The latest real estate landscape, according to the Fed

Total economic activity has not fluctuated wildly across the country since early September, according to the Federal Reserve in its most recent Beige book — policymakers' periodic summary of anecdotal reports on regional economic conditions.

However, there were some notable observations from real estate and construction professionals in each district.

Lending conditions in the northeastern U.S. district were tight relative to historical norms, especially in office properties. Industrial and multifamily properties saw more funding available to them.

Single-family home sales increased in August in most states in the district when compared to the same month last year, but fell in Massachusetts. For sale inventories also rose in every market, except for Massachusetts.

Demand continued to outpace supply in real estate, leading to rising home prices in the district. Many home sales closed over the asking price and an unusually large share of the sales were all cash. Manhattan remained an exception to this increase. Outside of New York City, rents increased and vacancy rates rose above pre-pandemic levels.

The vacancy rate in Northern New Jersey’s industrial sector spiked as demand for space declined. Construction firms reported decreased activity. One business noted longer construction times because of permit processes and utility delays.

Business people cited prospects for future interest rate decreases and the election as reasons to hold off investing. Mortgage applications rose, but many applicants did not lock in at a rate, hoping for rates to decline further.

Multiple observers said there is more interest in office properties because of lower valuations of these locations.

New home construction indicates a strong growth in demand for homes in recent weeks. Some builders described buyers as “coming off the sidelines” when interest rates dipped earlier this year. Two commercial building companies said they will wait until after the election to take on more projects. There is an increased demand for office space and renewing leases as more firms in the area return to in-person work.

Rising rents have limited the affordable housing options for low- and moderate-income households. Construction of new affordable units lagged because of higher building material and financing costs. Some contacts expressed concern over how short-term rentals for tourists could affect the housing supply.

One real estate agent in Virginia said housing inventory is on the rise, specifically for fixer-upper and homes considered “less-than-ideal." Agents across the district mentioned lawsuits and uncertainties about the rules for representation due to the National Association of Realtors' policy changes.

Vacancies decreased in prime A-graded spaces in the commercial sector, but grew in lower-graded places.

Private and commercial construction delayed because of affordability concerns, according to a residential and metal buildings construction company in Virginia.

Hurricane Helene caused significant destruction to the commercial and housing stock in Virginia and Western North Carolina.

Home inventory levels spiked in the Florida markets. The Florida Realtors' September report said there were 95,943 homes in its inventory, a 39.6% increase in inventory from the same time in 2023.

Home prices in the district remain near peak levels. These prices, along with rising taxes, insurance and homeowner association costs have offset the cost benefits of lowered interest rates. Housing affordability issues persist for buyers, making many delay purchases while they wait for interest rate decreases.

Builders still offered aggressive incentives, such as rate buydowns, to attract buyers even while optimism in the new home market improved.

Home builders expect national housing starts to end the year higher than last year and continue to increase in 2025. Higher property taxes and homeowner insurance rates hindered buyers from entering the market. Nonresidential construction increased due to ongoing healthcare, data center, and electric-car battery plant projects.

Affordable housing developers said high costs for labor and insurance have squeezed their profit margins and disrupted projects. An uptick in homelessness and utility debts indicates further housing struggles in the low-income community.

The existing inventories of homes for sale rose and have stayed on the market longer in Tennessee. The residential market improved over the last month in Arkansas and Northern Mississippi. The recent decline in interest rates is expected to attract more home buyers, but could pressure property prices because of the limited supply for homes in the whole region.

Data center and infrastructure projects have balanced the slower activity in multifamily and other commercial projects. A mid-sized Minnesota construction firm said it was seeing “increased pressure on margins to secure a smaller number of opportunities.”

Residential permits for single family homes increased in September year-over-year in many parts of the district, except for the large decrease seen in the Minneapolis-St. Paul area.

Shelter prices slowed in areas that saw more rapid growth in prices in recent years, but remained high in areas where rent and housing prices have not risen so fast. Prospective tenants have requested more modifications in their homes, leading to an elevated cost pressure, according to property owners.

An urgency grew among buyers looking for deals in the housing market. Discounts and rate buydowns continued while land and lot prices stayed high. Apartment leasing remained solid, however widespread concessions put a downward pressure on rents. Office leasing activity improved, mostly in the class-A space.

Concerns intensified over office commercial real estate loan performance. Bankers are working with borrowers to keep these loans in good standing. Safe and affordable housing availability is a top concern, along with a demand for funding to repair and weatherize homes in low-income areas. Senior-only housing vacancies grew due to more senior needing to re-enter the workforce, disqualifying them from these lower-cost units.

A Southern California observer said residents leaving the area caused higher vacancies. Some builders put their projects on hold while they wait for lower financing.

Demand for retail space stayed solid as landlords have been able to fill vacant stores at more costly rents. Government infrastructure projects boosted commercial construction, easing the backlog on these projects.