Feb 2025 Housing Market Update: Are Our Predictions Already Wrong?

Dave:
Was I flawed concerning the 2025 housing market? Most of my predictions have been reliant on this one metric not shifting that a lot, however only a month into 2025, it’s beginning to shift. So what does that imply concerning the housing market at present? We’re stepping into it. So at a excessive stage, the housing market continues to defy expectations as costs improve regardless of increased rates of interest, rising stock and renewed inflation considerations. However will that proceed or do the shifts that I’m seeing on this one key metric I’ve been telling you all to concentrate to imply that the market is heading for a downward shift? At this time we’re diving into our Q1 housing market replace. Hey everybody, it’s Dave and at present we’re having a look across the whole business. We’re speaking about stock, we’re speaking about rates of interest, and once more, we’re going to speak about this one metric that has me questioning my very own predictions for the yr.
I’m going to report on the information. I’ll offer you my evaluation and opinion and I’ll make some up to date predictions on how this yr goes to form up. Let’s get into it. We’re going to begin with the fundamentals and simply speak concerning the excessive stage stuff that everybody cares about, like mortgage charges, costs, stock, all that. First issues, first costs, no less than in accordance with Redfin, are nonetheless up a powerful quantity, 4.8% yr over yr. Only for reference, the common, the long-term common appreciation charge is round 3.4%. A traditional yr within the housing market is when it retains tempo with inflation, so that might be round 3% for final yr. So costs have been good in accordance with Redfin outpaced inflation in 2024, and that has continued no less than into the primary month right here of 2025. So actually irrespective of the way you take a look at it, calls are saying that the market was crashing.
Not precisely true, however there’s something that we have to speak about that’s that costs have gotten fairly near the speed of inflation. And so when you consider the housing market proper now, in at present’s day and age, it’s very useful to take a look at what are referred to as actual value adjustments and the time period actual in economics principally means inflation adjusted. So in case you’re wanting on the case Shiller and also you say costs went up 3.8%, however inflation final yr was 3.2%, then actual costs actually solely went up 0.6%, proper? You subtract the inflation charge from appreciation, and in order that’s why you would possibly hear folks say that costs are comparatively flat and I agree that they’re comparatively flat, they’re going up in nominal phrases, and in case you simply take a look at the greenback quantity, sure, they’re going up, however in inflation adjusted phrases, they’re comparatively flat.
In order that’s on the nationwide stage and naturally actual property is tremendous native. We speak about this on a regular basis. Let’s take a look at what’s occurring at particular person property stage. One actually fascinating improvement right here that actually I didn’t suppose we might be at this level in 2025 we’d be taking a look at this, however a brand new research simply got here out once more from Redfin that reveals that each single one of many 50 largest metro areas within the us, each single one had yr over yr value development. And that is fairly uncommon. It occurred in the course of the pandemic, however I feel we will all agree that what was occurring in the course of the pandemic was fairly uncommon and that we shouldn’t be basing our expectations of future efficiency for the housing market on what was occurring again then. When you look again to 2018, yeah, generally you noticed all 50 of fifty prime markets, however within the years and months main as much as the pandemic, it was like 43, 45 out of the highest 50 could be all rising yr over yr.
That’s what I might say is type of regular. 80 90% of housing markets in the US are rising. A few them are simply experiencing regular fluctuations. That is simply how regular markets work. Then in the course of the pandemic, everyone knows every little thing was rising, you simply couldn’t miss, however that modified when rates of interest began to go up and we noticed that go from one hundred percent of markets right down to 90% after which it bottomed out to about solely 40% of markets have been rising yr over yr within the first half of 2023, and it’s slowly been recovering and now as of the final month of 2024 was the primary time since again in late 2021, since we’ve had 50 out of fifty, so that is fairly uncommon. Simply a few months in the past we have been anticipating and we acquired used to seeing sure markets being in decline.
A variety of markets in Florida, loads of markets in Texas have been in modest corrections, nothing loopy, however Tampa was down half a p.c or Austin was down most likely probably the most of anywhere within the nation at three or 4%, Jacksonville, San Antonio. Now all these markets are modestly rising. They’re nonetheless rising under the tempo of inflation. So that’s the key factor I would like everybody to recollect right here. After I say Orlando is up 1.3%, yeah, costs went up, however it’s not retaining tempo with inflation. With, as traders we would like, we would like our cash to no less than preserve tempo with inflation and it’s not occurring in Orlando, however costs are beginning to go up, which is a reversal of a development that’s value noting. On the opposite finish of the spectrum, we’re seeing markets develop like loopy. When you have been to ask me three years in the past, may you see a atmosphere the place three years from now we have been seeing double digit value appreciation, despite the fact that mortgage charges have been at 7% or above 7% for a number of years, there’s no approach I might’ve mentioned sure.
I wasn’t considering there was a crash, however that is beating my expectations proper now. Cleveland and Milwaukee, two Midwest cities which can be usually often known as cheaper housing markets with decrease appreciation, each are at 15% yr over yr development. That’s insane. Philadelphia, 14% Chicago, 11%, Miami 12%. These are huge, huge numbers and it’s necessary to do not forget that the markets outdoors of Miami, the opposite 4 that I’m mentioning listed below are markets that grew slower in the course of the pandemic. So it’s not like they have been retaining tempo with Austin and Tampa from 2020 to 2022 they usually’ve simply type of stored on this rocket ship experience, however they’re now type of taking the expansion place, whereas loads of these different markets that grew actually rapidly in the course of the pock are slowing down. However once more, fairly loopy to see that each one 50 out of fifty markets are rising on this atmosphere.
So let’s transfer on from pricing and now speak about stock and simply as a reminder, stock is a superb metric to trace. When you solely take a look at a few issues within the housing market. Stock is one you need to regulate as a result of it actually measures the stability between provide and demand. It provides you a superb sense of the place costs are going to go, the place transaction volumes going to go in a given housing market and stock, simply as a reminder context has been actually low during the last couple of years. We’ve been in a vendor’s market and also you’re in a vendor’s market when there aren’t loads of properties on the market when there are extra patrons than there are sellers. This offers sellers energy available in the market. They’ve the power to barter. It’s why we noticed for years folks bidding over asking costs or waiving inspections or waving their contingencies.
It’s as a result of we’re in a vendor’s market. That although is beginning to shift. Not a ton. We’re nonetheless not in an incredible purchaser’s market, however a number of the dynamics, a number of the indicators that you just search for to see a shift are beginning to change and that is necessary for traders. The very first thing that we take a look at is one thing referred to as energetic listings. That’s simply what number of houses properties are per sale at a given level, and proper now it’s at about 900,000, which represents an 11% improve from this time final yr. That’s fairly notable. It’s additionally represents practically a 50% improve from the place we have been in 2022. Now every little thing must be taken right into a grain of salt. It’s nonetheless nicely under the place we have been in 2019 and earlier than the pandemic, however this reveals that we’re slowly getting again to extra regular housing market circumstances the place there are extra properties on the market and we’ll get to this extra in simply a few minutes, however that signifies to me that there are going to be higher shopping for alternatives, proper?
You’re on this state of affairs the place there are loads of patrons for only a few sellers that give sellers all the facility. That stability is beginning to shift again somewhat bit extra. Now, once more, that’s on a nationwide foundation and there are some regional variations, however the improve in stock is going on considerably universally. When you take a look at how issues have modified from January 24 to January 25, nearly each market within the nation has seen a rise in stock. There are some random small low inhabitants markets in North Dakota and South Dakota and Montana which have seen a decline, however total, principally the entire nation is seeing this reversion again to regular. And once more, this isn’t one thing I personally fear about that a lot. I’m not breaking out as a result of oh, stock goes up. We’re going to see some market crash. We’re not even again to regular. We’re not even again to 2019 ranges.
When you have been going to see a crash, you’d see it no less than approaching these type of ranges and in loads of markets like in New York, within the northeast, within the Midwest, they’re going up, however they’re simply going up 10%, 20% yr over yr, which is absolutely modest. The higher metric, no less than in my thoughts to take a look at in case you actually need to study stock in your native space is to check how stock was in let’s say January of 2019 to January of 25 as a result of January, 2019 was a comparatively regular housing market. If we need to perceive the place we’re at present, it’s good to check to that comparatively regular market. And once you do that evaluation, it appears very, very totally different. All the northeast, all the Midwest remains to be destructive. Really it’s nonetheless about 50% decrease than it was pre pandemic. That is occurring in New England, it’s occurring in West Virginia, in Virginia, in Wisconsin, in Michigan, in Illinois, in Indiana, in Ohio.
It’s occurring just about in all places. And so preserve these items in thoughts. When you see some media or information on the market saying stock’s up 25% from final yr, yeah, perhaps it’s, however how does it evaluate to a traditional market? It’s nonetheless 50% under, so that’s one thing to bear in mind. There are nonetheless, some markets, and these are the markets that you have to be cautious with the place stock is above pre pandemic ranges, and that is occurring primarily in Texas, it’s occurring in Florida, it’s occurring a bit in Louisiana, and there are additionally locations in Colorado, like in Denver the place I make investments some locations in Idaho. We’re seeing it in Utah in a few locations. So loads of the locations that grew tremendous quickly in the course of the pandemic are actually seeing a reversion, proper? Not only a reversion again to 2019 ranges, however we’re seeing stock go above 2019 ranges.
Now, in fact, I simply mentioned a few minutes in the past that costs are going up in each market, so it’s not resulting in a crash, however it’s one thing to regulate if stock in these markets preserve going up and up. If demand doesn’t preserve tempo, you might see a flattening of costs and taking place in nominal ranges or you’ll be able to see a continuation of the place we’re at at present the place, yeah, costs are technically going up, however they aren’t retaining tempo with inflation, which as an investor shouldn’t be an incredible factor. All proper, so we’ve talked about costs, we’ve talked about stock. After we come again from our break, I’m going to speak about everybody’s favourite matter, mortgage charges, and we’re going to speak a few shift in a single key metric that has me questioning if my predictions could be somewhat bit off for this yr.
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Hey everybody, welcome again to the BiggerPockets podcast. At this time we’re giving our Q1 housing market replace. We’ve talked up to now about pricess, we’ve talked about stock. Subsequent, we’re going to speak about mortgage charges. That’s clearly going to have a really massive influence on the course of the marketplace for the remainder of the yr. Now, the considerably excellent news about mortgage charges is that they’ve been comparatively secure no less than because the election. They did shoot up for a short time in December and early January as much as about seven and 1 / 4. That’s the common charge on a 30 yr fastened for an investor, it’s most likely a bit increased than that. It’s often like 50 foundation factors increased, so most likely at 7, 7, 5, one thing like that. And that actually occurred on the potential of tariffs, which we’ll speak about in only a second. However now that these tariffs are totally on pause, they’re again right down to about 7%.
So I feel that’s excellent news and personally I don’t suppose it’s going to alter that a lot. I do know that everybody has been saying that mortgage charges are going to go down. I’ve been attempting to be cautious about that and warn folks that may not occur, and I’m feeling extra assured in that recommendation than I used to be simply a few months in the past. We simply don’t see circumstances the place the Fed is clearly going to decrease charges and there are different issues occurring within the bond market that may preserve mortgage charges excessive. I do know bond yields shouldn’t be everybody’s favourite matter, however let’s simply speak about it for a minute. This actually does matter. Principally, this all comes right down to inflation. Everyone knows this, we’ve talked about it, however when there may be worry of inflation or there may be precise inflation, mortgage charges keep excessive or they go increased.
And there are principally two the reason why traders, bond traders, the Fed are fearful that inflation will reignite. The primary is precise information. We’re seeing the fed’s favourite inflation gauge, which is the PCE has gone up the final two months. It’s not gone up loads. It’s not going up like loopy, however it’s gone up 0.1%, 0.2%, and that’s not going to be massively detrimental to the economic system or something like that, however it’s a reversal of a development that’s fairly necessary, proper? Now we have all as group as traders significantly suffered by excessive rates of interest to get inflation underneath management. And if inflation shouldn’t be underneath management, that’s going to alter the Fed’s decision-making. They simply had a gathering in January they usually determined to not decrease charges. They stored them secure, which was largely anticipated. That wasn’t uncommon. Most markets nonetheless imagine that the Fed goes to decrease rates of interest a couple of times right here in 2025, and that might assist present some modest profit to mortgage charges.
However on condition that the Fed might not decrease charges as a lot as we have been considering, in order that’s one factor. The second factor is that this complete state of affairs with tariffs that has been occurring, and we’ve made some episodes about this so I gained’t get into it in enormous element, however principally most economists imagine that tariffs are inflationary. When you’re unfamiliar with the way it works, once you implement a tariff, let’s say a ten% tariff in opposition to China just like the one which was applied a few weeks in the past, meaning US-based corporations which can be importing items from China, they should pay. The US firm has to pay 10% extra to import that good. That value usually will get handed alongside to US shoppers, which raises value for us shoppers no less than in a one-time inflationary occasion. This has bond traders spooked about inflation and that retains bond yields excessive. And as we all know, mortgage charges usually are not tied to the federal funds charge.
They’re tied to bond yields and this worry of inflation introduced on by tariffs is retaining mortgage charges excessive. Now in fact, we don’t know precisely what’s going to occur, proper? Mortgage charges shot up when there was tariffs introduced on Mexico and Canada. These tariffs have been paused, no less than for now, and mortgage charges come again down. However the purpose I’m cautioning and advising traders to not depend on charges taking place is we simply don’t know. There’s simply an excessive amount of uncertainty. Clearly it appears that evidently a few of Trump’s proposed tariffs are used as a negotiating tactic. A few of them are most likely going to get applied and stick round and will trigger some short-term inflation. Now in fact, Trump believes that these tariffs and the potential for short-term inflation are worthwhile, however traders and bond traders who actually dictate mortgage charges simply don’t know what to anticipate till they know what to anticipate.
I feel we’re going to see loads of volatility within the mortgage market and we shouldn’t depend on charges coming down no less than within the subsequent three, six months. Might I be flawed? In fact, I may positively be flawed, however I simply advise warning, the extent of uncertainty within the mortgage market has been very excessive. It stays very excessive, and till some key market dynamic shift, I wouldn’t wager my very own cash that charges are coming down anytime quickly. And in order that’s why I’m providing the identical recommendation to you. Now, let’s simply take a minute and speak about what this implies as a result of I simply mentioned that stock was going up and that charges are most likely going to remain no less than within the 7% vary for no less than the subsequent couple of months. Does this imply that housing costs are going to melt? Once you take a look at this from an financial perspective, we have now to speak about this when it comes to demand, proper?
As a result of if provide goes up, we have to know if demand the quantity of people that need to purchase these houses is staying constant or taking place. As a result of if increased mortgage charges lowers demand, that might soften housing costs. But when demand stays comparatively robust, then we will count on housing costs to most likely keep considerably near the place they’re. So there are two ways in which we take a look at demand. None of them are excellent, however I like taking a look at these two. One is one thing referred to as the mortgage buy index, which is principally how many individuals are making use of for buy mortgages in any given week. And once I say buy mortgage, it’s simply versus a refinance mortgage. And what we see is that demand is definitely doing fairly good. Not a lot has modified during the last yr. It’s been fairly secure for the final 15, 18 months and by some measures it’s really been up somewhat bit in January.
So regardless of charges staying comparatively excessive, demand reveals fairly robust. Now that’s not an ideal measure, and so I prefer to type of cross-reference that with some personal sector information. So Redfin has a cool metric that measures demand on their platform. So that they’re principally capable of see what number of occasions folks attain out to schedule showings or how a lot visitors is on their web site. And so they have this demand index. And what it reveals is principally the identical factor. That demand has remained comparatively unchanged during the last yr. If we take a look at yr over yr, it’s down 1%. To me, from a statistical standpoint, 1%, it actually doesn’t make any distinction. So once you take a look at this case, you see that the housing market might be going to stay fairly just like the place it’s. Stock is up a bit, however it’s not going up like loopy. Or if the expansion charge shouldn’t be accelerating, demand is staying comparatively the identical, which is why I’ve been saying that I feel this yr within the housing market that we’re going to see costs go up in nominal phrases, however in inflation adjusted phrases, they’re going to be comparatively flat.
I personally suppose that’s nonetheless probably the most possible state of affairs. In fact, it’s going to fluctuate market to market, like we’re going to see some actually sizzling markets, some slower markets, however my learn on the nationwide housing market actually hasn’t modified. Alright, we do should take a fast break, however once we come again, I’m going to speak a few shift in a single metric that we actually don’t speak about that a lot on the present that I feel has fairly massive implications for the way forward for the housing market. However earlier than we try this and earlier than we go on the break, I need to thank our sponsor for this section. Merely they’re the all-in-one CRM constructed for actual property traders. You’ll be able to automate your advertising skip hint without cost, ship junk mail and join along with your leads multi functional place. Head over to re merely.com/biggerpockets now to begin your free trial and get 50% off your first month. We’ll be proper again.
Welcome again to the BiggerPockets podcast. We’re doing our Q1 housing market replace. We’ve talked about mortgage charges, we’ve talked about costs and stock and loads of the frequent metrics that we monitor on this present, however I needed to convey your consideration to a really slight shift in a metric that we don’t speak about as a lot on this present, however I feel is tremendous necessary. And that is mortgage delinquency charges. Now, I don’t understand how shut you all take note of this type of stuff, however I’ve mentioned up to now that if there’s going to be any type of crash or important correction within the housing market, we might know that it’s coming as a result of there could be a improve in misery available in the market. And we will take a look at that in foreclosures. However foreclosures information takes some time to return round, and I feel the higher factor to take a look at is mortgage delinquency charges.
That is principally how many individuals are falling behind on their regular mortgages. And I’ve mentioned up to now that mortgage delinquency charges are very, very low. That’s nonetheless true on a broad foundation. When you take a look at conventional mortgages, typical mortgages the place persons are placing 20% down, the efficiency of these loans are fairly good. They’re really considerably close to historic lows. However in case you take a look at the subsections of this information, you’ll be able to see that truly two kinds of mortgages are beginning to see will increase in delinquencies, and that’s FHA mortgages and VA mortgages. These are usually decrease down fee kinds of mortgages that usually are utilized to decrease priced houses. Once you take a look at FHA loans, you see that they’re now above 2019 ranges. And that to me is important, proper? 2019, like I used to be simply saying, we need to evaluate our information to 2019 as a result of that could be a comparatively regular housing market and we’re beginning to see that this subsection once more, it’s only a smaller subsection of the mortgage market is seeing misery and this if it continues, may spell some bother for some sections of the housing market.
Once more, if we have been going to see a broad unfold crash, we might see this information altering throughout typical mortgages, throughout jumbo mortgages, throughout every little thing. We aren’t seeing that typical mortgages are doing simply high quality, however as a result of this represents a reasonably important shift from the place we’ve been during the last couple of years, I feel it’s one thing that all of us should be keeping track of as a result of if delinquencies go up, that might result in what’s often known as for promoting that might improve stock in the marketplace. There won’t be demand for these kinds of market, and it will put downward strain on pricing. Now, I don’t need to be alarmist. I need to be certain that everybody is aware of that this can be a slight improve, it’s only a modest change and it’s only for one small portion of the mortgage market. However my job as a housing market analyst is to search for these items as quickly as potential and attempt to determine these tendencies earlier than they arrive mainstream and earlier than they begin impacting all the market.
And in order that’s why I’m sharing this with you. It’s one thing that if we do that once more subsequent quarter, which we’ll, I’ll replace you on. I don’t suppose it’s something it’s good to be overly involved about at this level, however I discovered it. I feel it’s fascinating. It’s one thing I’m writing down as one thing to regulate each single month, and I’ll let you already know if something adjustments right here, simply to maintain this all in perspective. Earlier than we go, I simply need to say that once you take a look at the housing market and also you take a look at complete critical delinquencies, which is delinquencies, that are greater than 90 days late, that’s fully unchanged from 2023 to 2024. So once more, wanting on the massive image, not tremendous critical. When you take a look at the quantity of houses which have really reached foreclosures, unchanged yr over yr.
So additional downstream, we’re not seeing an enormous downside. However once more, one thing we’re going to be keeping track of this present over the subsequent couple of months. Alright, so that’s my housing market roundup for Q1 of 2025. Simply to recap what we talked about, housing costs proceed to outpace inflation, and we are literally seeing housing costs develop in principally each main metro space throughout the US, which is fairly exceptional. Stock numbers have gone up about 10% yr over yr, which might be why we’re seeing dwelling value develop reasonable to shut to even with inflation. But it surely does additionally imply as traders that there might be higher offers on the market. We’re shifting from what was an excellent robust sellers market to a extra balanced market, and there are professionals and cons of each sort of market, proper? Vendor’s market, it’s tremendous aggressive. You need to be very aggressive, however costs are most likely going up.
Now we’re in a extra reasonable market the place costs are nonetheless going up, however you won’t should be as aggressive and also you may need extra negotiating leverage in your offers and in your bidding relating to demand, demand has remained comparatively unchanged. It’s confirmed very resilient despite excessive mortgage charges. We speak about mortgage charges. These I feel personally are going to stay fairly risky, and I’m not as optimistic as everybody else is that charges are going to return down within the subsequent couple of months. I might be flawed, however that’s my learn on the state of affairs. After which lastly, we’re seeing a pair small indicators of misery in a single pocket of the mortgage market that we’re going to regulate. Hopefully this sort of recap and evaluation is beneficial to you. I’d love to listen to your ideas on the housing market or what’s occurring in your particular market within the feedback under. Thanks all a lot for listening to this episode of the BiggerPockets podcast. We’ll see you subsequent time.