 (-1.3%)
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four-week average.
Click on graph for larger image.

The red line is for 2025, blue is the median, and dashed light blue is for 2024.  Dashed purple is for 2018, the record year for hotel occupancy. 
The 4-week average of the occupancy rate is tracking behind last year and the median rate for the period 2000 through 2024 (Blue).
Note: Y-axis doesn't start at zero to better show the seasonal change.
The 4-week average will increase further during the summer travel season.

Today, in the Calculated Risk Real Estate Newsletter: Part 2: Current State of the Housing Market; Overview for mid-July 2025

A brief excerpt:

Yesterday, in Part 1: Current State of the Housing Market; Overview for mid-July 2025 I reviewed home inventory, housing starts and sales. I noted that the key stories for existing homes are that inventory is increasing sharply, and sales are essentially flat compared to last year (and sales in 2024 were the lowest since 1995). That means prices are under pressure. And there are significant regional differences too.

In Part 2, I will look at house prices, mortgage rates, rents and more.
...
The Case-Shiller National Index increased 2.7% year-over-year (YoY) in April and will likely be lower year-over-year in the May report compared to April (based on other data).
...
In the January report, the Case-Shiller National index was up 4.2%, in February up 3.9%, in March up 3.4%, and now, in the April report, up 2.7%.

And the April Case-Shiller index was a 3-month average of closing prices in February, March and April. ("April" is a 3-month average of February, March and April closing prices). February closing prices include some contracts signed in December!

Not only is this trending down, but there is a significant lag to this data.

There is much more in the article.

The DOL reported:

In the week ending July 5, the advance figure for seasonally adjusted initial claims was 227,000, a decrease of 5,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 233,000 to 232,000. The 4-week moving average was 235,500, a decrease of 5,750 from the previous week's revised average. The previous week's average was revised down by 250 from 241,500 to 241,250.
emphasis added

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 235,500.

The previous week was revised down.

Weekly claims were lower than the consensus forecast.

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for initial claims to increase to 235 thousand from 233 thousand last week.

Different views on possible rate cuts (see paragraph 2).
From the Fed: Minutes of the Federal Open Market Committee, June 17–18, 2025. Excerpt:

In considering the outlook for monetary policy, participants generally agreed that, with economic growth and the labor market still solid and current monetary policy moderately or modestly restrictive, the Committee was well positioned to wait for more clarity on the outlook for inflation and economic activity. Participants noted that monetary policy would be informed by a wide range of incoming data, the economic outlook, and the balance of risks. Most participants assessed that some reduction in the target range for the federal funds rate this year would likely be appropriate, noting that upward pressure on inflation from tariffs may be temporary or modest, that medium- and longer-term inflation expectations had remained well anchored, or that some weakening of economic activity and labor market conditions could occur. A couple of participants noted that, if the data evolve in line with their expectations, they would be open to considering a reduction in the target range for the policy rate as soon as at the next meeting. Some participants saw the most likely appropriate path of monetary policy as involving no reductions in the target range for the federal funds rate this year, noting that recent inflation readings had continued to exceed the Committee's 2 percent goal, that upside risks to inflation remained meaningful in light of factors such as elevated short-term inflation expectations of businesses and households, or that they expected that the economy would remain resilient. Several participants commented that the current target range for the federal funds rate may not be far above its neutral level.

Various participants discussed risks that, if realized, would have the potential to affect the appropriate path of monetary policy. Regarding upside risks to inflation, participants noted that, if the imposition of tariffs were to generate a larger-than-expected increase in inflation, if such an increase in inflation were to be more persistent than anticipated, or if a notable increase in medium- or longer-term inflation expectations were to occur, then it would be appropriate to maintain a more restrictive stance of monetary policy than would otherwise be the case, especially if labor market conditions and economic activity remained solid. By contrast, if labor market conditions or economic activity were to weaken materially, or if inflation were to continue to come down and inflation expectations remained well anchored, then it would be appropriate to establish a less restrictive stance of monetary policy than would otherwise be the case. Participants noted that the Committee might face difficult tradeoffs if elevated inflation proved to be more persistent while the outlook for employment weakened. If that were to occur, participants agreed that they would consider how far the economy is from each goal and the potentially different time horizons over which those respective gaps would be anticipated to close.

In considering the likelihood of various scenarios, participants agreed that the risks of higher inflation and weaker labor market conditions had diminished but remained elevated, citing a lower expected path of tariffs, encouraging recent readings on inflation and inflation expectations, resilience in consumer and business spending, or improvements in some measures of consumer or business sentiment. Some participants commented that they saw the risk of elevated inflation as remaining more prominent, or as having diminished by less, than risks to employment. A few participants saw risks to the labor market as having become predominant. They noted some recent signs of weakening in real activity or the labor market, or commented that conditions could weaken in the future, particularly if policy were to remain restrictive. Participants agreed that although uncertainty about inflation and the economic outlook had decreased, it remained appropriate to take a careful approach in adjusting monetary policy. Participants emphasized the importance of ensuring that longer-term inflation expectations remained well anchored and agreed that the current stance of monetary policy positioned the Committee well to respond in a timely way to potential economic developments.
emphasis added

Here are the daily travel numbers from the TSA.
This data is as of July 8, 2025.
Click on graph for larger image.

This data shows the 7-day average of daily total traveler throughput from the TSA for the last 6 years.
Air travel is essentially unchanged YoY (7-day average up about 1.8% YoY).

The red line is the seven-day average for 2025.  
Air travel is mostly tracking last year (down slightly YTD).

Today, in the Calculated Risk Real Estate Newsletter: Part 1: Current State of the Housing Market; Overview for mid-July 2025

A brief excerpt:

This 2-part overview for mid-July provides a snapshot of the current housing market.

The key stories for existing homes are that inventory is increasing sharply, and sales are essentially flat compared to last year (and sales in 2024 were the lowest since 1995). That means prices are under pressure (although there will not be a huge wave of distressed sales).

And it has been a disappointing year for new homebuilders (but not horrible). Homebuilders have a growing number of completed homes for sales, a larger than normal number of unsold homes under construction and are reducing prices to compete with more existing home inventory. From the NAHB:

[T]he latest HMI survey also revealed that 37% of builders reported cutting prices in June, the highest percentage since NAHB began tracking this figure on a monthly basis in 2022. This compares with 34% of builders who reported cutting prices in May and 29% in April. Meanwhile, the average price reduction was 5% in June, the same as it’s been every month since last November. The use of sales incentives was 62% in June, up one percentage point from May.

“Rising inventory levels and prospective home buyers who are on hold waiting for affordability conditions to improve are resulting in weakening price growth in most markets and generating price declines for resales in a growing number of markets,” said NAHB Chief Economist Robert Dietz. “Given current market conditions, NAHB is forecasting a decline in single-family starts for 2025.”

Realtor.com reports in the June 2025 Monthly Housing Market Trends Report that new listings were up 6.2% year-over-year in June. And active listings were up 28.9% year-over-year.

Homebuyers found more options in June, as the number of actively listed homes rose 28.9% compared to the same time last year. This builds on May’s 30.1% increase and marks the 20th consecutive month of year-over-year inventory gains. The number of homes for sale topped 1 million (1.08 million) for the second consecutive month and exceeded 2020 levels for the third month in a row, a key pandemic recovery benchmark. Still, June inventory remains 12.9% below typical 2017–19 levels, down from 14.4% in May, indicating the market is closing the pre-pandemic inventory gap at an accelerating pace.

There is much more in the article.

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage applications increased 9.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 4, 2025. Last week’s results included an adjustment for the July 4th holiday.

The Market Composite Index, a measure of mortgage loan application volume, increased 9.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 13 percent compared with the previous week. The Refinance Index increased 9 percent from the previous week and was 56 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 9 percent from one week earlier. The unadjusted Purchase Index decreased 13 percent compared with the previous week and was 25 percent higher than the same week one year ago.

“Mortgage rates moved lower last week, with the 30-year fixed rate decreasing to 6.77 percent, its lowest level in three months. After adjusting for the July 4th holiday, purchase applications increased to the highest level of activity since February 2023 and remained above year-ago levels,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Homebuyer demand is being fueled by increasing housing inventory and moderating home-price growth. The average loan size on a purchase application, at $432,600, was at its lowest since January 2025. The refinance index also increased over the week, with VA refinances in particular up 32 percent.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($806,500 or less) decreased to 6.77 percent from 6.79 percent, with points holding steady at 0.62 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.

The first graph shows the MBA mortgage purchase index.

According to the MBA, purchase activity is up 25% year-over-year unadjusted. 
Red is a four-week average (blue is weekly).  
Purchase application activity is still depressed, but above the lows of October 2023 and above the lowest levels during the housing bust.  

The second graph shows the refinance index since 1990.

The refinance index increased but remained very low.

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 2:00 PM, FOMC Minutes, Meeting of June 17-18

Today, in the Calculated Risk Real Estate Newsletter: 1st Look at Local Housing Markets in June

A brief excerpt:

Tracking local data gives an early look at what happened the previous month and also reveals regional differences in both sales and inventory.

Closed sales in June were mostly for contracts signed in April and May, and mortgage rates, according to the Freddie Mac PMMS, averaged 6.73% in April and 6.82% in May (slightly higher than for closed sales in May).
...
In June, sales in these early reporting markets were up 0.9% YoY. Last month, in May, these same markets were down 5.7% year-over-year Not Seasonally Adjusted (NSA).

Important: There were more working days in June 2025 (20) as in June 2024 (19). So, the year-over-year change in the headline SA data will be lower than for the NSA data.
...
This was just several early reporting markets. Many more local markets to come!

There is much more in the article.

From Manheim Consulting today: Wholesale Used-Vehicle Prices Increase in June

Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) were higher in June compared to May. The Manheim Used Vehicle Value Index (MUVVI) increased to 208.5, representing a 6.3% year-over-year increase and a 1.6% rise above May levels. The seasonal adjustment forced the index higher in the month, as non-seasonally adjusted values fell more than usual following the volatility induced by the tariff announcement. The non-adjusted price in June decreased 1.1% compared to May, which now makes the unadjusted average price higher by 5.1% year over year.
emphasis added

Click on graph for larger image.

This index from Manheim Consulting is based on all completed sales transactions at Manheim’s U.S. auctions.

The Manheim index suggests used car prices increased in June (seasonally adjusted) and were up 6.3% YoY.

Note: Usually small business owners complain about taxes and regulations (currently 1st and 6th on the "Single Most Important Problem" list).  During a recession, "poor sales" is usually the top problem and recently "inflation" was number 1.

From the National Federation of Independent Business (NFIB): June 2025 Report: Small Business Optimism Index

The NFIB Small Business Optimism Index remained steady in June, edging down 0.2 of a point to 98.6, slightly above the 51-year average of 98. A substantial increase in respondents reporting excess inventories contributed the most to the decline in the index. The Uncertainty Index decreased by five points from May to 89. Nineteen percent of small business owners reported taxes as their single most important problem, up one point from May and ranking as the top problem again. The last time taxes reached 19 percent was in July 2021.
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

Right now for most important problem, after taxes (19%), "Quality of Labor" (16%) is #2, inflation (11%) is #3, and "Poor Sales" (10%) and "Cost of Labor" are tied for #4.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Continue Higher For Third Straight Day

For the entire 2nd half of June, it was easy to be spoiled by the absence of volatility in mortgage rates. During that time, rates were either lower or unchanged every single day. The past few business days have been a different story. [30 year fixed 6.79%]
emphasis added

Tuesday:
• At 6:00 AM ET, NFIB Small Business Optimism Index for June.

This is something to watch again. Here is another monthly update on lumber prices.
SPECIAL NOTE: The CME group discontinued the Random Length Lumber Futures contract on May 16, 2023.  I switched to a physically-delivered Lumber Futures contract that was started in August 2022.  Unfortunately, this impacts long term price comparisons since the new contract was priced about 24% higher than the old random length contract for the period when both contracts were available.
This graph shows CME random length framing futures through August 2022 (blue), and the new physically-delivered Lumber Futures (LBR) contract starting in August 2022 (Red).
On July 7, 2025, LBR was at $611.50 per 1,000 board feet, up 26% from a year ago.
Click on graph for larger image.

There is somewhat of a seasonal demand for lumber, and lumber prices frequently peak in the first half of the year.
Note that last year prices bottomed in early July at $449.00 per 1,000 board feet, so the year-over-year comparison will be easier in the months ahead.
The pickup in early 2018 was due to the Trump lumber tariffs in 2017.  There were huge increases during the pandemic due to a combination of supply constraints and a pickup in housing starts.  

Today, in the Real Estate Newsletter: July ICE Mortgage Monitor: Home Prices Continue to Cool, Early Signs of Homeowner Risk Emerge

Brief excerpt:

House Price Growth Continues to Slow

Here is the year-over-year in house prices according to the ICE Home Price Index (HPI). The ICE HPI is a repeat sales index. ICE reports the median price change of the repeat sales. The index was up 1.6% year-over-year in May, down from 2.0% YoY in April. The early look at the June HPI shows a 1.3% YoY increase.

• Mortgage rates in the high 6% range and growing inventory across the country continue to cool home price growth

• Annual price growth eased to 1.6% in May with ICE’s enhanced Home Price Index showing growth slowing further to 1.3% in early June marking the slowest growth rate since mid-2023

• Early June data also shows home prices rose by a modest 0.02% on a seasonally adjusted basis, which is equivalent to a seasonally adjusted annualized rate (SAAR) of +0.3%, suggesting more slowing on the horizon

• Single family prices were up +1.6% from the same time last year, while condo prices were down -1.3%, marking the softest condo market since 2012

• More than half of the top 100 housing markets in the U.S. are seeing condo prices below last year’s levels, with the largest declines in Florida, led by Cape Coral (-12.7%) and North Port (-10.4%)

There is much more in the newsletter.