THE VERTICAL - Weekly Brief

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A QUICK SCAN

Labor Market Breaks. Weak jobs report (73K added, 258K revised away) triggers mortgage rate drop to 10 month low (6.57%), opening brief buyer window.

The Equity Bubble. $34 trillion in homeowner equity (2x the 2006 bubble) may be the real affordability problem, not mortgage rates, according to viral market analysis.

Sun Belt Correction. Pandemic boomtowns like Denver (38.3%), Raleigh (36.4%), and Phoenix (35.5%) now lead nation in price cuts as inventory normalizes.

Construction Pullback Accelerates. Private residential spending falls sixth straight month (-0.7% in June), with single family down 5.3% annually as builders match starts to reality.

Capital Gains Catalyst. 25.9% of US homes have gained $250K+ in value. Trump's proposed capital gains elimination could unlock massive inventory from locked in sellers.

1 | LABOR MARKET BREAKS: FED'S HAND FORCED ↓

Friday's jobs report wasn't just a miss, it was a fundamental shock that immediately repriced the entire interest rate outlook and opened the first meaningful buyer window in months.

The Jobs Shock: Only 73K jobs added versus 100K expected, and 258K prior jobs were revised away, erasing an entire month of hiring. The labor market momentum has completely collapsed:

• 6-month average job creation: down to 81,000/month from 175,000 in January

• 3-month average: just 35,000/month

• Long-term unemployment: jumped to 1.82 million (highest since December 2021)

• Labor force participation: fell to 62.2% (lowest since November 2022)

Fed Dissent Becomes Consensus: The July Fed meeting saw two dissenting votes for cuts (highest since 1993). Chair Powell's admission that the "housing market remains weak" now looks prescient. Fed cut odds jumped from 40% to 75.5% overnight.

Immediate Buyer Window: The 30-year mortgage rate fell to 6.57%, its lowest level in 10 months. A homebuyer with a $3,000 monthly budget gained roughly $20,000 in purchasing power since May's 7.08% peak. They can now afford a $458,750 home versus the $439,000 home available at May rates.

Your reality: This is no soft patch, the 3-month hiring pace is the weakest since early-2020 lockdowns. The September Fed meeting just became the most consequential for housing in years. Smart buyers are moving now before rates potentially bounce back.

2 | THE $34 TRILLION EQUITY BUBBLE: RATES AREN'T THE PROBLEM ↓

A viral market analysis is reshaping how we think about housing affordability. The real culprit isn't mortgage rates, it's the unprecedented $34 trillion in homeowner equity, more than double the 2006 bubble peak.

The Numbers Don't Lie: Homeowner equity now exceeds 115% of GDP, the highest level in American history. Home prices have outstripped economic growth, incomes, and inflation by massive margins.

Market Dysfunction: Pending home sales dropped 32% below pre-pandemic levels, while mortgage applications are down 40%. Yet sellers refuse to accept market clearing prices, often delisting rather than cutting prices.

The Fed's Role: Twenty years of accommodative monetary policy, starting in 2001, created this equity bubble through artificially suppressed interest rates.

The Solution: Housing needs a 15-20% price correction to restore balance with buyer incomes and interest rates. This would still leave homeowners with $25 trillion in equity, nearly double 2006 levels.

Your reality: The industry's focus on rate cuts is misguided. Until prices reset to sustainable levels relative to incomes, transaction volume will remain depressed.

3 | REGIONAL RIFT ACCELERATES: SUN BELT COOLS, NORTHEAST SHINES ↓

The great rebalancing is accelerating, creating clear regional winners and losers as the pandemic-era boom finally corrects.

Sun Belt Price Cuts Lead Nation: More than one in four listings saw price cuts in June (26.6%), a record high for the month, with pandemic boomtowns topping the list:

• Denver: 38.3% of listings cut prices

• Raleigh: 36.4%

• Dallas, Nashville, Phoenix: 35.5% each

Northeast Defies Gravity: Beverly, MA (ZIP 01915) just claimed the title of America's hottest ZIP code, with homes selling fast despite being 20 miles from Boston. Price cuts remain rare in Milwaukee (13.9%) and New York (15.6%).

The LA Luxury Divide: Even within cities, the market is fracturing. In Los Angeles, 1 in 4 homebuyers pay cash, but this jumps to 57% for homes over $10M. Global wealth concentrated in trophy assets creates two distinct markets, one battling affordability, another "collecting homes."

Inventory Reality: Markets like Denver and Phoenix now have inventory levels above pre-pandemic norms, while Northeast markets remain constrained.

Your reality: The national housing narrative is dead. Success now depends on hyper-local expertise and recognizing which market you're actually operating in, cooling inventory rich markets or tight, resilient ones.

4 | CONSTRUCTION PULLBACK ACCELERATES ↓

The supply side confirms the market shift, with construction spending, builder earnings, and materials suppliers all flashing warning signs.

Six-Month Decline: Private residential construction spending fell for the sixth consecutive month in June (-0.7%), with single-family construction down 5.3% year-over-year.

Materials Suppliers Confirm Reset: Builders FirstSource (BLDR), America's largest building materials supplier, reported the brutal reality: multifamily demand down 23%, single-family down 9%. The $16 billion housing supply chain is flashing warning signs.

Builder Adaptation: Recent earnings from Dream Finders, Beazer, and Green Brick Partners show disciplined responses. Dream Finders posted +13% net orders through incentives and entry-level focus, while others maintain pace through operational excellence and reduced starts.

Strategic Positioning: All three CEOs remain bullish long-term, citing structural shortage fundamentals. As Beazer CEO Allan Merrill noted: "The structural housing shortage supports demand," but near-term conditions require running lean.

Your reality: This is a market share consolidation moment disguised as a downturn. Those focusing on operational excellence, cost controls, and patient land acquisition will emerge stronger when conditions improve.

5 | THE $7 TRILLION UNLOCK: CAPITAL GAINS ELIMINATION ↑

Trump's proposal to eliminate capital gains tax on home sales could trigger the largest inventory release in decades, with 25.9% of US homes having gained more than $250,000 in value.

The Opportunity: These homeowners currently face median tax liabilities of $20,104 (single filers) to $31,948 (joint filers) on their gains. Eliminating this burden removes a massive selling deterrent.

Geographic Concentration: California leads with 62.3% of homes above the $250K threshold, followed by Hawaii (61%) and Massachusetts (58.4%). Nine of ten homes in Anaheim have gained $250K+, while San Jose leads in $500K+ gains (71.3%).

The Unlock Potential: More than one in five homes nationally that have gained $250K+ are in California alone. As Redfin's Chief Economist notes: "A lot of baby boomers say they never plan to sell, but that mindset could shift if capital gains are taken off the table."

Market Impact: This policy change could unleash significant inventory, particularly in high value coastal markets. However, these aren't starter homes, they're predominantly million dollar properties serving move up and luxury segments.

Your reality: This represents the largest potential policy-driven inventory catalyst in years. Track policy chatter and prep marketing to move up sellers sitting on six figure paper gains.

MARKET INTELLIGENCE ROUNDUP

Fred Rothman's Quiet Exit: Lennar's legendary COO and architect of its $8 billion Millrose land spin-off steps down after 18 years, marking the end of an era for one of the industry's most consequential behind the scenes operators.

Japanese Invasion Continues: Iida Group Holdings acquired majority stake in Atlanta's Patrick Malloy Communities, marking the 40th+ Japanese builder acquisition since 2013 as domestic market shrinks.

Data Center Goldmine: Vermaland unveiled $33 billion Phoenix data center park covering 3,300 acres, positioning Arizona as the next "Data Center Alley" amid AI infrastructure boom.

AI Tool Drops: Lindy 3.0 "Autopilot" now controls full cloud desktops for 24/7 automation. AGNT AI spins up complete marketing stacks in 140 seconds. Smart Lease (Yardi add-on) eliminates manual lease abstraction. SurfaceAI continuously audits rent rolls for revenue leaks.

PropTech Investment: Billee Technologies raised $9.15M seed round for AI-powered utility billing, demonstrating targeted AI solutions gaining traction in real estate operations.

THE AI EDGE: AUTOMATION TIPPING POINT ↑

The AI automation wave just reached a tipping point. We've crossed from helpful tools to true digital employees that operate 24/7 without human oversight.

The $5K Analysis in 24 Minutes: I fed ChatGPT's Agent Mode one Sherman Oaks address and a single prompt. 24 minutes later: complete land use feasibility analysis with zoning overlays (R3-1 + TOC Tier 3), unit yield calculations (26 by-right → 45 with density bonus), FAR computations, and parking reductions, work that typically costs $2,000-$5,000 from top consultants.

Professional Grade Output:

• Live code citations (LAMC §12.21, Gov Code §65915)

• Current GIS parcel data and zoning overlays

• Decision ready tables for investors/lenders

• Executive summary ready for immediate distribution

The Automation Reality: We're witnessing the transition from AI as a search engine to AI as a workforce. These systems don't just assist, they execute complete workflows without human oversight across feasibility analysis, marketing automation, property management, development tracking, and investment underwriting.

Competitive Gap Widens: Companies deploying these systems gain 24/7 operational capacity while competitors still rely on business hours and human bottlenecks. The tools exist now, from desktop automation to lease abstraction to deal sourcing.

Tool Discovery: With AI evolving at lightning speed, There's An AI For That has become my go to resource with over 39,547 AI tools catalogued and searchable by category. Before building something from scratch, check here first: https://theresanaiforthat.com/

Your reality: The real estate industry just crossed into full automation territory. The firms winning deals in 2026 will be those who automated their operations in 2025. Every manual process you run today is a competitive liability tomorrow.

BOTTOM LINE

The housing market's real problem isn't mortgage rates, it's the $34 trillion equity bubble that has priced out an entire generation of buyers. While weak jobs data opens a brief rate window, smart money recognizes that prices, not rates, need to reset.

The convergence of labor market weakness, regional rebalancing, and AI disruption creates unprecedented opportunities for operators who understand the new rules. Those still fighting the last war with traditional tools and rate focused strategies will find themselves obsoleted by faster, smarter competitors.

The window is narrowing. The tools are evolving. The winners are already adapting.

READY TO DOMINATE?

Need entitlements or permit expediting in California? My team at JDJ Consulting moves complex projects from idea to permit, fast. We navigate the bureaucracy so you can focus on the deal. → jdj-consulting.com

Questions, deals, or AI geek outs? Hit reply. Always down to dive deep.

— Jake