Across the United States, real estate is walking a tightrope. The latest Federal Reserve Beige Book report reveals a landscape that's both resilient and uncertain, with every region wrestling with concerns about supply, pricing and the caution bred by policy ambiguity.
Boston stands out by noting that “commercial real estate activity was roughly unchanged.” Office leasing showed a slight uptick, but the report says rents “were said to have stabilized at very low levels, resulting in thin profit margins and leaving owners with little incentive to invest in improvements.” Elsewhere in the district, home sales “increased modestly on average,” and inventories of single-family homes and condominiums have swollen “by very large margins in most markets.” Yet, as one contact put it, “apartment rent growth had tapered off recently," the Beige Book further explained.
New York’s story is defined by mixed messages. Housing “was mixed across the District, with steep price increases amid strong demand and limited supply, the report noted. Rents in New York City “rose sharply,” while “rental supply declined notably around New York City, as some landlords held off listing properties until there was greater understanding of the law and how to set prices.” Construction, however, “declined strongly, as high construction costs weighed on developers.”
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Philadelphia’s real estate markets showed hints of resilience, with “existing home sales continued to increase slightly,” but sales “in May were below year-ago levels,” and the spring market “again failed to develop this year," according to the Beige Book. Builders reported a “modest decline in sales,” and price uncertainty hasn’t loosened its grip. Commercial real estate was steadier, as “leasing activity continued to grow slightly, while transaction volumes were little changed at low levels.”
Cleveland saw “demand increased moderately in recent weeks” in residential construction and real estate, with buyers in the market but an increase in “more frequent reductions in listing prices," the Beige Book summed up about the city. Commercial construction “reported moderate growth,” but uncertainty was causing clients to hold off and projects to slow.
The Richmond district painted a subdued picture, noting that “residential real estate activity was little changed, on balance,” with “inventory…continued to increase while buyers sat on the sidelines due to uncertainty.” Some sellers and agents described the previous season as “the worst spring market since 2009.”
Commercial real estate showed little movement, with agents mentioning drawn-out deals and hesitancy due to concerns over fraud.
Atlanta’s housing markets cooled as “sales of new and existing homes slowed, and housing inventories rose significantly," the Beige Book said. Builders were “primarily driven by the use of incentives, such as price cuts and rate buydowns,” while commercial real estate “declined moderately, on balance, in recent months.” The rental pipeline for new multifamily properties remained “healthy” despite increased concessions to fill units.
The Chicago district remained flat, with “construction and real estate activity…unchanged.” Single family starts were “down significantly,” but “construction of townhomes and multifamily units aimed at the rental market was up," it wrote. The luxury segment outperformed, while “rents increased modestly.” Commercial real estate “demand was unchanged as were prices, rents, and vacancy rates.”
In St. Louis, “residential real estate activity has slightly increased,” while “active listings and sales in St. Louis and Louisville have increased relative to a year ago.” However, commercial deals were lacking; “there was no new business taking place” despite ongoing projects. Concerns arose that some developments relying on refinancing “would not be profitable at higher rates, which could result in foreclosures.”
Minneapolis described a market where “residential real estate was mixed,” and “closed home sales in May in Minnesota were virtually unchanged compared with a year ago," the Beige Book showed. Home construction activity was “modestly lower on balance,” while the commercial market stayed “flat overall” with “high financing rates and economic uncertainty” muting new development.
Kansas City saw “little to no change in vacancies or absorption rates among commercial real estate properties,” while sales volumes and prices “increased modestly.” The industrial segment drew strength from “sustained demand for mid- to large-scale development,” but uncertainty “delayed projects despite available capital.”
Dallas reported that “housing market activity weakened” with “foot traffic and sales continued to fall, and inventories were rising quickly.” Builders started to rely “on marketing and incentives, including discounting, to close deals.” Commercial real estate activity “largely remained steady,” but “office leasing picked up modestly, and contacts said there appear to be more signs of stability.”
Finally, San Francisco noted “activity in manufacturing and the residential real estate market weakened somewhat.” There was still “solid” demand for single-family homes, but “sales were hampered by limited availability and high mortgage rates.” Multifamily housing supply “expanded further as more units were completed, pushing down rents in some markets.” Commercial real estate was “weak and…generally unchanged,” as both demand and private construction stayed slow.
Taken together, the Federal Reserve districts are reporting a real estate sector marked by caution, marked shifts in sales activity, price sensitivity, and growing inventories, especially in residential housing. A unifying theme is uncertainty: Both buyers and sellers are showing hesitance, development initiatives are paused and new projects are stalled as everyone waits for stability in policy and the economy. As the Cleveland district summed up, “clients had delayed projects or…new inquiries had slowed amid economic uncertainty,” a refrain echoing throughout the nation’s local real estate markets.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
