December 7, 2025 • 40 mins
As 2025 comes to a close, this episode steps back from the noise and asks a hard question: what does it really mean to navigate a “nobody’s market” in real estate? The hosts unpack why this moment feels less like a clean ending and more like a high-stakes pause, with buyers, sellers, owners, and investors all feeling stuck in a market defined by tension and polarization rather than clear winners. We start at the very top of the ladder, inside the ultra-luxury world where paralysis doesn’t seem to exist. From Russell Wilson and Ciara’s $54.9 million Rancho Santa Fe compound to record-setting sales in Aspen, Manhattan, Big Sky, and Telluride, the show reveals how real estate has become a pure asset class for the ultra-wealthy, and why that tier remains largely insulated from mortgage rates and macro volatility. The conversation then pivots to exclusive niches like New Jersey’s Manitou Island and booming Southern migration magnets such as Brentwood and Franklin outside Nashville. Then the episode flips the coin and spends time where most people actually live: the affordability squeeze and municipal finance crisis hitting the middle market. You’ll hear how delayed homeownership, a first-time buyer age pushing toward 40, and double-digit tax hikes in cities like Boston are colliding with zoning battles and density wars in San Francisco and Staten Island. Portland’s paradox of nearly 1,900 empty subsidized units exposes why “more supply” isn’t enough if the math of operating costs doesn’t work. From there, the hosts zoom out to the macro currents that will shape 2026. They break down fragile mortgage-rate relief tied to uncertain Fed moves, FHA tightening for H-1B visa holders and what that means for markets like Dallas, Fayetteville, and Durham, and a forecasted slump in net international migration that could cool rental demand in New York, Miami, Dallas, and Houston. They also dig into the $34 trillion home-equity cushion, when it might make sense to tap a HELOC, and the rising legal and regulatory risk around RESPA, Zillow, and mortgage steering — with clear, practical guidance for agents trying to stay compliant. On the commercial side, Denver’s office market becomes a full-blown cautionary tale, with soaring vacancies, delinquent loans, and a controversial city purchase that may go down as a textbook example of buying at the wrong time. That story leads to a deep dive on property tax appeals, how declining values can still mean rising effective tax burdens, and the deadlines and evidence owners need to protect their cash flow. The episode also highlights where opportunity is emerging: green certifications and sustainability as a true value driver, adaptive reuse of obsolete offices into housing, long-lease childcare centers in “child care deserts,” and lifestyle-driven developments like New Mexico’s Turtleback Mountain Golf and Resort. Finally, the hosts unpack Redfin’s surprising predictions for 2026, including a swing away from overheated Sunbelt and coastal insurance hotspots toward more affordable, stable metros and suburbs in the Northeast and Midwest. They close by wrestling with one big question: could adaptive reuse of vacant offices become the single most powerful new source of urban housing supply in 2026, reshaping city centers faster than traditional construction or slow-moving zoning reform? If you’re trying to plan your next move in a market that feels frozen, this episode offers the data, context, and critical questions you need to see both the risks and the emerging opportunities in the year ahead.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
We are closing out twenty twenty five, and this moment
feels well, it feels less like an ending and more
like a high stakes pause. It's a really critical time
for you, the owners, the occupants, and the investors to
just stop, assess the shifts and you know, anticipate what
the next year.
Speaker 2 (00:19):
Is going to bring. It absolutely is and the market
right now is just defined by tension.
Speaker 1 (00:23):
Yeah.
Speaker 2 (00:23):
If you listen to some of the major industry voices,
like the New York real estate mobil Ryan Surham, he
has a great phrase for it. He says, the US
market has officially entered a nobody's market.
Speaker 1 (00:34):
I love that phrase, nobody's market. It's so sharp because
it perfectly captures that feeling of paralysis, doesn't it It does.
Speaker 2 (00:41):
I mean, this is arguably the biggest housing shift we've
seen in what fifty years, and either buyers nor sellers
feel like they have the definitive upper hand.
Speaker 1 (00:50):
They're just stuck, completely stuck exactly. But this market isn't
uniform at all. It's extremely polarized. We're looking at a
system where you know, the ultra wealthier setting price records
while the middle class is literally battling over density and
facing these shocking tax sikes, right.
Speaker 2 (01:06):
And that's what we need to unpack today. We'll start
the very top looking at these extreme ultra luxury flips.
I mean, the money being made is just staggering.
Speaker 1 (01:14):
Okay.
Speaker 2 (01:14):
Then we'll get into the fierce political fights happening at
the local level over affordability, housing density, and of course
city taxes.
Speaker 1 (01:22):
And we'll have to look at the financial currents, right,
those fragile mortgage rate movements and some really important shifts
in lending policy.
Speaker 2 (01:28):
Critically, yes, and we need to examine the deepening commercial
market crisis. There's a story out of Denver that is
it's a huge cautionary tale for every city in the country.
Speaker 1 (01:40):
And finally we'll turn our focus completely toward twenty twenty six.
We'll unpack Redfin's surprising predictions for the hottest markets and
see where investment activity is really stalling out. Our emission
today is direct. We want to equip you with the
specific data and the context you need to plan thoughtfully.
Twenty twenty six doesn't have to be a year of
(02:00):
uncertainty if you understand these polarized forces, it can actually
be a year of genuine opportunity.
Speaker 2 (02:06):
Let's get into it.
Speaker 1 (02:07):
So let's start at the very very top of the market.
This is the place where that feeling of being stuck
we just talked about it just doesn't exist.
Speaker 2 (02:17):
Not at all. We're talking about the ultra luxury landscape,
which is just continuing to see these spectacular transfers and
high stakes flips. It really underscores the massive scale and
liquidity of ultra wealth right now.
Speaker 1 (02:30):
And what's so fascinating is how these deals show that
for the top one percent of the market, real estate
functions less as a home and more as a pure
asset class.
Speaker 2 (02:40):
It's an asset class that often outperforms traditional investments. I mean,
take the recent listing of that enormous compound owned by
the New York Giants quarterback Russell Wilson and the recording
artist Siarra.
Speaker 1 (02:50):
Okay, this property is something else. It's known as the
Amoor State. It's in Rancho Santa Fe, California, and it's
listed for a staggering fifty four point nine million dollars fifty.
Speaker 2 (03:00):
Four point nine And when you look at the potential profit,
it just highlights the velocity of capital accumulation in this
tiny niche.
Speaker 1 (03:07):
So what did they buy? It for.
Speaker 2 (03:08):
They purchased this property for fourteen point five million back
in twenty twenty.
Speaker 1 (03:12):
One, fourteen point five so if they.
Speaker 2 (03:14):
Get their current asking price, they stand to realize a
pre tax gain of approximately thirty five million.
Speaker 1 (03:20):
Dollars thirty five million in just four years. In four years,
that kind of return is it's not just impressive, it's
a phenomenal rate of appreciation, even when you factor in
what must have been some very significant renovation.
Speaker 2 (03:35):
Costs right which were undisclosed, but you have to assume
they were substantial. Still, it just demonstrates how insulated this
tier of the market is from the interest rate environment
affecting everyone else.
Speaker 1 (03:47):
So what does fifty five million dollars get you? What's
the scale of a place like this, Well.
Speaker 2 (03:50):
The scale itself is what justifies the price. It's a
thirty thousand square foot compound sitting on over eight acres.
Speaker 1 (03:57):
Thirty thousand square feet.
Speaker 2 (03:58):
Yeah, the main house has seven bedrooms and then there's
a separate two bedroom guesthouse, you know, for total privacy
for staff or visitors.
Speaker 1 (04:06):
And the amenities are always so custom tailored at this level,
aren't they.
Speaker 2 (04:09):
Completely They have a resort style pool complex that actually
includes a water slide, a water slide, and a massive
pizza oven, a designated candy.
Speaker 1 (04:18):
Bar, the candy Bar, candy bar.
Speaker 2 (04:20):
Plus professional grade sports courts including a full football field,
of course.
Speaker 1 (04:25):
And I assume there's more to it that's specific to
their careers exactly.
Speaker 2 (04:29):
The property is also a high performance professional hub for
Wilson's intense physical regimen. They included a full recovery suite,
you know, sauna, cold tub, the works. And for Shier's career,
there's a professional recording studio. So this isn't just a home,
it's a private, comprehensive wellness and creative enterprise center. The
(04:49):
investment is in that functionality, in total privacy, not just
score footage.
Speaker 1 (04:53):
And it's not just these celebrity flips. We're still seeing
these huge APEX sales that confirm peak demand in the
really established luxury centers.
Speaker 2 (05:02):
The Mountain West, specifically Aspen remains incredibly robust. Yeah, we
just saw the sale of an industrial style Aspen riverfront
mansion for fifty three million dollars. It just confirms his
position as a global benchmark.
Speaker 1 (05:15):
And then there's the enduring classic Manhattan.
Speaker 2 (05:18):
Always Manhattan, the sale of a sixty eight million dollar
gilded Age townhouse. There underscores that you know, history and
sheer scale still command these unparalleled prices.
Speaker 1 (05:30):
I found the description of this townhouse really fascinating because
it speaks to a level of space that is practically
non existent in modern Manhattan construction.
Speaker 2 (05:39):
It's all about luxurious proportions. The ground and first floors
are dedicated almost entirely to entertaining. We're talking five separate,
beautifully proportioned formal rooms.
Speaker 1 (05:49):
It's for entertaining.
Speaker 2 (05:50):
Right Then above that, the third floor has more relaxed
family spaces, like a woodpanel library and a huge eaten
kitchen finished with you know, gleaming white marble.
Speaker 1 (06:00):
But there's one detail that really illustrates the apex luxury.
It's the primary suite, right, Yes.
Speaker 2 (06:05):
The primary suite sprawls over the entire fourth floor, the
whole floor, the whole floor. It's a true private residence
within the residence. It as a fireside bedroom, two full bathrooms,
and three custom fitted dressing rooms with dozens of closets.
Speaker 1 (06:19):
That's the luxury right there. That enormous spatial allocation is
what buyers at this level are really paying for. Total
absolute privacy in space.
Speaker 2 (06:28):
It is. But while Manhattan has that enduring demand, we're
seeing the geography of luxury diversify pretty significantly. Aspen and
Veil have dominated for so long, but now other towns
are ascending and they're attracting a slightly different buyer.
Speaker 1 (06:44):
So what defines that shift? What are these buyers looking
for that they might not find in say Aspen.
Speaker 2 (06:50):
They're seeking what the industry calls understated sophistication. Sounds like
Big Sky Montana and tell your eye Colorado are really
moving beyond the shadow of the established.
Speaker 1 (07:00):
Giants, and they offer what more authenticity?
Speaker 2 (07:04):
You could say that. The terrain is described as epic
yet refreshingly uncrowded. So the buyer here is looking for
the highest level of amenity, but without that perceived theme
park atmosphere you can sometimes get at the major resorts.
Speaker 1 (07:17):
Big Sky Montana has matured so quickly. I've heard the
introduction of branded residences has really changed the game there.
Speaker 2 (07:23):
It's been huge. The branded residence is key to market
stability in attracting global capital. You see listings in Big
Sky now like a thirteen point six million dollar Montage
Mountain home or a twelve point two million dollar residents
at one and Only Moonlight Basin.
Speaker 1 (07:39):
So in brands like Montage and one and Only enter
a market, it's a signal.
Speaker 2 (07:42):
It's a huge signal of maturity and world class quality.
It reassures buyers who might otherwise only consider a place
like Aspen, and it allows Big Sky to compete fiercely
by offering that combination of high end amenities and that
vital feeling of true wilderness right outside your door.
Speaker 1 (08:00):
And what about tell You Ride. It's always had a
unique profile.
Speaker 2 (08:03):
It has a different but equally strong profile. Its box
canyon setting gives a unique feel, and these epic estates
are regularly trading for eight figures. We saw recent listing
for fifteen point six million in tel Youuride that really
exemplifies that mountain luxury focused on experience. It emphasized heated
outdoor living spaces and private wellness areas. It's all about
(08:23):
balancing that rugged mountain access with absolute seclusion and.
Speaker 1 (08:27):
Moving away from the vacation hubs for a minute. We
still have to acknowledge the robust regional growth in some places,
the suburbs of Nashville.
Speaker 2 (08:34):
For instance, absolutely Williamson County, which covers Brentwood and Franklin
continues to perform powerfully.
Speaker 1 (08:40):
What are the numbers looking like there?
Speaker 2 (08:42):
Well, looking at the top transfers from mid November twenty
twenty five, the highest sale was five point five million
in Printwood now was followed closely by a five million
dollar transfer in Franklin.
Speaker 1 (08:53):
So that just reinforces the story that these high value
transfers are still driving robust growth in those major migration
markets in the South. The demand for new, high quality
family homes is sustained.
Speaker 2 (09:04):
It is. And for our last stop in the luxury market,
let's look at a really unique geographical niche the exclusivity
of an island in.
Speaker 1 (09:12):
New Jersey, Manitou Island in Lake Mohawk.
Speaker 2 (09:14):
It's a remarkable example of location based exclusivity. It's an
island accessible only by a bridge and it has just
thirty four homes.
Speaker 1 (09:22):
On it, only thirty four mm HM.
Speaker 2 (09:24):
And a magnificent manner home there, built in nineteen twenty
nine but completely renovated in two thousand and two, was
recently listed for a three point nine to eighty five million.
Speaker 1 (09:33):
And that price is just staggering when you think that
the median sale price in the nearby town of Sparta
was what around seven hundred and forty five thousand dollars recently.
Speaker 2 (09:41):
Exactly this place has sixty one hundred square feet, a
new boathouse, one hundred feet of lake frontage. It just
perfectly illustrates how this high end bespoke market, fueled by
ample capital, remains aggressively competitive and continues to thrive even
as the rest of the market feels that pervasive sense
of being stuck. And that huge contrast in liquidity brings
(10:05):
us directly to the struggle that's defining the majority of
the housing market residential affordability.
Speaker 1 (10:11):
Yeah, the other side of the coin. For every multimillion
dollar transfer we just discussed, there's this increasing struggle for
the average family. It's characterized by rise and costs, intense
tax battles, and these fierce zoning and density wars.
Speaker 2 (10:23):
Let's start with the demographic data point that caused a
real stir across the industry. The National Association of Realtors
recently reported that the typical first time home buyer age
was forty in twenty twenty five.
Speaker 1 (10:34):
Forty. That's a truly significant jump from thirty three just
four years ago. In twenty twenty one.
Speaker 2 (10:40):
A seven year increase is certainly striking. Yeah, but you know,
context is critical here. The New York Fed data places
the typical repeat buyer age at forty eight. Okay, so
the NAR figure suggesting forty is the age for a
first time buyer. It feels a little high to some analysts.
It might be capturing a specific subset of delayed buyers,
(11:01):
maybe those moving from high cost rental areas.
Speaker 1 (11:04):
But even if we debate the exact number, the underlying
trend is undeniable. Right, Delayed home ownership is a real thing.
Speaker 2 (11:11):
Oh, absolutely, The trend is the key takeaway.
Speaker 1 (11:13):
So what's fundamentally changed about the ability to buy that
first home? I mean, people point out that tough housing
markets aren't new. We had mortgage rates at fourteen percent
in the late eighties.
Speaker 2 (11:22):
That's a valid historical comparison. But the current conditions create
a very specific modern hardship, and it's focused on income necessity.
Analysts observe that raising a family today effectively requires two
full incomes just to manage the combined costs of housing
and essentials like childcare.
Speaker 1 (11:39):
So it's a generational pressure, it is.
Speaker 2 (11:41):
It impacts not only the ability to save a down payment,
but also the decision to even start a family. It
often leads to delayed birth rates, which in turn delays
the ability to afford that first house until much later
in life. It's not just a housing crisis, it's an
income to cost mismatch that feels unique to them this generation.
Speaker 1 (12:01):
And for those who have managed to buy a home,
especially in major metro areas, they're now facing this direct
squeeze from municipal finance. Boston is a perfect example of this.
A really tough tax scenario.
Speaker 2 (12:14):
It's extremely difficult. Boston homeowners are facing an average thirteen
percent tax increase next year that's now confirmed by the state,
and this is the second consecutive double digit jump in
residential property taxes.
Speaker 1 (12:24):
A thirteen percent jump is a severe and unexpected financial
burden for a lot of people.
Speaker 2 (12:29):
It directly impacts their disposable income and for some their
ability to afford to stay in the city.
Speaker 1 (12:34):
So why is this happening now and why is the
city relying so heavily on residential property owners.
Speaker 2 (12:40):
Well, the problem is the deep structural distress in the
commercial office market, which we'll talk about more later, but
in essence, the commercial tax base is shrinking because of
declining values.
Speaker 1 (12:52):
So the city is forced to rely more heavily on
residential property taxes to fund essential services.
Speaker 2 (12:58):
Exactly, and that pressure led Mayor Wu to propose some
controversial and ultimately stalled legislation. It was designed to shift
more of that tax burden from the residential sector back
onto the commercial sector.
Speaker 1 (13:11):
She was trying to go beyond the existing one hundred
and seventy five percent limit allowed under state law, right
she was.
Speaker 2 (13:17):
And let's pause and explain that one hundred and seventy
five percent limit, because it is the core of this
political fight.
Speaker 1 (13:23):
Yeah, what does that cap actually mean.
Speaker 2 (13:25):
It's a statutory cap designed to protect the business district
from disproportionate tax shocks. It means that for every dollar
a residential property pays in taxes, a commercial property can
pay no more than a dollar seventy five.
Speaker 1 (13:37):
So Mayor Wu's proposal was to temporarily override that ratio
to give the city flexibility to shield homeowners while the
commercial market recovers.
Speaker 2 (13:46):
Correct and that proposal brought the business groups out in
full force. As you can imagine, I bet they're strongly
opposing this shift. They warned that increasing business costs, especially
during a period of economic uncertainty, would seriously jeopardize the
city's economy and its competitiveness.
Speaker 1 (14:04):
Their argument is that the commercial real estate market in
Boston is already struggling.
Speaker 2 (14:09):
It is. They're seeing declining values and experiencing quote almost
no growth of new commercial properties, so they argue the
focus should be on supporting economic recovery, not increasing the
burden on businesses that are already suffering.
Speaker 1 (14:23):
It sounds like a classic standoff, a fight over who
pays for the city to function, and it's driven entirely
by the collapse of the downtown office market.
Speaker 2 (14:31):
It is, and the prognosis is serious. One Local Policy
Institute director warned that if these dropping commercial values continue
unchecked and that tax base erosion accelerates, Boston could be
hurtling toward a worst case scenario, which is a two
point one billion dollar budget shortfall within five years. The
tax fight is a symptom of a much larger municipal
(14:51):
finance crisis rooted in remote.
Speaker 1 (14:53):
Work, and that financial pressure connects directly to the battles
we're seeing over housing density. Housing shortage is so severe
that developers are targeting these iconic established neighborhood sites, which
is leading to massive emotional community pushback.
Speaker 2 (15:09):
San Francisco is ground zero for this. The plan to
replace the iconic Safeway site in the Marina district is explosive.
Speaker 1 (15:17):
So what's the plan?
Speaker 2 (15:18):
ALIGNE Real Estate Partners propose building a twenty five story,
two tower complex. It would have seven hundred and ninety
rental units, plus a new Safeway on the ground floor.
Speaker 1 (15:28):
The developer's pitch is pretty clear. Then this is necessary
to address the crisis.
Speaker 2 (15:33):
Right, They argue, it provides vital housing for young people
and working families who've been priced out of the neighborhood,
and the project technically qualifies under state density bonus programs
meant to fast track housing.
Speaker 1 (15:43):
But the community and political opposition has been ferocious.
Speaker 2 (15:47):
Oh yeah, residents are citing these immediate, tangible concerns. The
project would block iconic bridge views, it would create excessive
congestion and traffic right next to Fort Mason, a major
historical park area, and.
Speaker 1 (15:59):
It would be a burden on seniors who rely on
that specific Safeway pharmacy.
Speaker 2 (16:03):
That's a huge part of it. Even the city's pro
housing Mayor, Daniel Lurie, has opposed this specific location. He
called it the wrong location and publicly accused the developer
of playing a game.
Speaker 1 (16:15):
So what are the neighbors proposing? Instead?
Speaker 2 (16:17):
They're calling for the project to be scaled back drastically.
They're suggesting eight stories as a more appropriate height for
the neighborhood, a massive difference from twenty five stories.
Speaker 1 (16:28):
This tension really highlights the conflict between broad housing policy
goals and local infrastructure reality.
Speaker 2 (16:36):
It's a conflict that's not unique to San Francisco. In
Staten Island, New York, there's similar opposition to a proposed
eighteen story, three hundred and sixty nine unit tower in
Saint George.
Speaker 1 (16:45):
What's the core complaint there? I mean, Staten Island is
part of New York City. Why the pushback against density?
Speaker 2 (16:51):
The core complaint is all about a fundamental infrastructure mismatch.
Residents argue that Staten Island is at its heart a
car oriented borough. It completely lacks the transit density and
amenities of Manhattan. There's not enough bus service, not enough shopping,
not enough school capacity to support a project of that scale.
They see it as a Manhattan type of building being
(17:12):
forced onto an incompatible environment.
Speaker 1 (17:15):
So it's an argument that density has to be matched
by utility precisely.
Speaker 2 (17:19):
And finally, let's look at the dark irony in Portland's
affordable housing situation. The city desperately needs housing, yet nearly
nineteen hundred publicly subsidized rental units are currently sitting empty.
Speaker 1 (17:32):
Nineteen hundred units. That's a profoundly disheartening number.
Speaker 2 (17:35):
It is that represents seven point four percent of the
city's total affordable apartments. It's a staggering vacancy crisis within
a crisis.
Speaker 1 (17:43):
Why are they empty?
Speaker 2 (17:45):
It highlights a major structural struggle for affordable housing providers.
They're fighting to maintain long term viability because rapidly rising
operating costs things like insurance and maintenance are outpacing what
they can collect and.
Speaker 1 (17:58):
Rent, so they can't afford to run the buildings they have.
Speaker 2 (18:00):
In some cases, Yes, Home Forward, which manages many of them,
was even forced to announce staff layoffs recently amid federal cutbacks.
Speaker 1 (18:10):
So on one hand, you have developers fighting tooth and
nail against community opposition to build new units in places
like San Francisco, and at the same time, Portland has
thousands of built affordable subsidized units that they can't afford
to maintain or lease efficiently.
Speaker 2 (18:26):
It's the ultimate affordability paradox. It shows that supply isn't
just about construction, It's about maintenance and long term financial viability.
So moving from those localized battles over zoning and taxes,
we need to look at the macroeconomic currents that are
influencing every single purchase and investment decision, starting with mortgage.
Speaker 1 (18:45):
Rates, right, and the recent news on the rate front
has been i'd say cautiously optimistic. Mortgage rates have retreated
slightly over the past few weeks.
Speaker 2 (18:53):
They have, and that dip is an anticipation of a
potential fresh federal reserve rate cut sometime in the coming quarters.
It's generating some much needed hope for borrowers.
Speaker 1 (19:02):
But that dip is just a reaction to market expectations,
isn't it. We should probably caution the listener here.
Speaker 2 (19:09):
Absolutely, raids could see more volatility as soon as next week.
The treasury market recently logged its worst weekly route since April,
which tells you that market uncertainty around central bank action
is extremely high.
Speaker 1 (19:22):
So any hope for stability or a sustained decline is fragile.
Speaker 2 (19:26):
Very fragile. Bowers should expect further up and down movement
as the FED continues to communicate its own uncertainty.
Speaker 1 (19:33):
One of the most fascinating areas to track right now
is how federal policy shifts are immediately impacting specific segments
of housing demand. I'm thinking about international migration.
Speaker 2 (19:43):
Yes, specifically involving the Federal Housing Administration or FHA. The
FAHA recently pulled back on providing lending programs to H
one B visa holders.
Speaker 1 (19:52):
Okay, and even though FAHA mortgages are only about what
twelve percent of overall mortgage debt, this policy change directly
affects housing markets.
Speaker 2 (20:01):
It does markets that rely heavily on that highly skilled,
professional immigrant population for their housing demand.
Speaker 1 (20:07):
So, if I'm an investor or a developer, which markets
should I be tracking as being most exposed to these
H one B policy changes?
Speaker 2 (20:15):
You'd be looking primarily at high growth markets in the South,
places that have seen substantial recent building activity focused on
corporate and tech expansion.
Speaker 1 (20:23):
So we're talking about places like Dallas.
Speaker 2 (20:26):
Dallas, Texas, definitely Fayetteville, Arkansas, which is the metro area
near Walmart's headquarters, and Durham, North Carolina. A reduction in
accessible FAHA financing for this segment of the workforce will
immediately slow entry level and mid range demand in those
specific metros.
Speaker 1 (20:42):
And this FAHA policy shift coincides with a much larger
demographic forecast that's going to influence the entire rental market.
Speaker 2 (20:49):
A significant slump in net international migration is forecast for
twenty twenty five.
Speaker 1 (20:53):
This is a major factor after a pretty substantial upswing
between twenty twenty one and twenty twenty four. What's the
forecast for next year?
Speaker 2 (21:01):
The forecast for twenty twenty five expects net international migration
to land somewhere between plus one hundred fifteen thousand and
minus five hundred and twenty five thousand.
Speaker 1 (21:09):
That's a huge range, but either way, it's a steep
drop from the previous year's burst.
Speaker 2 (21:14):
It is, and it has profound implications for rental occupancy.
Speaker 1 (21:18):
So what does this slowdown in migration mean for the
housing market as a whole, particularly for investors focused on
rental properties.
Speaker 2 (21:25):
Well, all else being equal, this projected drop is expected
to lead to lower aggregate rental demand, and that's going
to be concentrated specifically at the lower entry level end
of the market.
Speaker 1 (21:36):
And which cities are likely to feel the greatest and
most immediate.
Speaker 2 (21:39):
Effects major migration hubs that have historically attracted the most
international immigration, So that list includes New York City, Miami, Dallas,
and Houston. For these cities, a significant dampening effect on
rental demand is expected, and that could lead to increased
vacancy rates and softer rental growth.
Speaker 1 (21:58):
Okay, let's shift gears completely now and look at existing homeowners.
They're collectively holding a massive and stable financial cushion right now,
over thirty four trillion dollars in home equity.
Speaker 2 (22:10):
That is a staggering record level of wealth locked into
residential real estate.
Speaker 1 (22:15):
What does that break down to for the average person.
Speaker 2 (22:18):
The average mortgage holder possesses somewhere between three hundred thousand
and three hundred and seven thousand dollars in equity. Nearly
half of all mortgage holders have at least fifty percent
equity in their homes. This enormous equity base is acting
as a massive financial buffer for the US consumer. It's
insulating them from immediate economic shocks and providing immense borrowing power.
Speaker 1 (22:39):
But the existence of this cushion prompts a strategic question
for late twenty twenty five, should you tap that equity,
maybe through a home equity line of credit at AYLOC.
Speaker 2 (22:50):
It's definitely a consideration for established homeowners, we are seeing
a conversation about accessing that capital before twenty twenty six.
Speaker 1 (22:58):
What's the strategic thinking there.
Speaker 2 (23:00):
It's related to two main factors. First, the potential convergence
of borrowing rates. Mortgage rates are elevated, but HBLOC rates
might feel more manageable against a backdrop of high inflation.
And the second reason, homeowners are anticipating future changes in
tax law, so this period is seen as a potentially
opportune time to lock in borrowing against that accumulated wealth
(23:21):
before potential deductions or favorable terms are altered.
Speaker 1 (23:24):
Okay, finally, we need to spend some serious time on
regulatory risk, specifically concerning REESPA, the Real Estate Settlement Procedures Act.
There are some significant ongoing litigation that should be a
stark warning, a huge.
Speaker 2 (23:38):
Warning to every real estate agent, broker and development team
out there. We're talking about litigation like the class action
lawsuit filed against Zillo and several high profile brokerages in teams.
Speaker 1 (23:49):
And the charges have recently been updated to include allegations
of racketeering.
Speaker 2 (23:54):
Racketeering, yes. This case highlights the profound legal and ethical
risk agent's face when a prioritize profit, often generated through
affiliated business arrangements or lead generation schemes, over the home
buyer's objective best interests. Especially when it comes to mortgage recommendations.
Speaker 1 (24:11):
It's a challenging environment. You have real estate portals pressuring
agents to embed the portal's mortgage products, and lenders are
engaging in these sham mortgage joint ventures tied to a
single real estate team.
Speaker 2 (24:23):
The whole structure creates a very dangerous landscape that's just
ripe for regulatory scrutiny and reputational damage.
Speaker 1 (24:29):
But the beauty of navigating this risk is that the
solution is actually pretty simple.
Speaker 2 (24:34):
It's incredibly simple provided agents adhere strictly to the core
respa A rule. Agents must avoid affirmative influence in settlement services.
Speaker 1 (24:42):
Which means you can't steer a client toward a single
preferred or affiliated provider, even if that provider is highly efficient. Exactly, so,
if I am an agent, what is the single simple
action I must take to minimize my legal risk?
Speaker 2 (24:57):
The key is providing genuine choice. The way to fulfill
your fiduciary duty and sidestep the trap of prioritizing affiliated
business profits is to simply provide buyers with more than
one option, give them a list of three or four vetted,
reputable lenders when making recommendations.
Speaker 1 (25:14):
That's it.
Speaker 2 (25:15):
That clarity prevents the appearance of a profit first fiduciary
breach and keeps the transaction squarely within regulatory compliance.
Speaker 1 (25:22):
So if the residential sector is struggling with PAX bills
and affordability, the commercial office market is facing well outright
existential threats and many major city centers. This takes us
to the truly devastating case study of the Denver commercial
office crisis, which really serves as a massive national warning sign.
Speaker 2 (25:40):
It's a textbook example a poor public sector decision making
colliding with a rapidly deteriorating market. The city of Denver
purchased the massive Denver Post building for eighty eight point
five million dollars back in early twenty twenty four.
Speaker 1 (25:55):
And what makes this so alarming is that they bought
it against explicit document professional warnings.
Speaker 2 (26:01):
That's the core tragedy here. A veteran Cushman and Wakefield broker,
a recognized expert in the Denver market, wrote a letter
to elected officials in December of twenty twenty three.
Speaker 1 (26:11):
And what did it say.
Speaker 2 (26:12):
It urged them not to purchase the building. The broker
stated clearly that there was no justification for paying approximately
two hundred and ninety dollars per square foot, especially given
the rapid decline in the market and increasing vacancy.
Speaker 1 (26:23):
Rates, so he explicitly warned them.
Speaker 2 (26:25):
He explicitly stated in the public warning that the city
was walking off a cliff and urged them to defer
the purchase because many more attractive and economical options would
become available soon.
Speaker 1 (26:36):
And his prediction has proven brutally accurate. What is the
state of downtown Denver's office market today?
Speaker 2 (26:43):
The results are catastrophic. Downtown Denver's office vacancy rate is
now an unprecedented thirty seven point seven percent as of
the third quarter of twenty twenty five.
Speaker 1 (26:53):
Thirty seven point seven percent. That's far beyond what could
ever be considered healthy or sustainable. It's a structural collapse
in demand, it is.
Speaker 2 (27:03):
And the distress doesn't just stop with high vacancies. The
financial fallout is widespread. How So, the financial tracking firm
TRAP reported that approximately thirty percent of commercial mortgages in
central Denver office buildings are now delinquent thirty. That figure
is one of the worst delinquency rates in the country,
And to compound Denver's specific failure, the largest tenant in
(27:25):
the building the city purchased, BP Media Network, stopped paying
rent in August twenty twenty five. Oh no, they now
owe about three point five million dollars in rent and
late payments, dragging the city into an expensive court battle
with the very tenant whose lease was supposed to underpin
the purchase price.
Speaker 1 (27:41):
What was the city's defense They must have had one.
Speaker 2 (27:44):
Their defense was that they needed space near the downtown courthouses,
and that public sector real estate operates differently from the
private sector. But at the end of the day, they
bought an asset at an unjustifiable price in a market
that was demonstrably collapsing. Stark Lesson, and.
Speaker 1 (28:01):
This situation really underscores why commercial property owners across the country,
particularly those stuck with challenge assets in central business districts,
need to be hyper strategic about their tax burden.
Speaker 2 (28:12):
Which brings us to property tax appeals. They are absolutely
critical for maintaining cashflow right now?
Speaker 1 (28:19):
So why are appeals so critical in a declining market?
Wouldn't the declining valuation automatically lower the taxes?
Speaker 2 (28:25):
Not necessarily In areas where property values have plummeted, like
office buildings in the central business districts of the Twin
Cities or Boston, the effective tax rate for owners might
actually rise.
Speaker 1 (28:36):
How does that work?
Speaker 2 (28:37):
It's because local governments still need to maintain a baseline
level of services police, fire, schools, so they will often
increase the mill rate or the tax rate to offset
the declining commercial valuation.
Speaker 1 (28:49):
Base.
Speaker 2 (28:50):
Owners have to appeal to ensure the new value reflects
the true market reality.
Speaker 1 (28:55):
So if I'm a commercial property owner and I suspect
my property is overvalued for tax persays, what's the hard
deadline I need to know about?
Speaker 2 (29:03):
The appeal deadline is a hard cutoff? Property tax appeals
for taxes payable next year must be filed on or
before April thirtieth, twenty twenty six.
Speaker 1 (29:12):
And what signs of overvaluation should they be looking for?
Speaker 2 (29:14):
They need to rigorously compare the assessor's valuation against reality.
So if the property was recently bought at a significantly
lower price, if they have a current appraisal showing a
lower value, or if the property is dramatically underperforming compared
to the assessor's macro view of the market.
Speaker 1 (29:30):
And what are the common factors that can justify an appeal?
Things that differentiate a specific properties value from the market average.
Speaker 2 (29:37):
Well, the assessor performs mass appraisals which are generalized, but
a specific property might vary significantly due to factors you
can highlight in an appeal. Significant deferred maintenance, the emergence
of new modern competition nearby, severe traffic or access issues,
or just general technological or architectural obsolescence.
Speaker 1 (29:58):
Okay, let's shift to opportunity In the commercial space, it's
not all distressed. What are the competitive advantages that developers
and owners can cultivate right now?
Speaker 2 (30:07):
The clear data driven answer, according to the twenty twenty
five NAR Commercial Sustainability Report, is the green advantage that sicktainability.
It's rapidly transitioning from a niche concern to a core
competitive differentiator. Clients are increasingly prioritizing certified green features, which
often results in properties with green building certifications commanding higher
(30:28):
property values.
Speaker 1 (30:29):
So clients aren't just looking at the lobby anymore. They're
asking detailed questions about utility, consumption, and operating costs.
Speaker 2 (30:35):
They are the top priorities revolve around minimizing risk and
maximizing efficiency. This includes low utility and operating costs, certified
indoor air quality, energy efficient windows and doors, efficient.
Speaker 1 (30:47):
Lighting, and i'd imagine resilience to extreme weather is a
big one now.
Speaker 2 (30:51):
It's a huge non negotiable factor in leasing and purchasing
decisions now, driven by rising insurance costs, wildfires, heat waves, floods.
Speaker 1 (31:00):
Resilience is key, and this focus on sustainability connects directly
to how cities are trying to solve their housing crises.
While grappling with these vacant office towers, We're seeing a
major rise in the adaptive reuse trend.
Speaker 2 (31:12):
We are commercial professionals are increasingly using adaptive reuse to
convert vacant or under used properties, especially those obsolete, poorly located,
or distressed commercial office buildings, into residential spaces.
Speaker 1 (31:24):
It's a sustainable and relatively quick way to increase the
housing supply in dense urban cores.
Speaker 2 (31:30):
Exactly even in Denver, where the office market is in crisis,
an obsolete commercial building is being demolished to make way
for the eighty unit park Place Apartments, an income restriction
community set to break ground in late twenty twenty six.
This transformation is driven by market pressure and sustainability goals.
Speaker 1 (31:47):
So as we transition into twenty twenty six, everyone is
trying to identify where the new momentum will be. Let's
dive into Redfin's predictions because they are forecasting a significant
and I think surprising geographical reversal in market momentum.
Speaker 2 (32:01):
It is a very strong geographical shift. Redfinn is predicting
a move away from the sun Belt boom and back
toward the historical anchor markets. We are seeing major metros
and their surrounding suburbs in the Northeast and the Midwest
identified as the hottest markets most likely to heat up
in twenty twenty six.
Speaker 1 (32:16):
Okay, so what are the specific markets leading this charge
and why is this happening now?
Speaker 2 (32:20):
Well, the hotspots include the NYC suburbs. We're talking Long Island,
the Hudson Valley North, the New Jersey and Fairfield County, Connecticut.
Speaker 1 (32:27):
So places that benefit from proximity to major financial hubs
but offer better relative value.
Speaker 2 (32:33):
Precisely and then there's a major sweep through the Midwest Syracuse,
New York, Cleveland, Ohio, Saint Louis, Missouri, Minneapolis, Minnesota, and Madison, Wisconsin.
Speaker 1 (32:44):
And the reason for this shift it's twofold.
Speaker 2 (32:47):
First, greater affordability shields these areas somewhat from high interest rates,
and second, they possess stable local economies and high quality
of life metrics that are now more appealing than the
volatility of those rapid growth sunbelts regions.
Speaker 1 (33:00):
And that pivot leads directly to Redfin's cooling markets. So
where should sellers be prepared to adjust their expectations.
Speaker 2 (33:07):
Coastal Florida and large parts of Texas are expected to
see homes languish on the market. We could see potential
price stabilization or even a slight decline.
Speaker 1 (33:16):
And this reversal is largely due to what two compounding
factors exactly.
Speaker 2 (33:20):
First, rapidly rising insurance costs, which are being driven by
the increased frequency and severity of natural disasters. And second,
the return of pandemic eraror remote workers to traditional offices,
which is pulling demand back toward major employment hubs like
the Northeast.
Speaker 1 (33:35):
So sellers in those cooling coastal and sun belt areas,
especially those who bought during the peak frenzy, may now
be forced to accept price cuts or even take a
loss if they need to sell quickly.
Speaker 2 (33:46):
That's the risk. The rapid appreciation that define twenty twenty
one through twenty twenty three is effectively gone, and this
has caused institutional investor activity to stall out significantly.
Speaker 1 (33:56):
Investors are stuck in neutral.
Speaker 2 (33:58):
They are because profitability has weakened considerably as home prices stabilized.
Speaker 1 (34:03):
Let's detail that investor stall because it is a massive
shift from the frenzy of recent years. Why is their
activity plateauing?
Speaker 2 (34:11):
Investor profitability is drying up. In the third quarter of
twenty twenty five, eight percent of investor sold homes closed.
Speaker 1 (34:18):
At a loss eight percent And what was it a
year ago?
Speaker 2 (34:20):
It was up sharply from six point five percent a
year earlier, and it marks the highest share in over
two years.
Speaker 1 (34:25):
And what about capital gains?
Speaker 2 (34:27):
The average capital gain from selling a property declined about
one percent year over year, settling in around one hundred
and eighty two thousand dollars. So when the risk profile
rises and the profit potential shrinks, the incentive for high
volume flipping just disappears quickly.
Speaker 1 (34:43):
And adding to those investor concerns is the softening rental market.
Right that affects the buy and hold strategy.
Speaker 2 (34:49):
It does. The fundamentals of the rental market are shifting.
Rental growth has slowed across many metro areas, vacancy rates
are climbing, and stricter regulations on short term rentals are
are cooling specific vacation heavy markets.
Speaker 1 (35:03):
So when rental properties become less immediately appealing, institutional investors
tend to pull back.
Speaker 2 (35:08):
They often do. They prefer to protect their finances amid
broader economic uncertainty. Now, investor activity is still high. They
still bought seventeen percent of US homes sold in Q
three twenty twenty five, but they're no longer the primary
driver pushing prices upward in the aggregate market.
Speaker 1 (35:24):
So if the traditional residential investor is pulling back, where
is the smart money heading in the commercial space for
niche opportunities.
Speaker 2 (35:30):
One fascinating niche that's emerging is early education.
Speaker 1 (35:34):
Real estate childcare exactly.
Speaker 2 (35:37):
Developers are capitalizing on what are being called childcare deserts,
particularly in rural areas that have seen positive migration shifts
but lack the necessary supporting infrastructure.
Speaker 1 (35:47):
It's an essential social service property type it.
Speaker 2 (35:50):
Is, and the number of properties with more than ten
years remaining on their leases, which is a strong indicator
of investor confidence and long term stability. That number increase
by twelve percent in twenty twenty five. As one expert noted,
this is the stuff that banks love to.
Speaker 1 (36:05):
Land on because the leases are long and the tenants
are necessary, it's recession resistant.
Speaker 2 (36:11):
Another interesting vertical is the commitment to non traditional lifestyle
driven growth areas like the high desert of New.
Speaker 1 (36:17):
Mexico Right the Turtleback Mountain golf and resort.
Speaker 2 (36:20):
Yes. The New York investor James Prendomano has committed fifty
five million dollars to developing it. His plan involves developing
thirteen hundred new units, a mix of single family homes, condos,
and town homes over an eight year period.
Speaker 1 (36:34):
It shows a strong faith in non traditional growth markets
driven by lifestyle amenities, not just traditional employment hubs.
Speaker 2 (36:41):
It does. Finally, we have to address the transparency dilemma
and the highly scrutinized removal of climate risk data from
a major platform Zillow.
Speaker 1 (36:50):
Right, they scrapped their climate risk scores, which included wildfire
and flood.
Speaker 2 (36:55):
Forecasts, and this decision was made quite simply because agents
and homeowners complained bitterly that the feature was tanking their deals.
Speaker 1 (37:03):
It highlights a really deep conflict. Buyers want and need transparency,
but predicting risk house by house can be extremely detrimental
to a sale, especially when the data is generalized.
Speaker 2 (37:14):
The betazilla published was stark. It showed the sales impact.
Homes listed with the Flotter risk sold only fifty two
percent of the time.
Speaker 1 (37:21):
Compared to seventy one percent for low risk homes. That
is a massive nineteen point gap.
Speaker 2 (37:26):
It is but experts argue that generalized online data can
be seriously misleading or overly conservative. For example, a flood
zone score might only affect a small corner of a
large lot, far away from the house structure itself, but a.
Speaker 1 (37:39):
Buyer might be scared off before they even investigate the
actual structural risk exactly.
Speaker 2 (37:44):
The advice here for you, the listener, is clear, do
not rely on arbitrary online numbers. Consult certified experts to
understand exactly how the climate risk affects the structure and
the insurance of the specific property you intend to purchase.
Speaker 1 (37:58):
So what does this all mean as we close twenty
twenty five, That concept of the nobody's market really seems
to be defined entirely by polarization.
Speaker 2 (38:06):
It is we've seen that polarization in stark relief. Today,
the ultra luxury sector continues to thrive, fueled by cash
buyers and these multimillion dollar assets that act as high
performing enterprise hubs.
Speaker 1 (38:18):
And meanwhile, the middle market is struggling intensely. It's under
the weight of delayed home ownership, unexpected double digit tax
increases in cities like Boston, and these fierce paralyzing density
wars in hubs like San Francisco. The major market shift
for twenty twenty six feels undeniable. Redfin is forecasting a
clear geographical movement of momentum toward the strategic suburbs of
(38:39):
the Midwest and Northeast, and that's driven by relative affordability.
Speaker 2 (38:43):
And that's coupled with the necessary cooling and a stability
plateau in the previously red hot sun belt regions of
Texas and coastal Florida, largely because of escalating insurance costs
and the retreat of aggressive investor activity.
Speaker 1 (38:55):
And if we connect all these threads back to the
deepest structural problem we analyze today distress in commercial office
real estate, exemplified by Denver's unprecedented thirty seven point seven
percent vacancy rate.
Speaker 2 (39:08):
We see a massive reservoir of potential housing supply being
created through adaptive reuse. We see projects starting now converting
this obsolete space into residential units in numerous cities.
Speaker 1 (39:19):
Which raises a powerful question for you to consider as
you plan your investments in housing decisions for the new year.
If this trend of converting obsolete office space accelerates rapidly,
will adaptive reuse become the single most powerful driver of
new urban housing supply in twenty twenty six? Could this
one trend fundamentally reshape our city centers faster than traditional
(39:40):
residential construction or the year's long, politically charged slog of
zoning reform.
Speaker 2 (39:45):
It's a profound thought. It turns one city's crisis the
vacant office tower, into a dynamic and sustainable solution for
another city's crisis, the acute housing shortage. That potential transformation
is perhaps the biggest, most crucial story heading into the
new Year.
Speaker 1 (40:01):
Excellent place to leave it. We appreciate you joining us
for this look at the market. We'll be back soon
with more critical analysis to help you stay ahead.
We are closing out twenty twenty five, and this moment
feels well, it feels less like an ending and more
like a high stakes pause. It's a really critical time
for you, the owners, the occupants, and the investors to
just stop, assess the shifts and you know, anticipate what
the next year.
Speaker 2 (00:19):
Is going to bring. It absolutely is and the market
right now is just defined by tension.
Speaker 1 (00:23):
Yeah.
Speaker 2 (00:23):
If you listen to some of the major industry voices,
like the New York real estate mobil Ryan Surham, he
has a great phrase for it. He says, the US
market has officially entered a nobody's market.
Speaker 1 (00:34):
I love that phrase, nobody's market. It's so sharp because
it perfectly captures that feeling of paralysis, doesn't it It does.
Speaker 2 (00:41):
I mean, this is arguably the biggest housing shift we've
seen in what fifty years, and either buyers nor sellers
feel like they have the definitive upper hand.
Speaker 1 (00:50):
They're just stuck, completely stuck exactly. But this market isn't
uniform at all. It's extremely polarized. We're looking at a
system where you know, the ultra wealthier setting price records
while the middle class is literally battling over density and
facing these shocking tax sikes, right.
Speaker 2 (01:06):
And that's what we need to unpack today. We'll start
the very top looking at these extreme ultra luxury flips.
I mean, the money being made is just staggering.
Speaker 1 (01:14):
Okay.
Speaker 2 (01:14):
Then we'll get into the fierce political fights happening at
the local level over affordability, housing density, and of course
city taxes.
Speaker 1 (01:22):
And we'll have to look at the financial currents, right,
those fragile mortgage rate movements and some really important shifts
in lending policy.
Speaker 2 (01:28):
Critically, yes, and we need to examine the deepening commercial
market crisis. There's a story out of Denver that is
it's a huge cautionary tale for every city in the country.
Speaker 1 (01:40):
And finally we'll turn our focus completely toward twenty twenty six.
We'll unpack Redfin's surprising predictions for the hottest markets and
see where investment activity is really stalling out. Our emission
today is direct. We want to equip you with the
specific data and the context you need to plan thoughtfully.
Twenty twenty six doesn't have to be a year of
(02:00):
uncertainty if you understand these polarized forces, it can actually
be a year of genuine opportunity.
Speaker 2 (02:06):
Let's get into it.
Speaker 1 (02:07):
So let's start at the very very top of the market.
This is the place where that feeling of being stuck
we just talked about it just doesn't exist.
Speaker 2 (02:17):
Not at all. We're talking about the ultra luxury landscape,
which is just continuing to see these spectacular transfers and
high stakes flips. It really underscores the massive scale and
liquidity of ultra wealth right now.
Speaker 1 (02:30):
And what's so fascinating is how these deals show that
for the top one percent of the market, real estate
functions less as a home and more as a pure
asset class.
Speaker 2 (02:40):
It's an asset class that often outperforms traditional investments. I mean,
take the recent listing of that enormous compound owned by
the New York Giants quarterback Russell Wilson and the recording
artist Siarra.
Speaker 1 (02:50):
Okay, this property is something else. It's known as the
Amoor State. It's in Rancho Santa Fe, California, and it's
listed for a staggering fifty four point nine million dollars fifty.
Speaker 2 (03:00):
Four point nine And when you look at the potential profit,
it just highlights the velocity of capital accumulation in this
tiny niche.
Speaker 1 (03:07):
So what did they buy? It for.
Speaker 2 (03:08):
They purchased this property for fourteen point five million back
in twenty twenty.
Speaker 1 (03:12):
One, fourteen point five so if they.
Speaker 2 (03:14):
Get their current asking price, they stand to realize a
pre tax gain of approximately thirty five million.
Speaker 1 (03:20):
Dollars thirty five million in just four years. In four years,
that kind of return is it's not just impressive, it's
a phenomenal rate of appreciation, even when you factor in
what must have been some very significant renovation.
Speaker 2 (03:35):
Costs right which were undisclosed, but you have to assume
they were substantial. Still, it just demonstrates how insulated this
tier of the market is from the interest rate environment
affecting everyone else.
Speaker 1 (03:47):
So what does fifty five million dollars get you? What's
the scale of a place like this, Well.
Speaker 2 (03:50):
The scale itself is what justifies the price. It's a
thirty thousand square foot compound sitting on over eight acres.
Speaker 1 (03:57):
Thirty thousand square feet.
Speaker 2 (03:58):
Yeah, the main house has seven bedrooms and then there's
a separate two bedroom guesthouse, you know, for total privacy
for staff or visitors.
Speaker 1 (04:06):
And the amenities are always so custom tailored at this level,
aren't they.
Speaker 2 (04:09):
Completely They have a resort style pool complex that actually
includes a water slide, a water slide, and a massive
pizza oven, a designated candy.
Speaker 1 (04:18):
Bar, the candy Bar, candy bar.
Speaker 2 (04:20):
Plus professional grade sports courts including a full football field,
of course.
Speaker 1 (04:25):
And I assume there's more to it that's specific to
their careers exactly.
Speaker 2 (04:29):
The property is also a high performance professional hub for
Wilson's intense physical regimen. They included a full recovery suite,
you know, sauna, cold tub, the works. And for Shier's career,
there's a professional recording studio. So this isn't just a home,
it's a private, comprehensive wellness and creative enterprise center. The
(04:49):
investment is in that functionality, in total privacy, not just
score footage.
Speaker 1 (04:53):
And it's not just these celebrity flips. We're still seeing
these huge APEX sales that confirm peak demand in the
really established luxury centers.
Speaker 2 (05:02):
The Mountain West, specifically Aspen remains incredibly robust. Yeah, we
just saw the sale of an industrial style Aspen riverfront
mansion for fifty three million dollars. It just confirms his
position as a global benchmark.
Speaker 1 (05:15):
And then there's the enduring classic Manhattan.
Speaker 2 (05:18):
Always Manhattan, the sale of a sixty eight million dollar
gilded Age townhouse. There underscores that you know, history and
sheer scale still command these unparalleled prices.
Speaker 1 (05:30):
I found the description of this townhouse really fascinating because
it speaks to a level of space that is practically
non existent in modern Manhattan construction.
Speaker 2 (05:39):
It's all about luxurious proportions. The ground and first floors
are dedicated almost entirely to entertaining. We're talking five separate,
beautifully proportioned formal rooms.
Speaker 1 (05:49):
It's for entertaining.
Speaker 2 (05:50):
Right Then above that, the third floor has more relaxed
family spaces, like a woodpanel library and a huge eaten
kitchen finished with you know, gleaming white marble.
Speaker 1 (06:00):
But there's one detail that really illustrates the apex luxury.
It's the primary suite, right, Yes.
Speaker 2 (06:05):
The primary suite sprawls over the entire fourth floor, the
whole floor, the whole floor. It's a true private residence
within the residence. It as a fireside bedroom, two full bathrooms,
and three custom fitted dressing rooms with dozens of closets.
Speaker 1 (06:19):
That's the luxury right there. That enormous spatial allocation is
what buyers at this level are really paying for. Total
absolute privacy in space.
Speaker 2 (06:28):
It is. But while Manhattan has that enduring demand, we're
seeing the geography of luxury diversify pretty significantly. Aspen and
Veil have dominated for so long, but now other towns
are ascending and they're attracting a slightly different buyer.
Speaker 1 (06:44):
So what defines that shift? What are these buyers looking
for that they might not find in say Aspen.
Speaker 2 (06:50):
They're seeking what the industry calls understated sophistication. Sounds like
Big Sky Montana and tell your eye Colorado are really
moving beyond the shadow of the established.
Speaker 1 (07:00):
Giants, and they offer what more authenticity?
Speaker 2 (07:04):
You could say that. The terrain is described as epic
yet refreshingly uncrowded. So the buyer here is looking for
the highest level of amenity, but without that perceived theme
park atmosphere you can sometimes get at the major resorts.
Speaker 1 (07:17):
Big Sky Montana has matured so quickly. I've heard the
introduction of branded residences has really changed the game there.
Speaker 2 (07:23):
It's been huge. The branded residence is key to market
stability in attracting global capital. You see listings in Big
Sky now like a thirteen point six million dollar Montage
Mountain home or a twelve point two million dollar residents
at one and Only Moonlight Basin.
Speaker 1 (07:39):
So in brands like Montage and one and Only enter
a market, it's a signal.
Speaker 2 (07:42):
It's a huge signal of maturity and world class quality.
It reassures buyers who might otherwise only consider a place
like Aspen, and it allows Big Sky to compete fiercely
by offering that combination of high end amenities and that
vital feeling of true wilderness right outside your door.
Speaker 1 (08:00):
And what about tell You Ride. It's always had a
unique profile.
Speaker 2 (08:03):
It has a different but equally strong profile. Its box
canyon setting gives a unique feel, and these epic estates
are regularly trading for eight figures. We saw recent listing
for fifteen point six million in tel Youuride that really
exemplifies that mountain luxury focused on experience. It emphasized heated
outdoor living spaces and private wellness areas. It's all about
(08:23):
balancing that rugged mountain access with absolute seclusion and.
Speaker 1 (08:27):
Moving away from the vacation hubs for a minute. We
still have to acknowledge the robust regional growth in some places,
the suburbs of Nashville.
Speaker 2 (08:34):
For instance, absolutely Williamson County, which covers Brentwood and Franklin
continues to perform powerfully.
Speaker 1 (08:40):
What are the numbers looking like there?
Speaker 2 (08:42):
Well, looking at the top transfers from mid November twenty
twenty five, the highest sale was five point five million
in Printwood now was followed closely by a five million
dollar transfer in Franklin.
Speaker 1 (08:53):
So that just reinforces the story that these high value
transfers are still driving robust growth in those major migration
markets in the South. The demand for new, high quality
family homes is sustained.
Speaker 2 (09:04):
It is. And for our last stop in the luxury market,
let's look at a really unique geographical niche the exclusivity
of an island in.
Speaker 1 (09:12):
New Jersey, Manitou Island in Lake Mohawk.
Speaker 2 (09:14):
It's a remarkable example of location based exclusivity. It's an
island accessible only by a bridge and it has just
thirty four homes.
Speaker 1 (09:22):
On it, only thirty four mm HM.
Speaker 2 (09:24):
And a magnificent manner home there, built in nineteen twenty
nine but completely renovated in two thousand and two, was
recently listed for a three point nine to eighty five million.
Speaker 1 (09:33):
And that price is just staggering when you think that
the median sale price in the nearby town of Sparta
was what around seven hundred and forty five thousand dollars recently.
Speaker 2 (09:41):
Exactly this place has sixty one hundred square feet, a
new boathouse, one hundred feet of lake frontage. It just
perfectly illustrates how this high end bespoke market, fueled by
ample capital, remains aggressively competitive and continues to thrive even
as the rest of the market feels that pervasive sense
of being stuck. And that huge contrast in liquidity brings
(10:05):
us directly to the struggle that's defining the majority of
the housing market residential affordability.
Speaker 1 (10:11):
Yeah, the other side of the coin. For every multimillion
dollar transfer we just discussed, there's this increasing struggle for
the average family. It's characterized by rise and costs, intense
tax battles, and these fierce zoning and density wars.
Speaker 2 (10:23):
Let's start with the demographic data point that caused a
real stir across the industry. The National Association of Realtors
recently reported that the typical first time home buyer age
was forty in twenty twenty five.
Speaker 1 (10:34):
Forty. That's a truly significant jump from thirty three just
four years ago. In twenty twenty one.
Speaker 2 (10:40):
A seven year increase is certainly striking. Yeah, but you know,
context is critical here. The New York Fed data places
the typical repeat buyer age at forty eight. Okay, so
the NAR figure suggesting forty is the age for a
first time buyer. It feels a little high to some analysts.
It might be capturing a specific subset of delayed buyers,
(11:01):
maybe those moving from high cost rental areas.
Speaker 1 (11:04):
But even if we debate the exact number, the underlying
trend is undeniable. Right, Delayed home ownership is a real thing.
Speaker 2 (11:11):
Oh, absolutely, The trend is the key takeaway.
Speaker 1 (11:13):
So what's fundamentally changed about the ability to buy that
first home? I mean, people point out that tough housing
markets aren't new. We had mortgage rates at fourteen percent
in the late eighties.
Speaker 2 (11:22):
That's a valid historical comparison. But the current conditions create
a very specific modern hardship, and it's focused on income necessity.
Analysts observe that raising a family today effectively requires two
full incomes just to manage the combined costs of housing
and essentials like childcare.
Speaker 1 (11:39):
So it's a generational pressure, it is.
Speaker 2 (11:41):
It impacts not only the ability to save a down payment,
but also the decision to even start a family. It
often leads to delayed birth rates, which in turn delays
the ability to afford that first house until much later
in life. It's not just a housing crisis, it's an
income to cost mismatch that feels unique to them this generation.
Speaker 1 (12:01):
And for those who have managed to buy a home,
especially in major metro areas, they're now facing this direct
squeeze from municipal finance. Boston is a perfect example of this.
A really tough tax scenario.
Speaker 2 (12:14):
It's extremely difficult. Boston homeowners are facing an average thirteen
percent tax increase next year that's now confirmed by the state,
and this is the second consecutive double digit jump in
residential property taxes.
Speaker 1 (12:24):
A thirteen percent jump is a severe and unexpected financial
burden for a lot of people.
Speaker 2 (12:29):
It directly impacts their disposable income and for some their
ability to afford to stay in the city.
Speaker 1 (12:34):
So why is this happening now and why is the
city relying so heavily on residential property owners.
Speaker 2 (12:40):
Well, the problem is the deep structural distress in the
commercial office market, which we'll talk about more later, but
in essence, the commercial tax base is shrinking because of
declining values.
Speaker 1 (12:52):
So the city is forced to rely more heavily on
residential property taxes to fund essential services.
Speaker 2 (12:58):
Exactly, and that pressure led Mayor Wu to propose some
controversial and ultimately stalled legislation. It was designed to shift
more of that tax burden from the residential sector back
onto the commercial sector.
Speaker 1 (13:11):
She was trying to go beyond the existing one hundred
and seventy five percent limit allowed under state law, right
she was.
Speaker 2 (13:17):
And let's pause and explain that one hundred and seventy
five percent limit, because it is the core of this
political fight.
Speaker 1 (13:23):
Yeah, what does that cap actually mean.
Speaker 2 (13:25):
It's a statutory cap designed to protect the business district
from disproportionate tax shocks. It means that for every dollar
a residential property pays in taxes, a commercial property can
pay no more than a dollar seventy five.
Speaker 1 (13:37):
So Mayor Wu's proposal was to temporarily override that ratio
to give the city flexibility to shield homeowners while the
commercial market recovers.
Speaker 2 (13:46):
Correct and that proposal brought the business groups out in
full force. As you can imagine, I bet they're strongly
opposing this shift. They warned that increasing business costs, especially
during a period of economic uncertainty, would seriously jeopardize the
city's economy and its competitiveness.
Speaker 1 (14:04):
Their argument is that the commercial real estate market in
Boston is already struggling.
Speaker 2 (14:09):
It is. They're seeing declining values and experiencing quote almost
no growth of new commercial properties, so they argue the
focus should be on supporting economic recovery, not increasing the
burden on businesses that are already suffering.
Speaker 1 (14:23):
It sounds like a classic standoff, a fight over who
pays for the city to function, and it's driven entirely
by the collapse of the downtown office market.
Speaker 2 (14:31):
It is, and the prognosis is serious. One Local Policy
Institute director warned that if these dropping commercial values continue
unchecked and that tax base erosion accelerates, Boston could be
hurtling toward a worst case scenario, which is a two
point one billion dollar budget shortfall within five years. The
tax fight is a symptom of a much larger municipal
(14:51):
finance crisis rooted in remote.
Speaker 1 (14:53):
Work, and that financial pressure connects directly to the battles
we're seeing over housing density. Housing shortage is so severe
that developers are targeting these iconic established neighborhood sites, which
is leading to massive emotional community pushback.
Speaker 2 (15:09):
San Francisco is ground zero for this. The plan to
replace the iconic Safeway site in the Marina district is explosive.
Speaker 1 (15:17):
So what's the plan?
Speaker 2 (15:18):
ALIGNE Real Estate Partners propose building a twenty five story,
two tower complex. It would have seven hundred and ninety
rental units, plus a new Safeway on the ground floor.
Speaker 1 (15:28):
The developer's pitch is pretty clear. Then this is necessary
to address the crisis.
Speaker 2 (15:33):
Right, They argue, it provides vital housing for young people
and working families who've been priced out of the neighborhood,
and the project technically qualifies under state density bonus programs
meant to fast track housing.
Speaker 1 (15:43):
But the community and political opposition has been ferocious.
Speaker 2 (15:47):
Oh yeah, residents are citing these immediate, tangible concerns. The
project would block iconic bridge views, it would create excessive
congestion and traffic right next to Fort Mason, a major
historical park area, and.
Speaker 1 (15:59):
It would be a burden on seniors who rely on
that specific Safeway pharmacy.
Speaker 2 (16:03):
That's a huge part of it. Even the city's pro
housing Mayor, Daniel Lurie, has opposed this specific location. He
called it the wrong location and publicly accused the developer
of playing a game.
Speaker 1 (16:15):
So what are the neighbors proposing? Instead?
Speaker 2 (16:17):
They're calling for the project to be scaled back drastically.
They're suggesting eight stories as a more appropriate height for
the neighborhood, a massive difference from twenty five stories.
Speaker 1 (16:28):
This tension really highlights the conflict between broad housing policy
goals and local infrastructure reality.
Speaker 2 (16:36):
It's a conflict that's not unique to San Francisco. In
Staten Island, New York, there's similar opposition to a proposed
eighteen story, three hundred and sixty nine unit tower in
Saint George.
Speaker 1 (16:45):
What's the core complaint there? I mean, Staten Island is
part of New York City. Why the pushback against density?
Speaker 2 (16:51):
The core complaint is all about a fundamental infrastructure mismatch.
Residents argue that Staten Island is at its heart a
car oriented borough. It completely lacks the transit density and
amenities of Manhattan. There's not enough bus service, not enough shopping,
not enough school capacity to support a project of that scale.
They see it as a Manhattan type of building being
(17:12):
forced onto an incompatible environment.
Speaker 1 (17:15):
So it's an argument that density has to be matched
by utility precisely.
Speaker 2 (17:19):
And finally, let's look at the dark irony in Portland's
affordable housing situation. The city desperately needs housing, yet nearly
nineteen hundred publicly subsidized rental units are currently sitting empty.
Speaker 1 (17:32):
Nineteen hundred units. That's a profoundly disheartening number.
Speaker 2 (17:35):
It is that represents seven point four percent of the
city's total affordable apartments. It's a staggering vacancy crisis within
a crisis.
Speaker 1 (17:43):
Why are they empty?
Speaker 2 (17:45):
It highlights a major structural struggle for affordable housing providers.
They're fighting to maintain long term viability because rapidly rising
operating costs things like insurance and maintenance are outpacing what
they can collect and.
Speaker 1 (17:58):
Rent, so they can't afford to run the buildings they have.
Speaker 2 (18:00):
In some cases, Yes, Home Forward, which manages many of them,
was even forced to announce staff layoffs recently amid federal cutbacks.
Speaker 1 (18:10):
So on one hand, you have developers fighting tooth and
nail against community opposition to build new units in places
like San Francisco, and at the same time, Portland has
thousands of built affordable subsidized units that they can't afford
to maintain or lease efficiently.
Speaker 2 (18:26):
It's the ultimate affordability paradox. It shows that supply isn't
just about construction, It's about maintenance and long term financial viability.
So moving from those localized battles over zoning and taxes,
we need to look at the macroeconomic currents that are
influencing every single purchase and investment decision, starting with mortgage.
Speaker 1 (18:45):
Rates, right, and the recent news on the rate front
has been i'd say cautiously optimistic. Mortgage rates have retreated
slightly over the past few weeks.
Speaker 2 (18:53):
They have, and that dip is an anticipation of a
potential fresh federal reserve rate cut sometime in the coming quarters.
It's generating some much needed hope for borrowers.
Speaker 1 (19:02):
But that dip is just a reaction to market expectations,
isn't it. We should probably caution the listener here.
Speaker 2 (19:09):
Absolutely, raids could see more volatility as soon as next week.
The treasury market recently logged its worst weekly route since April,
which tells you that market uncertainty around central bank action
is extremely high.
Speaker 1 (19:22):
So any hope for stability or a sustained decline is fragile.
Speaker 2 (19:26):
Very fragile. Bowers should expect further up and down movement
as the FED continues to communicate its own uncertainty.
Speaker 1 (19:33):
One of the most fascinating areas to track right now
is how federal policy shifts are immediately impacting specific segments
of housing demand. I'm thinking about international migration.
Speaker 2 (19:43):
Yes, specifically involving the Federal Housing Administration or FHA. The
FAHA recently pulled back on providing lending programs to H
one B visa holders.
Speaker 1 (19:52):
Okay, and even though FAHA mortgages are only about what
twelve percent of overall mortgage debt, this policy change directly
affects housing markets.
Speaker 2 (20:01):
It does markets that rely heavily on that highly skilled,
professional immigrant population for their housing demand.
Speaker 1 (20:07):
So, if I'm an investor or a developer, which markets
should I be tracking as being most exposed to these
H one B policy changes?
Speaker 2 (20:15):
You'd be looking primarily at high growth markets in the South,
places that have seen substantial recent building activity focused on
corporate and tech expansion.
Speaker 1 (20:23):
So we're talking about places like Dallas.
Speaker 2 (20:26):
Dallas, Texas, definitely Fayetteville, Arkansas, which is the metro area
near Walmart's headquarters, and Durham, North Carolina. A reduction in
accessible FAHA financing for this segment of the workforce will
immediately slow entry level and mid range demand in those
specific metros.
Speaker 1 (20:42):
And this FAHA policy shift coincides with a much larger
demographic forecast that's going to influence the entire rental market.
Speaker 2 (20:49):
A significant slump in net international migration is forecast for
twenty twenty five.
Speaker 1 (20:53):
This is a major factor after a pretty substantial upswing
between twenty twenty one and twenty twenty four. What's the
forecast for next year?
Speaker 2 (21:01):
The forecast for twenty twenty five expects net international migration
to land somewhere between plus one hundred fifteen thousand and
minus five hundred and twenty five thousand.
Speaker 1 (21:09):
That's a huge range, but either way, it's a steep
drop from the previous year's burst.
Speaker 2 (21:14):
It is, and it has profound implications for rental occupancy.
Speaker 1 (21:18):
So what does this slowdown in migration mean for the
housing market as a whole, particularly for investors focused on
rental properties.
Speaker 2 (21:25):
Well, all else being equal, this projected drop is expected
to lead to lower aggregate rental demand, and that's going
to be concentrated specifically at the lower entry level end
of the market.
Speaker 1 (21:36):
And which cities are likely to feel the greatest and
most immediate.
Speaker 2 (21:39):
Effects major migration hubs that have historically attracted the most
international immigration, So that list includes New York City, Miami, Dallas,
and Houston. For these cities, a significant dampening effect on
rental demand is expected, and that could lead to increased
vacancy rates and softer rental growth.
Speaker 1 (21:58):
Okay, let's shift gears completely now and look at existing homeowners.
They're collectively holding a massive and stable financial cushion right now,
over thirty four trillion dollars in home equity.
Speaker 2 (22:10):
That is a staggering record level of wealth locked into
residential real estate.
Speaker 1 (22:15):
What does that break down to for the average person.
Speaker 2 (22:18):
The average mortgage holder possesses somewhere between three hundred thousand
and three hundred and seven thousand dollars in equity. Nearly
half of all mortgage holders have at least fifty percent
equity in their homes. This enormous equity base is acting
as a massive financial buffer for the US consumer. It's
insulating them from immediate economic shocks and providing immense borrowing power.
Speaker 1 (22:39):
But the existence of this cushion prompts a strategic question
for late twenty twenty five, should you tap that equity,
maybe through a home equity line of credit at AYLOC.
Speaker 2 (22:50):
It's definitely a consideration for established homeowners, we are seeing
a conversation about accessing that capital before twenty twenty six.
Speaker 1 (22:58):
What's the strategic thinking there.
Speaker 2 (23:00):
It's related to two main factors. First, the potential convergence
of borrowing rates. Mortgage rates are elevated, but HBLOC rates
might feel more manageable against a backdrop of high inflation.
And the second reason, homeowners are anticipating future changes in
tax law, so this period is seen as a potentially
opportune time to lock in borrowing against that accumulated wealth
(23:21):
before potential deductions or favorable terms are altered.
Speaker 1 (23:24):
Okay, finally, we need to spend some serious time on
regulatory risk, specifically concerning REESPA, the Real Estate Settlement Procedures Act.
There are some significant ongoing litigation that should be a
stark warning, a huge.
Speaker 2 (23:38):
Warning to every real estate agent, broker and development team
out there. We're talking about litigation like the class action
lawsuit filed against Zillo and several high profile brokerages in teams.
Speaker 1 (23:49):
And the charges have recently been updated to include allegations
of racketeering.
Speaker 2 (23:54):
Racketeering, yes. This case highlights the profound legal and ethical
risk agent's face when a prioritize profit, often generated through
affiliated business arrangements or lead generation schemes, over the home
buyer's objective best interests. Especially when it comes to mortgage recommendations.
Speaker 1 (24:11):
It's a challenging environment. You have real estate portals pressuring
agents to embed the portal's mortgage products, and lenders are
engaging in these sham mortgage joint ventures tied to a
single real estate team.
Speaker 2 (24:23):
The whole structure creates a very dangerous landscape that's just
ripe for regulatory scrutiny and reputational damage.
Speaker 1 (24:29):
But the beauty of navigating this risk is that the
solution is actually pretty simple.
Speaker 2 (24:34):
It's incredibly simple provided agents adhere strictly to the core
respa A rule. Agents must avoid affirmative influence in settlement services.
Speaker 1 (24:42):
Which means you can't steer a client toward a single
preferred or affiliated provider, even if that provider is highly efficient. Exactly, so,
if I am an agent, what is the single simple
action I must take to minimize my legal risk?
Speaker 2 (24:57):
The key is providing genuine choice. The way to fulfill
your fiduciary duty and sidestep the trap of prioritizing affiliated
business profits is to simply provide buyers with more than
one option, give them a list of three or four vetted,
reputable lenders when making recommendations.
Speaker 1 (25:14):
That's it.
Speaker 2 (25:15):
That clarity prevents the appearance of a profit first fiduciary
breach and keeps the transaction squarely within regulatory compliance.
Speaker 1 (25:22):
So if the residential sector is struggling with PAX bills
and affordability, the commercial office market is facing well outright
existential threats and many major city centers. This takes us
to the truly devastating case study of the Denver commercial
office crisis, which really serves as a massive national warning sign.
Speaker 2 (25:40):
It's a textbook example a poor public sector decision making
colliding with a rapidly deteriorating market. The city of Denver
purchased the massive Denver Post building for eighty eight point
five million dollars back in early twenty twenty four.
Speaker 1 (25:55):
And what makes this so alarming is that they bought
it against explicit document professional warnings.
Speaker 2 (26:01):
That's the core tragedy here. A veteran Cushman and Wakefield broker,
a recognized expert in the Denver market, wrote a letter
to elected officials in December of twenty twenty three.
Speaker 1 (26:11):
And what did it say.
Speaker 2 (26:12):
It urged them not to purchase the building. The broker
stated clearly that there was no justification for paying approximately
two hundred and ninety dollars per square foot, especially given
the rapid decline in the market and increasing vacancy.
Speaker 1 (26:23):
Rates, so he explicitly warned them.
Speaker 2 (26:25):
He explicitly stated in the public warning that the city
was walking off a cliff and urged them to defer
the purchase because many more attractive and economical options would
become available soon.
Speaker 1 (26:36):
And his prediction has proven brutally accurate. What is the
state of downtown Denver's office market today?
Speaker 2 (26:43):
The results are catastrophic. Downtown Denver's office vacancy rate is
now an unprecedented thirty seven point seven percent as of
the third quarter of twenty twenty five.
Speaker 1 (26:53):
Thirty seven point seven percent. That's far beyond what could
ever be considered healthy or sustainable. It's a structural collapse
in demand, it is.
Speaker 2 (27:03):
And the distress doesn't just stop with high vacancies. The
financial fallout is widespread. How So, the financial tracking firm
TRAP reported that approximately thirty percent of commercial mortgages in
central Denver office buildings are now delinquent thirty. That figure
is one of the worst delinquency rates in the country,
And to compound Denver's specific failure, the largest tenant in
(27:25):
the building the city purchased, BP Media Network, stopped paying
rent in August twenty twenty five. Oh no, they now
owe about three point five million dollars in rent and
late payments, dragging the city into an expensive court battle
with the very tenant whose lease was supposed to underpin
the purchase price.
Speaker 1 (27:41):
What was the city's defense They must have had one.
Speaker 2 (27:44):
Their defense was that they needed space near the downtown courthouses,
and that public sector real estate operates differently from the
private sector. But at the end of the day, they
bought an asset at an unjustifiable price in a market
that was demonstrably collapsing. Stark Lesson, and.
Speaker 1 (28:01):
This situation really underscores why commercial property owners across the country,
particularly those stuck with challenge assets in central business districts,
need to be hyper strategic about their tax burden.
Speaker 2 (28:12):
Which brings us to property tax appeals. They are absolutely
critical for maintaining cashflow right now?
Speaker 1 (28:19):
So why are appeals so critical in a declining market?
Wouldn't the declining valuation automatically lower the taxes?
Speaker 2 (28:25):
Not necessarily In areas where property values have plummeted, like
office buildings in the central business districts of the Twin
Cities or Boston, the effective tax rate for owners might
actually rise.
Speaker 1 (28:36):
How does that work?
Speaker 2 (28:37):
It's because local governments still need to maintain a baseline
level of services police, fire, schools, so they will often
increase the mill rate or the tax rate to offset
the declining commercial valuation.
Speaker 1 (28:49):
Base.
Speaker 2 (28:50):
Owners have to appeal to ensure the new value reflects
the true market reality.
Speaker 1 (28:55):
So if I'm a commercial property owner and I suspect
my property is overvalued for tax persays, what's the hard
deadline I need to know about?
Speaker 2 (29:03):
The appeal deadline is a hard cutoff? Property tax appeals
for taxes payable next year must be filed on or
before April thirtieth, twenty twenty six.
Speaker 1 (29:12):
And what signs of overvaluation should they be looking for?
Speaker 2 (29:14):
They need to rigorously compare the assessor's valuation against reality.
So if the property was recently bought at a significantly
lower price, if they have a current appraisal showing a
lower value, or if the property is dramatically underperforming compared
to the assessor's macro view of the market.
Speaker 1 (29:30):
And what are the common factors that can justify an appeal?
Things that differentiate a specific properties value from the market average.
Speaker 2 (29:37):
Well, the assessor performs mass appraisals which are generalized, but
a specific property might vary significantly due to factors you
can highlight in an appeal. Significant deferred maintenance, the emergence
of new modern competition nearby, severe traffic or access issues,
or just general technological or architectural obsolescence.
Speaker 1 (29:58):
Okay, let's shift to opportunity In the commercial space, it's
not all distressed. What are the competitive advantages that developers
and owners can cultivate right now?
Speaker 2 (30:07):
The clear data driven answer, according to the twenty twenty
five NAR Commercial Sustainability Report, is the green advantage that sicktainability.
It's rapidly transitioning from a niche concern to a core
competitive differentiator. Clients are increasingly prioritizing certified green features, which
often results in properties with green building certifications commanding higher
(30:28):
property values.
Speaker 1 (30:29):
So clients aren't just looking at the lobby anymore. They're
asking detailed questions about utility, consumption, and operating costs.
Speaker 2 (30:35):
They are the top priorities revolve around minimizing risk and
maximizing efficiency. This includes low utility and operating costs, certified
indoor air quality, energy efficient windows and doors, efficient.
Speaker 1 (30:47):
Lighting, and i'd imagine resilience to extreme weather is a
big one now.
Speaker 2 (30:51):
It's a huge non negotiable factor in leasing and purchasing
decisions now, driven by rising insurance costs, wildfires, heat waves, floods.
Speaker 1 (31:00):
Resilience is key, and this focus on sustainability connects directly
to how cities are trying to solve their housing crises.
While grappling with these vacant office towers, We're seeing a
major rise in the adaptive reuse trend.
Speaker 2 (31:12):
We are commercial professionals are increasingly using adaptive reuse to
convert vacant or under used properties, especially those obsolete, poorly located,
or distressed commercial office buildings, into residential spaces.
Speaker 1 (31:24):
It's a sustainable and relatively quick way to increase the
housing supply in dense urban cores.
Speaker 2 (31:30):
Exactly even in Denver, where the office market is in crisis,
an obsolete commercial building is being demolished to make way
for the eighty unit park Place Apartments, an income restriction
community set to break ground in late twenty twenty six.
This transformation is driven by market pressure and sustainability goals.
Speaker 1 (31:47):
So as we transition into twenty twenty six, everyone is
trying to identify where the new momentum will be. Let's
dive into Redfin's predictions because they are forecasting a significant
and I think surprising geographical reversal in market momentum.
Speaker 2 (32:01):
It is a very strong geographical shift. Redfinn is predicting
a move away from the sun Belt boom and back
toward the historical anchor markets. We are seeing major metros
and their surrounding suburbs in the Northeast and the Midwest
identified as the hottest markets most likely to heat up
in twenty twenty six.
Speaker 1 (32:16):
Okay, so what are the specific markets leading this charge
and why is this happening now?
Speaker 2 (32:20):
Well, the hotspots include the NYC suburbs. We're talking Long Island,
the Hudson Valley North, the New Jersey and Fairfield County, Connecticut.
Speaker 1 (32:27):
So places that benefit from proximity to major financial hubs
but offer better relative value.
Speaker 2 (32:33):
Precisely and then there's a major sweep through the Midwest Syracuse,
New York, Cleveland, Ohio, Saint Louis, Missouri, Minneapolis, Minnesota, and Madison, Wisconsin.
Speaker 1 (32:44):
And the reason for this shift it's twofold.
Speaker 2 (32:47):
First, greater affordability shields these areas somewhat from high interest rates,
and second, they possess stable local economies and high quality
of life metrics that are now more appealing than the
volatility of those rapid growth sunbelts regions.
Speaker 1 (33:00):
And that pivot leads directly to Redfin's cooling markets. So
where should sellers be prepared to adjust their expectations.
Speaker 2 (33:07):
Coastal Florida and large parts of Texas are expected to
see homes languish on the market. We could see potential
price stabilization or even a slight decline.
Speaker 1 (33:16):
And this reversal is largely due to what two compounding
factors exactly.
Speaker 2 (33:20):
First, rapidly rising insurance costs, which are being driven by
the increased frequency and severity of natural disasters. And second,
the return of pandemic eraror remote workers to traditional offices,
which is pulling demand back toward major employment hubs like
the Northeast.
Speaker 1 (33:35):
So sellers in those cooling coastal and sun belt areas,
especially those who bought during the peak frenzy, may now
be forced to accept price cuts or even take a
loss if they need to sell quickly.
Speaker 2 (33:46):
That's the risk. The rapid appreciation that define twenty twenty
one through twenty twenty three is effectively gone, and this
has caused institutional investor activity to stall out significantly.
Speaker 1 (33:56):
Investors are stuck in neutral.
Speaker 2 (33:58):
They are because profitability has weakened considerably as home prices stabilized.
Speaker 1 (34:03):
Let's detail that investor stall because it is a massive
shift from the frenzy of recent years. Why is their
activity plateauing?
Speaker 2 (34:11):
Investor profitability is drying up. In the third quarter of
twenty twenty five, eight percent of investor sold homes closed.
Speaker 1 (34:18):
At a loss eight percent And what was it a
year ago?
Speaker 2 (34:20):
It was up sharply from six point five percent a
year earlier, and it marks the highest share in over
two years.
Speaker 1 (34:25):
And what about capital gains?
Speaker 2 (34:27):
The average capital gain from selling a property declined about
one percent year over year, settling in around one hundred
and eighty two thousand dollars. So when the risk profile
rises and the profit potential shrinks, the incentive for high
volume flipping just disappears quickly.
Speaker 1 (34:43):
And adding to those investor concerns is the softening rental market.
Right that affects the buy and hold strategy.
Speaker 2 (34:49):
It does. The fundamentals of the rental market are shifting.
Rental growth has slowed across many metro areas, vacancy rates
are climbing, and stricter regulations on short term rentals are
are cooling specific vacation heavy markets.
Speaker 1 (35:03):
So when rental properties become less immediately appealing, institutional investors
tend to pull back.
Speaker 2 (35:08):
They often do. They prefer to protect their finances amid
broader economic uncertainty. Now, investor activity is still high. They
still bought seventeen percent of US homes sold in Q
three twenty twenty five, but they're no longer the primary
driver pushing prices upward in the aggregate market.
Speaker 1 (35:24):
So if the traditional residential investor is pulling back, where
is the smart money heading in the commercial space for
niche opportunities.
Speaker 2 (35:30):
One fascinating niche that's emerging is early education.
Speaker 1 (35:34):
Real estate childcare exactly.
Speaker 2 (35:37):
Developers are capitalizing on what are being called childcare deserts,
particularly in rural areas that have seen positive migration shifts
but lack the necessary supporting infrastructure.
Speaker 1 (35:47):
It's an essential social service property type it.
Speaker 2 (35:50):
Is, and the number of properties with more than ten
years remaining on their leases, which is a strong indicator
of investor confidence and long term stability. That number increase
by twelve percent in twenty twenty five. As one expert noted,
this is the stuff that banks love to.
Speaker 1 (36:05):
Land on because the leases are long and the tenants
are necessary, it's recession resistant.
Speaker 2 (36:11):
Another interesting vertical is the commitment to non traditional lifestyle
driven growth areas like the high desert of New.
Speaker 1 (36:17):
Mexico Right the Turtleback Mountain golf and resort.
Speaker 2 (36:20):
Yes. The New York investor James Prendomano has committed fifty
five million dollars to developing it. His plan involves developing
thirteen hundred new units, a mix of single family homes, condos,
and town homes over an eight year period.
Speaker 1 (36:34):
It shows a strong faith in non traditional growth markets
driven by lifestyle amenities, not just traditional employment hubs.
Speaker 2 (36:41):
It does. Finally, we have to address the transparency dilemma
and the highly scrutinized removal of climate risk data from
a major platform Zillow.
Speaker 1 (36:50):
Right, they scrapped their climate risk scores, which included wildfire
and flood.
Speaker 2 (36:55):
Forecasts, and this decision was made quite simply because agents
and homeowners complained bitterly that the feature was tanking their deals.
Speaker 1 (37:03):
It highlights a really deep conflict. Buyers want and need transparency,
but predicting risk house by house can be extremely detrimental
to a sale, especially when the data is generalized.
Speaker 2 (37:14):
The betazilla published was stark. It showed the sales impact.
Homes listed with the Flotter risk sold only fifty two
percent of the time.
Speaker 1 (37:21):
Compared to seventy one percent for low risk homes. That
is a massive nineteen point gap.
Speaker 2 (37:26):
It is but experts argue that generalized online data can
be seriously misleading or overly conservative. For example, a flood
zone score might only affect a small corner of a
large lot, far away from the house structure itself, but a.
Speaker 1 (37:39):
Buyer might be scared off before they even investigate the
actual structural risk exactly.
Speaker 2 (37:44):
The advice here for you, the listener, is clear, do
not rely on arbitrary online numbers. Consult certified experts to
understand exactly how the climate risk affects the structure and
the insurance of the specific property you intend to purchase.
Speaker 1 (37:58):
So what does this all mean as we close twenty
twenty five, That concept of the nobody's market really seems
to be defined entirely by polarization.
Speaker 2 (38:06):
It is we've seen that polarization in stark relief. Today,
the ultra luxury sector continues to thrive, fueled by cash
buyers and these multimillion dollar assets that act as high
performing enterprise hubs.
Speaker 1 (38:18):
And meanwhile, the middle market is struggling intensely. It's under
the weight of delayed home ownership, unexpected double digit tax
increases in cities like Boston, and these fierce paralyzing density
wars in hubs like San Francisco. The major market shift
for twenty twenty six feels undeniable. Redfin is forecasting a
clear geographical movement of momentum toward the strategic suburbs of
(38:39):
the Midwest and Northeast, and that's driven by relative affordability.
Speaker 2 (38:43):
And that's coupled with the necessary cooling and a stability
plateau in the previously red hot sun belt regions of
Texas and coastal Florida, largely because of escalating insurance costs
and the retreat of aggressive investor activity.
Speaker 1 (38:55):
And if we connect all these threads back to the
deepest structural problem we analyze today distress in commercial office
real estate, exemplified by Denver's unprecedented thirty seven point seven
percent vacancy rate.
Speaker 2 (39:08):
We see a massive reservoir of potential housing supply being
created through adaptive reuse. We see projects starting now converting
this obsolete space into residential units in numerous cities.
Speaker 1 (39:19):
Which raises a powerful question for you to consider as
you plan your investments in housing decisions for the new year.
If this trend of converting obsolete office space accelerates rapidly,
will adaptive reuse become the single most powerful driver of
new urban housing supply in twenty twenty six? Could this
one trend fundamentally reshape our city centers faster than traditional
(39:40):
residential construction or the year's long, politically charged slog of
zoning reform.
Speaker 2 (39:45):
It's a profound thought. It turns one city's crisis the
vacant office tower, into a dynamic and sustainable solution for
another city's crisis, the acute housing shortage. That potential transformation
is perhaps the biggest, most crucial story heading into the
new Year.
Speaker 1 (40:01):
Excellent place to leave it. We appreciate you joining us
for this look at the market. We'll be back soon
with more critical analysis to help you stay ahead.
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