A recent real estate report surveyed participants who were optimistic that federal funds rate cuts would lead to a decline in long-term mortgage rates, but there’s been a divergence in short-term and long-term rates, a Montana real estate executive said.
Molly McCabe is president of Hayden+Tanner, a real estate and investment advisory firm. She was the keynote speaker at the 2025 Emerging Trends in Real Estate Luncheon on Thursday (Jan. 23) in Fayetteville.
About 90 people registered to attend the event, hosted by The Urban Land Institute (ULI) Northwest Arkansas, in partnership with Colliers Arkansas. The event offered insights from the 2025 Emerging Trends in Real Estate report, jointly undertaken by ULI and PwC, and includes recent data and analysis about the real estate industry in the United States and Canada. Link here for the report.
McCabe said the rate divergence has been “priced in,” and the “spread on “longer-termed assets has actually widened.” People thought mortgage rates would fall after the cuts but did not.
“In fact, we’re actually at about 7% right now,” McCabe said. “So, it’s the highest since July.”
Still, she said the economy remains solid, with robust growth, higher labor productivity and “sticky” inflation. She noted that the appropriate inflation rate might be 2.5% to 3% instead of 2%.
She said commercial real estate asset transactions started to slow in 2022 and attributed this to discrepancies in buyers’ and sellers’ expectations. However, operating income on commercial assets remains strong even for those who have to refinance. The result has been many extensions and loan rewriting. The real estate report’s survey participants were optimistic that their profits would rise in 2025, and the expectation was that the market would be more certain after the election.
“That has not happened,” McCabe said.
POPULATION TRENDS
She said the report shows that U.S. population growth might have declined without net migration. California, Florida and Texas accounted for most of the migration. Where population growth used to be strong, it’s starting to decrease, such as in Tampa, Fla., Orlando, Fla., and southwest Florida. But where it’s rising includes Boise, Idaho; Indianapolis; and Las Vegas.
She said survey participants think investment should be concentrated in the Sun Belt, but the report shows migration growth in the central United States. McCabe said migrants comprise about 40% of construction workers, 70% of farm workers, and 30% to 40% of meat and poultry workers. She highlighted a recent interview about the issue of immigration and how people are not showing up to work.
“While they may be native, they may have a green card, they may be native Americans – they have in their social circle or in their family people who are not,” she said. “So they are not showing up to work. So this is a problem from an economic perspective in our communities.”
She said the homeowners of the roughly 15,000 homes destroyed in the California wildfires will look to areas they can afford after receiving their insurance checks. She said people are moving from places with a higher risk of natural disasters to safer places. Office space vacancy has been a challenge for large cities, especially in downtowns, and people are looking at how office space can be redeveloped into homes or retail. She said stable downtowns comprise those that are “live, work, play places.” Yet, she noted that Northwest Arkansas office vacancy rates are falling.
HOUSING AFFORDABILITY
An influx of new homes has become available for sale, but she said fewer will be available in 2025 or 2026. She attributed the decrease to capital availability and rising construction and interest costs.
“The reality is we simply have to build more housing in more places at all levels, and if you build in an infill location, it benefits the community – going back to…how do you create walkable urban places – infrastructure’s cheaper. You don’t have to send it way out. You don’t deal with traffic.”
She said affordable housing is challenging because labor costs are the same, and the rents don’t support it. Compared to areas like California, she said housing affordability in the central United States is “pretty solid.” She compared Northwest Arkansas to Boise City, Idaho, and said it’s similar to the area based on housing prices, household formations and housing deliveries. Fewer homes are being completed than the market needs, and people aren’t moving as homeowners opt to keep their low mortgage rates.
“Who wants to refinance? You’re not going to move unless you have to,” she said. “Or maybe you can buy up.”
She cited a report showing home affordability for those earning 80% of the area median income. Only 21% of homes in Boise City are affordable for these earners. She also showed a report showing that saving for a downpayment is measured in decades. For those looking at an apartment, these earners need years to save for a security deposit and the first and last months’ rent.
According to the survey participants, sectors people should invest in include industrial and distribution, single-family housing, multifamily, hotels, and office space. They also said to invest in the areas people are moving from.
“Take that for what it’s worth for those of you who are investing in the south Sun Belt,” McCabe said. “I am not. I’m up in the north.”
NORTHWEST ARKANSAS PERSPECTIVE
After McCabe spoke, a panel of commercial real estate officials provided perspectives on the Northwest Arkansas market. The panel included Jake Quasney, chief operating officer of Sioux Falls, S.D.-based Lloyd Companies; John McCurdy, director of community development for the city of Rogers; Mark Cloud, a commercial loan officer at First National Bank of NWA; and Bo Diamond, managing partner of Fayetteville-based Caisson Capital Partners.
Quasney said the firm recently established a Northwest Arkansas office and expects its construction division to be active here. The firm primarily builds hotels and apartments ranging from two to seven stories tall. He said the firm learns about its renters to determine affordability.
Cloud, who’s also chairman of the Springdale Planning Commission, noted the growth in downtown Springdale and that the development has created momentum. As a lender, Cloud said he’s still lending on multifamily projects.
“It seems like we’re always chasing having enough housing,” said Cloud, adding that any development “if it’s done well after some period of time will be absorbed” in this market. “There’s still plenty of great projects out there.”
Cloud said more infill and higher-density developments are needed. He noted that “the more we sprawl out,” the greater the strain and cost of infrastructure will be. He also said housing affordability is relative. A family who relocated here from Denver said a Bella Vista home for $300 per square foot “was a bargain.” Juxtapose this with residents who’ve lived here for two generations who are “never moving.”
Established in 1936, The Urban Land Institute is the world’s oldest and largest network of real estate and land use professionals. The nonprofit education and research organization has more than 45,000 members worldwide.