Transcript
Dave Meyer (0:00)
Was I wrong about the 2025 housing market? Most of my predictions have been reliant on this one metric, not shifting that much. But just a month into 2025, it's starting to shift. So what does that mean about the housing market today? We're getting into it. So at a high level, the housing market continues to defy expectations as prices increase despite higher interest rates, growing inventory and renewed inflation concerns. But will that continue? Or do the shifts that I'm seeing in this one key metric I've been telling you all to pay attention to mean that the market is heading for a downward shift? Today we're diving into our Q1 housing market update. Hey everyone, it's Dave. And today we're taking a look around the entire industry. We're talking about inventory, we're talking about interest rates, and again, we're going to talk about this one metric that has me questioning my own predictions for the year. I'm going to report on the data, I'll give you my analysis and opinion and I will make some updated predictions on how this year is going to shape up. Let's get into it. We're going to start with the basics and just talk about the high level stuff that everyone cares about like mortgage rates, prices, inventory, all that. First things first, prices, at least according to Redfin, are still up a resounding amount, 4.8% year over year. Just for reference, the average, the long term average appreciation rate is around 3.4%. A normal year in the housing market is when it keeps pace with inflation. So that would be around 3% for last year. So prices were good, according to Redfin, outpaced inflation in 2024. And that has continued at least into the first month here of 2025. So really, no matter how you look at it, calls are saying that the market was crashing. Not exactly true, but there is something that we need to talk about that is that prices are becoming pretty close to the rate of inflation. And so when you think about the housing market right now, in today's day and age, it's very helpful to look at what are called, quote unquote, real price changes. And the term real in economics basically means inflation adjusted. So if you're looking 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%. Right. You subtract the inflation rate from appreciation. And so that's why you might hear people say that prices are relatively flat. And I agree that they are relatively flat. They are going up in nominal terms. And you know, if you just look at the dollar amount, yes, they're going up, but in inflation adjusted terms, they are relatively flat. So that's on the national level. And of course, real estate is super local. We talk about this all the time. Let's look at what's going on an individual property level. One really interesting development here that honestly I didn't think we would be at this point in 2025, we'd be looking at this. But a new study just came out again from Redfin that shows that every single one of the 50 biggest metro areas in the U.S. every single one, had year over year price growth. And this is pretty unusual. It happened during the pandemic. But I think we can all agree that what was going on during the pandemic was pretty unusual and that we shouldn't be basing our expectations of future performance for the housing market on what was going on back then. If you look back to 2018, yeah, sometimes you saw, you know, all 50 of 50 top markets. But in the years and months leading up to the pandemic, it was like 43, 45 out of the top 50 would be all growing year over year. That's what I would say is sort of normal. 80, 90% of housing markets in the United States are growing. A couple of them are just experiencing normal fluctuations. This is just how normal markets work. Then during the pandemic, we all know everything was growing. You just couldn't miss. But that changed when interest rates started to go up. And we saw that go from 100% of markets down to 90%. And then it bottomed out to about only 40% of markets were growing year over year in 1H20. And it's slowly been recovering. And now just as of the last month of 2024 was the first time since back in late 2021, since we've had 50 out of 50. So this is pretty unusual. Just a couple of months ago, we were expecting and we got used to seeing certain markets being in decline. Right. A lot of markets in Florida, a lot of markets in Texas were in modest corrections. Nothing crazy, but, you know, Tampa was down half a percent or Austin was down probably the most of any place in the country at 3 or 4%. Saw Jacksonville, San Antonio. Now all those markets are modestly increasing. They're still increasing below the pace of inflation. So that is the key thing I want everyone to remember here when I say Orlando is up 1.3%. Yeah. Prices went up, but it's not keeping pace with inflation, which as investors we want, right? We want our money to at least keep pace with inflation. And it's not happening in Orlando. But prices are starting to go up, which is a reversal of a trend that is worth noting. On the other end of the spectrum, we're seeing markets grow like crazy. If you were to ask me three years ago, could you see a environment where three years from now we are seeing double digit price appreciation even though mortgage rates have been at 7% or above 7% for several years, there's no way I would have said yes. I wasn't thinking there was a crash. But this is beating my expectations right now. Cleveland and Milwaukee, two Midwest cities that are typically known as cheaper housing markets with lower appreciation. Both are at 15% year over year growth. That is insane. Philadelphia, 14%, Chicago 11%, Miami 12%. These are massive, massive numbers. And it's important to remember that the markets outside of Miami, the other four that I am mentioning here, are markets that grew slower during the pandemic. So it's not like they were keeping pace with Austin and in Tampa from 2020 to 2022, and they just sort of like kept on this rocket ship ride, but they are now sort of taking the growth position, whereas a lot of these other markets that grew really quickly during the pandemic are slowing down. But again, pretty crazy to see that all 50 out of 50 markets are growing in this environment. So let's move on from pricing and now talk about inventory. And just as a reminder, inventory is a great metric to track if you only look at a couple of things. In the housing market, inventory is one you keep an eye on because it really measures the balance between supply and demand. It gives you a good sense of where prices are going to go, where transaction volume is going to go in a given housing market. And inventory, just as a reminder, context has been really low over the last couple of years. We've been in a quote, unquote, seller's market. And you're in a seller's market when there aren't a lot of properties for sale, when there are more buyers than there are sellers. This gives sellers power in the market, right? They have the ability to negotiate. It's why we saw for years people bidding over asking prices or waiving inspections or waiving their contingencies. It's because we're in a seller's market that though, is starting to shift. Not a ton. We are still not in like a great buyer's market. But some of the dynamics, some of the indicators that you look for to see a shift are starting to change. And this is important for investors. The first thing that we look at is something called active listings. That's just how many homes, properties are for sale at a given point. And right now it's at about 900,000, which represents an 11% increase from this time last year. That's pretty notable. It's also represents nearly a 50% increase from where we were in 2022. Now, everything needs to be taken in a grain of salt. It is still well below where we were in 2019 and before the pandemic. But this shows that we are slowly getting back to more normal housing market conditions where there are more properties for sale. And we'll get to this more in just a couple of minutes. But that indicates to me that there are going to be better buying opportunities. Right. We are in this scenario where there are a lot of buyers for very few sellers that give sellers all the power. That balance is starting to shift back a little bit more. Now, again, that is on a national basis and there are some regional differences, but the increase in inventory is happening somewhat universally. If you look at how things have changed from January 24 to January 25, almost every market in the country has seen an increase in inventory. There are some random small, low population markets in North Dakota and South Dakota and Montana that have seen a decline. But overall, basically the whole country is seeing this reversion back to normal. And again, this isn't something I personally worry about that much. I'm not breaking out because, oh, inventory is going up. We're going to see some market crash. We're not even back to normal. We're not even back to 2019 levels. If you were going to see a crash, you would see it at least approaching those sort of levels. And in a lot of markets like in New York, in the Northeast, in the Midwest, they're going up, but they're just going up 10%, 20% year over year, which is really modest. The better metric, at least in my mind, to look at, if you really want to examine inventory in your local area, is to compare how inventory was in, let's say, January of 2019 to January of 25. Right. Because January 2019 was a relatively normal housing market. If we want to understand where we are today, it's good to compare to that relatively normal market. And when you do this analysis, it looks very, very different. All of the Northeast, all of the Midwest is still negative. Actually, it's still about 50% lower than it was pre pandemic. This is happening in New England. It's happening in West Virginia, in Virginia, Wisconsin, in Michigan, in Illinois and Indiana and Ohio. It's happening pretty much everywhere. And so keep these things in mind. If you see some media or news out there saying inventory is up 25% from last year, yeah, maybe it is. But how does it compare to a normal market? It's still 50% below. So that is something to keep in mind. There are, however, some markets, and these are the markets that you should be careful with, where inventory is above pre pandemic levels. And this is happening primarily in Texas. It's happening in Florida. It's happening a bit in Louisiana. And there are also places in Colorado, like in Denver, where I invest, some places in Idaho. We're seeing it in Utah in a couple of places. So a lot of the places that grew super rapidly during the pandemic are now seeing a reversion, right? Not just a reversion back to 2019 levels, but we are seeing inventory go above 2019 levels. Now, of course, I just said a couple of minutes ago that prices are going up in every market. So it's not leading to a crash, but it is something to keep an eye on. If inventory in these markets keep going up and up, if demand doesn't keep pace, you know, you could see a flattening of prices and going down in nominal levels, or you can see a continuation of where we're at today, where, yeah, prices are technically going up, but they are not keeping pace with inflation, which, as an investor, is not a great thing. All right, so we've talked about prices, we've talked about inventory. When we come back from our break, I'm going to talk about everyone's favorite topic, mortgage rates. And we're going to talk about a shift in one key metric that has me wondering if my predictions might be a little bit off for this year. But before we take our break, I also want to remind everyone of one other thing, which is that the Bigger Pockets Conference, bpcon is back. We're heading to Las Vegas, and tickets are now on sale with early bird pricing. You could save 100 bucks with early bird pricing and get all the amazing benefits. 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