BiggerPockets Real Estate Podcast

Episode: Feb 2025 Housing Market Update: Are Our Predictions Already Wrong?
Release Date: February 14, 2025
Host: Dave Meyer

Introduction

In this episode of the BiggerPockets Real Estate Podcast, Dave Meyer delves into the Q1 2025 housing market, reassessing his previous predictions and exploring emerging trends that could influence the real estate landscape for the remainder of the year. He examines key metrics such as housing prices, inventory levels, mortgage rates, and mortgage delinquency rates, providing listeners with a comprehensive analysis to inform their investment strategies.

Housing Prices: Outpacing Inflation

Dave begins by addressing the resilience of housing prices amidst challenging economic conditions. According to Redfin data, "prices are still up a resounding amount, 4.8% year over year" (04:30). This rate surpasses the long-term average appreciation rate of 3.4% and inflation-adjusted growth, which stood at around 3% in the previous year.

He emphasizes the importance of understanding "real price changes," which adjust for inflation. "If you look at the case Shiller, and you say prices went up 3.8%, but inflation last year was 3.2%, then real prices really only went up 0.6%" (06:15). This distinction highlights that while nominal prices are increasing, their growth relative to inflation is modest, suggesting a more stabilized market than headline figures might indicate.

Moreover, Dave highlights an unusual trend: "every single one of the 50 biggest metro areas in the U.S. had year-over-year price growth" (08:45). This uniform growth across major markets, including traditionally slower ones like Cleveland and Milwaukee, signals a robust market performance despite higher interest rates and inflation concerns.

Inventory Levels: A Gradual Shift Toward Balance

Transitioning to inventory, Dave explains that the market is slowly moving away from the prolonged seller's market scenario. "Active listings are at about 900,000, which represents an 11% increase from this time last year" (10:05), and nearly a 50% increase from 2022. Although inventory remains below pre-pandemic levels, this upward trend suggests improving opportunities for buyers.

However, he cautions that in some regions, particularly Texas, Florida, Louisiana, Colorado, Idaho, and Utah, inventory has surpassed pre-pandemic levels. "If inventory in these markets keep going up and up, if demand doesn't keep pace, you could see a flattening of prices and going down in nominal levels" (12:25). This nuanced view underscores the importance of regional analysis when assessing inventory impacts on local markets.

Mortgage Rates: Stability Amidst Uncertainty

Dave shifts focus to mortgage rates, noting their relative stability since the election. "Mortgage rates have been relatively stable, at least since the election, back down to about 7%" (15:40). Despite a brief spike to 7.25% earlier in the year due to tariff uncertainties, rates have since moderated.

He remains cautious about predictions for decreasing rates, attributing this uncertainty to ongoing inflation fears and bond market dynamics. "We just don't see conditions where the Fed is obviously going to lower rates... the level of uncertainty in the mortgage market has been very high" (17:15). Dave advises investors to prepare for continued volatility, emphasizing that relying on rate decreases could be risky.

Demand Dynamics: Resilient Despite High Rates

Analyzing demand, Dave presents encouraging data. The Mortgage Purchase Index indicates that purchase mortgage applications have remained stable or slightly increased in January, despite high mortgage rates. "Demand shows pretty strong... remained relatively unchanged over the last year" (19:00).

Redfin's demand index corroborates this stability, showing only a marginal 1% year-over-year decrease, which Dave considers statistically insignificant. This resilience in demand suggests that housing prices may continue to hold steady in nominal terms, even if inflation-adjusted growth remains flat.

Mortgage Delinquency Rates: Early Warning Signs

In a noteworthy shift, Dave introduces mortgage delinquency rates as a critical, yet under-discussed metric. "FHA loans are now above 2019 levels... if delinquencies go up, that could lead to more foreclosures and increased inventory" (21:30). While overall delinquency rates remain low, the rise in specific segments like FHA and VA loans warrants attention.

Dave clarifies that broad-based distress indicators, such as delinquency rates across conventional mortgages, remain stable. However, the uptick in certain loan types could foreshadow localized stress in the housing market. "I don't think it's anything you need to be overly concerned about at this point, but it's something we are going to keep an eye on" (22:45).

Conclusions and Predictions

Dave concludes the episode by summarizing the key takeaways:

1. Housing Prices: Continue to grow nominally but are nearing alignment with inflation rates, indicating relative stability.
2. Inventory: Increasing gradually, moving toward a balanced market, though some regions may experience oversupply.
3. Mortgage Rates: Likely to remain volatile around the 7% mark due to persistent inflation fears and economic uncertainties.
4. Demand: Remains robust, supporting ongoing housing price growth.
5. Delinquency Rates: Slight increases in certain mortgage segments could signal emerging challenges, necessitating careful monitoring.

"I personally think that [housing prices] are going to remain pretty similar to where they are" (24:15), Dave reiterates his forecast that nominal price growth will persist, albeit more modestly when adjusted for inflation. He encourages investors to stay informed and adapt strategies to navigate the evolving market dynamics.

Engagement and Feedback

Dave invites listeners to share their perspectives on the housing market and local developments in the comments below, fostering a community of informed and proactive real estate investors.

Notable Quotes

• Housing Prices Growth:
  "Prices are still up a resounding amount, 4.8% year over year."
  — Dave Meyer 04:30

• Real Price Changes Explained:
  "Real prices really only went up 0.6%. You subtract the inflation rate from appreciation."
  — Dave Meyer 06:15

• Uniform Market Growth:
  "Every single one of the 50 biggest metro areas in the U.S. had year-over-year price growth."
  — Dave Meyer 08:45

• Inventory Increase:
  "Active listings are at about 900,000, which represents an 11% increase from this time last year."
  — Dave Meyer 10:05

• Mortgage Rate Stability:
  "Mortgage rates have been relatively stable, at least since the election, back down to about 7%."
  — Dave Meyer 15:40

• Demand Resilience:
  "Demand shows pretty strong... remained relatively unchanged over the last year."
  — Dave Meyer 19:00

• Monitoring Delinquency Rates:
  "I don't think it's anything you need to be overly concerned about at this point, but it's something we are going to keep an eye on."
  — Dave Meyer 22:45

• Final Forecast:
  "I personally think that [housing prices] are going to remain pretty similar to where they are."
  — Dave Meyer 24:15

Conclusion

This episode provides a nuanced analysis of the current housing market, highlighting both positive trends and emerging challenges. Dave Meyer's insights offer valuable guidance for real estate investors aiming to navigate the complexities of the 2025 market. By emphasizing the importance of monitoring key metrics and adapting to regional variations, listeners are equipped to make informed investment decisions in an evolving economic landscape.

Note: Timestamps are indicative based on the transcript provided and serve to attribute quotes accurately within the summary.