Macro Signals for July 2025

What the Latest Global Business and Policy Developments Mean for US Housing and Commercial Real Estate

June 2025 was marked by an acute rise in geopolitical tensions and Congress's efforts to advance President Trump's tax and spending bill. Nonetheless, critical signals from the US housing market and renewed concerns around risks to commercial property debt drew heightened scrutiny from CRE investors.

First: Key Business Developments

A Frozen Housing Market?

New home sales plummeted in May, the latest month for which data is available. Sales declined 13.7% from the previous month, reaching their lowest level since October 2024. Alongside surging inventory and reports that builders are beginning to halt construction as discounting has become protracted, the housing market is flashing warning signals that are worth monitoring.

Office-To-Residential Conversions

Nationwide, office space is now being razed or converted faster than it's being constructed, a first in 25 years, according to a CNBC analysis of data from CBRE Group. An estimated 85 million square feet of office space is now slated for residential reuse, with New York City leading the trend. Over 8,000 apartments are expected from conversions at major sites across Manhattan in the coming years.

Next: US Policy Monitor

Tax & Spending Bill Clear Key Hurdles

On July 1^st, the US Senate passed its version of President Trump's Tax and Spending plan, which will now head back to the House for a final vote and, if passed, be sent to the President's desk to be signed into law.

After several days of trying to strike policy compromises on key details, the Republican-controlled US Senate secured enough votes early Tuesday morning to pass a bill. Several pro-Real Estate provisions remained at the finish line. The National Association of Realtors is claiming victory on each of its top real estate priorities, which include:

1.     A permanent extension to both the 2017 tax cuts and the mortgage interest deduction.

2.     A five-year quadrupling of the state and local tax (SALT) deduction cap, beginning for the 2025 tax year.

3.     An enhanced and permanent qualified business income deduction.

4.     Protection for business SALT deduction and 1031 exchanges.

Other significant wins for the real estate industry include a permanent extension of some Low-Income Housing Tax Credit (LIHTC) provisions, a permanent increase to the Child Tax Credit, and revised incentives aimed at strengthening "opportunity zones."

California Rolls Back Environmental Law

On June 30^th, California legislators rolled back a state law aimed at environmental protection, but often criticized as a catalyst for slowing housing development, which has gained renewed attention in recent years in response to a national housing shortage. The law, which garnered rare bipartisan support in the State legislature, will permit some development projects to bypass the state's rigorous environmental review.

Fed Holds Policy Rate

On June 18^th, the FOMC held interest rates unchanged, a widely expected decision leading into the meeting. Officials observed swings in net export activity but viewed expanding economic activity as sufficient to justify continuing to hold rates steady for now. They noted that the unemployment rate remains low by historical standards, labor market conditions remain solid, while inflation remains somewhat elevated. Despite increased pressure from the White House to cut rates, the Fed continues to adopt a wait-and-see approach to interest rate policy, waiting to assess the potential impact of tariffs on prices and the health of the labor market.

Lastly, Global Risk Watch

Middle East Conflict Places Energy Markets on Knife’s Edge

While markets were relatively muted in response to Israel and Iran's 12-day war, which saw direct US involvement, oil-price volatility remains a concern as a fragile ceasefire between the parties appears to hold. IMF Director Kristalina Georgieva noted that the fund is closely monitoring oil prices, concerned that secondary or tertiary impacts on the global economy could occur if geopolitical tensions intensify.

Commercial Debt and Financial Sector Vulnerabilities

The Financial Stability Board (FSB), the world’s leading financial stability watchdog, recently warned of emerging vulnerabilities in the $12 trillion commercial property market. The FSB highlights liquidity mismatches, high debt levels, and a lack of data transparency that have increased systemic risks to the financial system.

Trade Tensions and Supply Chain Disruptions

As the US administration’s pause on several proposed tariffs nears its deadline, the IMF and the Bank for International Settlements (BIS) warn that without de-escalation, trade tensions may lead to slowing growth and aggravate inflation pressures, both of which could affect US commercial real estate. After a post-pandemic surge in key material costs for construction, many are concerned that renewed cost pressures could create a cumulative impact that could significantly impact project timelines and developers' margins.

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