CRE vs. housing prices: A normalizing disconnect

Market response: Real estate

December 4, 2025 | 2 min read

Rich Hill

Global Head of Real Estate Research & Strategy

The 3Q25 Case-Shiller release showed national home prices slipping -0.8% quarter-over-quarter, bringing year-over-year growth down to +1.3%. The 20-city Index fared slightly better, inching up +0.2%, with YoY gains rising to +1.4%. By comparison, the NCREIF Property Index delivered a stronger performance, up +1.2% QoQ and +4.7% YoY. While we primarily focus on total returns (net of capex), given that income has historically accounted for over 80% of long-term CRE performance, even price-based indices are beginning to reflect upward momentum. The MSCI/RCA Index is up +4% YoY and the Green Street Index is up +3% YoY. Although the Costar Index remains at -1.9% YoY, it’s increased in four of the past five months.

For the first time since 4Q22, commercial real estate total returns are outpacing home price appreciation, and it’s now occurred for two consecutive quarters. Historically, CRE valuations and housing prices have moved in tandem, with housing often acting as a leading indicator. That pattern fractured in recent years as higher rates pushed CRE values down while tight housing supply pushed prices to historical highs. We expect this gap to continue to normalize, with housing appreciation slowing (if not declining) and CRE valuations continuing to recover.

However, the headline housing numbers increasingly mask a highly bifurcated market. According to Zillow, 60 of the top 100 metros are still rising YoY, while 40 are now declining. Most of the softness is concentrated in the West, Southwest, and Southeast, where only 32%, 36%, and 44% of markets, respectively, are still appreciating. By contrast, more than 94% of Midwest markets are rising, and all major Northeast markets remain positive.

Bottom Line

Commercial real estate has regained its footing relative to housing, with total returns now outpacing residential appreciation for the first time in nearly two years. While the housing market remains fragmented by region, momentum is clearly slowing at the national level. As CRE valuations stabilize and income continues to anchor performance, we see further room for normalization in the CRE-housing relationship, particularly as rate pressures ease and fundamentals improve.

Real estate

Disclosure

Investing involves risk, including possible loss of Principal. Past Performance does not guarantee future return. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate. Commercial real estate (CRE) investments carry several inherent risks, including those related to the economy, interest rates, and tenant behavior. These risks can impact property values, rental income, and overall investment returns.

Views and opinions expressed are accurate as of the date of this communication and are subject to change without notice. This material may contain ‘forward-looking’ information that is not purely historical in nature and may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information in the article should not be construed as investment advice or a recommendation for the purchase or sale of any security. The general information it contains does not take account of any investor’s investment objectives, particular needs, or financial situation.

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