If you’re reading economic headlines right now and feel confused, it’s understandable.
- Home sales cooled in January as affordability remains tight.
- The Fed is holding rates steady as inflation continues to ease.
- Jobs data was revised down.
Inflation is moving in the right direction, just not fully back to 2%.
So is the economy weakening?
Not exactly. What we’re seeing right now, at a broader national level, is recalibration.
Housing Activity has Slowed, but Foundation is Still Intact
Existing home sales declined 8.4% in January to a 3.91 million homes annually. While activity has slowed compared to historical norms, pricing continues to show resilience.
Sales are now hovering around 4 million homes annually, compared to the historical norm of 5.2 million.
At the same time:
- Mortgage rates have recently moved to their lowest level in nearly four years, improving affordability compared to last year.
- Median home prices still rose 0.9% year-over-year to $396,800.
- Inventory is at a 3.7-month supply, which is still below the 5–6 months considered balanced.
In other words:
Buyer demand is more measured, supply remains limited, and transaction volume has normalized.
Affordability remains the key constraint, particularly for first-time buyers, who made up just 31% of purchases last month (historically closer to 40%).
The Job Market Is Changing Shape
January’s jobs report showed continued growth, though revisions clarified that the pace of expansion over the past two years was more moderate than initially estimated.
The big shift is that healthcare is now carrying the labor market.
Healthcare is currently leading job creation.
- Healthcare added roughly 437,000 jobs year-over-year.
- Social assistance added another 321,000.
- Some sectors, including manufacturing and portions of finance and professional services, have cooled compared to last year, while construction remains uneven with data-center development driving selective growth.
Unemployment is still low at 4.3–4.4%, though hiring momentum has slowed significantly compared to 2022 and 2023.
This is not a recession-level labor market. Growth is simply becoming more concentrated in specific sectors rather than broad-based across the entire economy.
For real estate, that means tenant demand is becoming more selective and tied to specific industries and local economies. For investors and owners, that means underwriting has to be more location- and job-market-aware than it was during the initial post-pandemic growth.
The Fight Against Inflation Isn’t Over
The Federal Reserve left rates unchanged in the 3.5%–3.75% range.
Two new voting members, Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan. made it clear they’re in no rush to cut again.
Inflation has hovered near 3% for two years. Core services inflation hasn’t eased meaningfully, and tariffs and rising electricity and insurance costs remain headwinds.
The Fed still seems patient with a near “neutral” policy.
Markets currently expect between one and three cuts this year, but policymakers appear willing to wait for clearer evidence that inflation is moving decisively toward 2%.
So, What Does This Mean?
The economy today is more stable than people make it out to be.
- Housing is slow but supported by a limited supply.
- The labor market is narrower but steady.
- The Fed is cautious, but seemingly unalarmed.
Multifamily is reflecting the same thing we’re seeing across the entire economy, and that’s normalization.
Vacancy is projected to hold around 8.5% through year-end before gradually easing in 2027. Rent growth is expected to remain modest in the near term, with fourth-quarter 2026 projections around 0.6% as the market absorbs recent deliveries.
At the same time, new supply has seen a sharp fall. Deliveries are expected to decline by 36% this year and another 27% in 2027, which should set the market up for a healthier balance once excess inventory is absorbed.
In other words, demand is in an adjustment period, and supply is pulling back. That’s a very different environment than what we saw in 2022 and 2023.
Economic headlines are one thing. How buyers are pricing your specific property is another. If you’d like clarity on where your building stands in today’s market compared to sold comps, get in touch with us by responding to this email or calling (310) 561-2384.
