Housing Market Emerges as Recession’s Leading Threat

Wall Street’s attention has shifted to the weakening housing sector, now seen as the most immediate threat to economic stability.

Jordan B.
May 29, 2025

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Good morning. As tariff tensions ease, a new threat is emerging: housing. Analysts warn that a cooling real estate market could be the spark for the next recession.

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Recession Watch

Housing Market Emerges as Recession’s Leading Threat

As tariff fears fade, analysts are turning to a new economic red flag: a slowing housing market that could tip the US into a recession.

Recession watch: Economic red flags are piling up, with forecasters at Moody’s and JP Morgan putting recession odds as high as 65%. While early fears focused on tariffs, Wall Street’s attention has shifted to the weakening housing sector, now seen as the most immediate threat to economic stability.

Why housing? Citi Research warns that housing activity is weakening, with contraction expected in Q2 after a sluggish start to the year. Mortgage rates near 7% and high Treasury yields are dampening demand. Inflation-adjusted residential investment is flat, while falling permits, rising inventory, and slipping prices signal early trouble.

Confidence hits a wall: Homebuyer sentiment has cratered. According to Fannie Mae’s April 2025 survey, 77% of Americans say it’s a bad time to buy a home, and the Home Purchase Sentiment Index shows a net-55 % rating for buying conditions.

CRE is declining, too: The pain isn’t limited to residential. MSCI’s RCA index recorded price declines across all major commercial property types for the first time since 2010. Multifamily assets are taking the biggest hit, with values down 12.1% YoY.

Fed on the sidelines: Though the Fed is unlikely to intervene based solely on housing weakness, Citi suggests it could be forced to accelerate rate cuts if housing market declines start hitting employment metrics. For now, policymakers appear to be in watch-and-wait mode.

➥ THE TAKEAWAY

Big picture: Housing may not cause the next recession, but it’s likely where we’ll see it first. From permits to pricing to consumer sentiment, housing is flashing early-warning signs that the broader economy is running out of steam.

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✍️ Editor’s Picks

Smart capital: What separates investors who commit capital from those who waste your time? Get this insight and more in The Modern Investor Acquisition Playbook. (sponsored)
Senior spike: Senior housing occupancy is set to surpass levels not seen since 2008, outpacing all other major CRE sectors.
Analyst evolution: AI is reshaping the role of CRE analysts, raising expectations for tech skills, streamlining deal workflows, and reducing the need for entry-level hires.
Port pressure: Trade policy swings are disrupting leasing at U.S. ports, but bonded warehouses and logistics assets in key coastal markets are emerging as winners amid the uncertainty.
Housing slowdown: US home price growth slowed to 3.4% in March as rising inventory met tepid demand, though spring momentum still sparked widespread monthly gains across most major markets.
CMBS leaders: Citigroup, Wells Fargo, and Barclays lead a surprisingly active CMBS conduit market in early 2025, with multifamily driving nearly a quarter of all originations.

🏘️ MULTIFAMILY

Affordable launch: Beacon Hill is set to break ground on Miami-Dade’s first all-workforce housing project under Florida’s Live Local Act.
Deal of the day: Corebridge Real Estate Investors recapitalized a $670M, 1,990-unit Class A apartment portfolio with CBRE Investment Management taking a 44.5% stake across six major U.S. metros.
Occupancy gains: Multifamily REITs posted strong Q1 results, with Sun Belt markets stabilizing and coastal players ramping up investment and development.
Rent revision: NYC's Rent Guidelines Board scaled back proposed rent hikes for two-year leases on rent-stabilized apartments, responding to political pressure and tenant concerns ahead of a final June vote.
Loan secured: Woodfield and Flagler secured an $81M loan for a 358-unit West Palm Beach project, with 90 affordable units and a grocery store anchoring the retail space.

🏭 Industrial

Jersey jumps: New Jersey led the nation in industrial sales in Q125 with $832M in transactions, while also posting the highest US rent growth at 11.3%.
Data center draw: Data center REITs are attracting investor capital with high enterprise values and the lowest implied cap rates in CRE.
Chicago refi: Darwin Investment Group secured a $100M refinancing from Wells Fargo for its 40-building Chicagoland industrial portfolio.
Parking expansion: Laz Parking has acquired a majority stake in Freight Ninja, marking its entry into the high-demand truck and trailer parking sector.

🏬 RETAIL

Mall meltdown: New Jersey’s American Dream mall lost $800M in value, dropping to $2.5B, forcing bond trustees to dip further into reserves as PILOT-backed debt payments fall short.
Walmart buy: Walmart Realty has purchased the 202 KSF Bethel Park Shopping Center near Pittsburgh for $40M, marking a nearly 30% value gain in two years.

🏢 OFFICE

Loan losses: Creditors took major losses on a $233M loan tied to Sprint’s former HQ, as older suburban office assets continue to underperform.
Tax shift: Chicago commercial property owners will pay a reduced share of the city’s tax burden in 2025, down to 46%, after successful appeals slashed their assessed values.
Amenity overhaul: Landlords are ripping out outdated office perks, like pools and boardrooms, in favor of hospitality-style amenities that better match today’s hybrid work culture.
Manhattan momentum: Blackstone scored an $850M CMBS loan to acquire a 49% stake in 1345 Avenue of the Americas, further fueling momentum in Manhattan’s top-performing office market.

📈 CHART OF THE DAY

Apartment occupancy in the Northeast and Mid-Atlantic surged ahead of national averages in April, with most markets above 97% and driven by ongoing housing shortages. Strong demand also pushed rent growth higher, with nearly every market in the region outpacing the U.S. average.