MARKET REPORT | JANUARY

Market Positivity and Momentum Is Percolating in the New Year

The New Year has brought a huge dynamic shift of economic indicators along with it. Mortgage rates have quietly moved to their lowest levels in more than a year, providing a meaningful psychological and mathematical shift for buyers. Even modest declines in rates have an outsized impact on affordability, purchasing power, and monthly payments, particularly in higher-priced urban markets. More importantly, stability matters as much as direction. A more predictable rate environment allows buyers and sellers to underwrite decisions with confidence, which unlocks pent-up demand that has been waiting for clarity. December saw a 5.1% jump in home sales which is the biggest gain in nearly two years.

Inflation continues to trend downward, easing pressure on both consumers and policymakers. As inflation shrinks, real purchasing power improves, borrowing conditions normalize, and long-term capital becomes more willing to re-enter risk assets.

For real estate specifically, moderating inflation reduces construction cost volatility and supports more rational pricing behavior across both residential and commercial markets. This is welcomed news as new census data shows that younger generations continue to delay buying homes.

On the macroeconomic front, trade deficits narrowing, and in some cases turning into surpluses, signal improving balance sheet dynamics at a national level. This shift reflects stronger domestic production, more competitive exports, and healthier global demand for US goods. Historically, these conditions have supported currency stability and reinforced investor confidence, both of which are constructive for cross-border capital flows into U.S. real estate.

GDP growth remains resilient, underscoring the strength of economic activity even amid tighter financial conditions. Growth at the macro level tends to translate into business formation, job creation, and household formation which are all critical drivers of real estate demand. When GDP expands without overheating, it creates a foundation for sustainable growth rather than speculative excess.

Wage growth has also continued to rise, which is a critical but often overlooked component of housing market health. Higher wages help offset elevated borrowing costs and support long-term affordability, particularly for first-time buyers and move-up purchasers. From an asset perspective, wage growth reinforces rent growth fundamentals and supports valuation stability across income-producing properties.

Policy dynamics coming from the White House are also shaping the market in meaningful ways. Institutional bans on large-scale homebuying in certain jurisdictions albeit a small percent of overall housing supply nationwide, should ease costs associated with limited supply and high demand. Alongside these bans, the administration has signaled for Fannie Mae and Freddie Mac buydown programs are providing targeted relief to borrowers. Fannie Mae and Freddie Mac buydowns lower effective pricing by reducing a buyer’s monthly payment, which improves affordability without requiring sellers to cut headline prices. By shifting the market adjustment from price to financing structure, they allow deals to clear while protecting comps and stabilizing valuations.

Finally, the surge in M&A activity that accelerated through 2025 and continues into 2026 is a critical signal worth watching. Strategic acquisitions, consolidations, and capital deployment by sophisticated players, often referred to as “smart money”, tend to move ahead of broader market sentiment. When institutional capital becomes active, it often serves as a leading indicator not just for real estate, but for equities, credit markets, and alternative assets as well. Historically, smart money positioning has preceded broader asset class revaluations rather than followed them.

Mortgage Rates

Mortgage rates dropped down to the lowest level in more than three years last week and the impacts have been noticeable as weekly purchase applications and refinance activity have jumped which has underscored the benefits for both buyers and current owners. Housing activity is improving and poised for a solid spring season. With the economy improving and the average 30-year fixed-rate mortgage nearly a full point lower YoY, more homebuyers are entering the market.

Global Market Snapshots and Headlines

• All Cash Buyers Dominated Manhattan Real Estate in 2025 Making Up 64% of All Sales and 90% of All Sales of Homes Priced Over $3 Million
• 40% of US Homes Do Not Have a Mortgage
• Manhattan Commercial and Office Space Is Trading at Highest Levels and Prices Since Pre-Pandemic
• Canadian Housing Market Sees Prices Decline
• UK Wealth Tax to Hit as Many as 200,000 Homes

Economic Outlook – What is the Future for the Federal Reserve and Its Potential New Chairman

Federal Reserve Chair Jerome Powell remains in office, with President Trump stating he has no immediate plans to remove him despite ongoing political pressure and a separate federal investigation into the Fed’s headquarters renovation project that has been cited as part of broader tensions between the White House and the central bank. Powell’s current term as chair officially expires in May 2026, though he could legally remain on the Fed’s Board of Governors until January 2028 if he chose to stay on after his chairmanship ends.

Looking ahead, political and policy divergences are shaping the Fed’s trajectory. President Trump has been openly critical of Powell for the pace of interest rate policy, advocating for lower rates, and has suggested several potential successors, including former Fed Governor Kevin Warsh and National Economic Council Director Kevin Hassett among others. Treasury Secretary Scott Bessent has confirmed that a formal process to identify Powell’s successor is underway, and the leadership transition is expected to be a key storyline through early 2026.

Chances Fed Cuts Rates at Jan. 27th Meeting

Economists and market participants are watching closely because the choice of the next Fed chair will influence monetary policy direction at a time when inflation trends and economic growth remain central concerns. While markets and some analysts project stability or modest rate adjustments through 2026, a new chair with different priorities could shift the balance between inflation control and growth support.

The distinction between a dovish versus hawkish Fed chairman is critical for the future direction of monetary policy. A dovish chairman would prioritize economic growth, labor markets, and financial stability, generally favoring lower interest rates, greater tolerance for inflation running modestly above target, and a willingness to provide liquidity during periods of stress which is an approach that tends to support asset prices and risk-taking. Conversely, a hawkish chairman would focus more aggressively on inflation control and price stability, favoring higher rates for longer, tighter financial conditions, and a reduced balance sheet, even at the expense of slower growth or softer labor markets. The choice between these philosophies will shape not just rate policy, but the Fed’s credibility, market volatility, and the broader balance between capital preservation and economic expansion over the next cycle.