Signs the Housing Market is Becoming “Healthier” in 2025 - BiggerPockets Real Estate Podcast

Summary

BiggerPockets Real Estate Podcast Summary

Episode: Is The Housing Market Healthy?
Release Date: May 8, 2025
Host: Dave Meyer, Head of Real Estate at BiggerPockets

Introduction and Context

In this insightful episode, Dave Meyer tackles the pressing question: Is the current housing market healthy? Amidst a landscape fraught with news, noise, and confusion, Dave seeks to unravel the complexities of the real estate market by evaluating its health using a set of defined criteria. Drawing inspiration from Logan Motashami, a respected housing market analyst from Housing Wire, Dave embarks on a thorough analysis to determine the market's true state.

“Despite all the news and the noise and the confusion, could we actually be in a healthy housing market right now? Today we're going to find out.” — Dave Meyer [00:00]

Defining a Healthy Housing Market

To assess the market's health, Dave establishes five key criteria that collectively define a balanced and robust housing ecosystem:

Balance Between Supply and Demand: A healthy market requires an equilibrium where the number of buyers and sellers is relatively equal. This balance ensures stable transaction volumes and prevents drastic price fluctuations.
Prices Keeping Up with Inflation: Historically, home prices have appreciated at a rate of 2-3%, aligning with inflation. Maintaining this pace prevents market overheating and ensures sustainable growth.
Reasonable Levels of Affordability: Housing should remain accessible to the average American, facilitating wealth building and societal stability. Excessive price surges leading to unaffordability are detrimental.
Solid Transaction Volume: Active buying and selling are vital for economic vitality. High transaction volumes contribute significantly to the national GDP and reflect market dynamism.
Low Rates of Distress: Minimal delinquencies and foreclosures indicate financial stability among homeowners, reducing market volatility and economic strain.

“A good balance between supply and demand, prices keeping up with inflation, reasonable affordability, solid transaction volume, and low rates of distress.” — Dave Meyer [05:40]

Current Housing Market Analysis

Dave critically examines the current market against the established criteria, revealing a mixed picture:

1. Balance of Supply and Demand

Inventory Levels: There's a positive trend with inventory rising by 32% year-over-year, though still below pre-pandemic levels.
Days on Market: The average days on market has decreased to 53 days, nearing the typical 60 days, indicating improved balance.

“Days on market, which is another good measure of the balance of supply and demand, is actually pretty darn close to pre pandemic levels.” — Dave Meyer [12:15]

Conclusion: Met — The market is approaching a healthier balance between supply and demand.

2. Prices Keeping Up with Inflation

Home prices are currently keeping pace with inflation, averaging around 0.5% above the inflation rate in most markets.

“Prices are keeping up with inflation. Yeah, pretty much. They’re pretty darn close.” — Dave Meyer [13:00]

Conclusion: Met — Price stability aligns with inflation, supporting market health.

3. Transaction Volume

Current Sales: Averaging 4 million home sales per year, which is 30% below the healthy benchmark of 5.25-5.3 million.

“We are averaging about 4 million home sales per year right now. That sounds like a lot. It’s not compared to normal, healthy markets.” — Dave Meyer [13:45]

Conclusion: Not Met — Transaction volume remains significantly below healthy levels.

4. Affordability

Affordability metrics are at historic lows, with high mortgage rates and elevated home prices persisting.

“We are still near historic lows for affordability. It has actually flattened out, so it’s not actively getting worse.” — Dave Meyer [14:30]

Conclusion: Not Met — Housing remains largely unaffordable for the average buyer.

5. Rates of Distress

Foreclosures and Delinquencies: Remain low overall, maintaining financial stability within the housing sector.

“If you look at the sort of the big picture, you zoom out. Foreclosures are still really low. Delinquencies are still pretty low.” — Dave Meyer [15:10]

Conclusion: Met — Low rates of distress signal financial health among homeowners.

Logan Motashami's Perspective

Dave revisits Logan Motashami's article, which posits that the housing market in 2025 is healthier than in recent years. Logan highlights several positive trends:

Year-over-Year Pending Sales Growth: Despite higher mortgage rates, transaction volume is modestly increasing.
Resilient Demand: The Mortgage Purchase Index remains elevated, indicating sustained buyer interest.
Rising Inventory: Increased home listings contribute to better supply conditions.

“Inventory is rising. The number of homes for sale at any given point is up 32% over last year.” — Dave Meyer [07:10]

Conclusion: While these points indicate movement towards normalcy, they are insufficient to declare the market healthy.

Dave Meyer's Conclusion on Market Health

After a comprehensive evaluation, Dave concludes that the current housing market is not yet healthy but is moving in the right direction. Out of the five criteria, three are met:

Balance Between Supply and Demand
Prices Keeping Up with Inflation
Low Rates of Distress

However, Transaction Volume and Affordability remain significant challenges. Dave emphasizes that improving affordability is crucial for enhancing transaction volumes, which in turn could lead to a genuinely healthy market.

“Overall, as we're asking ourselves in this bonus episode, are we in a healthy housing market? I would say no, but we are moving in the right direction.” — Dave Meyer [16:50]

Investment Implications

Dave offers a nuanced perspective on investing in the current market. He notes that a healthy housing market does not inherently mean high investability. Historically, some of the best investment opportunities have arisen during periods of market uncertainty and distress.

“Healthy markets can be great times to invest, but often what you see is the best opportunities come during these periods of uncertainty.” — Dave Meyer [18:20]

Investors should remain vigilant, as the current environment presents short-term opportunities amidst the broader challenges of a not-yet-healthy market.

Final Thoughts and Upcoming Episodes

Dave wraps up by reiterating the importance of monitoring ongoing trends and upcoming updates. He anticipates that economic factors such as mortgage rates and wage growth will play pivotal roles in shaping the housing market's trajectory.

“I do think it's super unclear when these last two criteria are going to improve. I do think that they will happen eventually and they'll happen together.” — Dave Meyer [19:00]

Listeners are encouraged to stay tuned for the upcoming May Housing Market Update, where Dave will delve deeper into regional performances and future outlooks.

Key Takeaways:

The current housing market meets three out of five health criteria.
Balance and price stability are improving, but transaction volume and affordability remain problematic.
Investment opportunities are still viable, particularly amidst market uncertainties.
Future market health is contingent on improving affordability and transaction volumes.

For more detailed insights and upcoming analyses, subscribe to the BiggerPockets Real Estate Podcast on your preferred platform.

Transcript

Dave Meyer (0:00)

Is this Housing market healthy? Despite all the news and the noise and the confusion, could we actually be in a healthy housing market right now? Today we're going to find out. Hey, what's going on everyone? It's Dave, head of real estate investing at Biggerpockets, and I was recently reading this article from a housing market analyst who I really respect and I follow closely. He's also been on the show a couple of times. His name is Logan Motashami. He works for Housing Wire and I follow and have been following Logan for a long time because like me, he's a data guy and he doesn't say things just for clicks or hype. He just calls it like he sees it and has a very long proven track record of really good forecasting. So when I saw a recent headline from him that was titled why the Housing Market Is actually much healthier in 2020, it really made me think, are we actually in a healthy housing market right now? I know that might seem crazy because everything feels crazy and confusing, but is there actually some truth to this? I decided to dig in and I thought about this question a lot. I did some research and in this episode I'm going to share with you the conclusions I came with. And just a reminder, this right here is an audio only bonus podcast episode of the Bigger Pockets podcast. We're dropping them on some Thursdays with my commentary on the housing market market in additional to our usual Monday, Wednesday and Friday episodes. So make sure you're subscribed to this podcast feed so you don't miss any of these bonuses. So when talking about a quote unquote healthy housing market, the first thing we need to cover and discuss is what is a healthy housing market in the first place? What makes a market healthy? I actually sat down and thought about this for a while because I had never really put pen to paper and defined it before. But I came out with five basic criteria. Number one is a good balance between supply and demand. And this basically means that we have relatively equal numbers of both buyers in the housing market and sellers. And this can be measured in a couple of different ways. You've probably heard me or other people talk about this, or maybe you track them yourself, but these are things like inventory, days on market and months of supply. But basically, whatever way you measure it, it's just the idea that you need a solid amount of both buyers and sellers to make a healthy housing market and have enough transaction volume and not have pricing moving too far in either direction, either going up too fast or going down. My second criteria is that prices at least keep up with inflation. This is actually historically what is normal for the housing market. We have seen periods recently during the pandemic or even really since the Great Recession where prices have outpaced inflation. But if you look back historically, the average appreciation on Homes is 2 or 3% about the pace of inflation. And to me, as an investor and someone who cares about housing in this country, I think that's a very good number. It has to at least keep pace with inflation. We don't want prices going down, but on the same rate, I don't think we really want prices going crazy. That leads us to these unaffordable markets like we see right now. That leads me to my third criteria, which is reasonable levels of affordability. Some investors might love seeing prices go crazy. I personally don't think it's healthy for that to be happening. And I think we need the average American to be able to buy the average price home. That's just good for our society. It's good for wealth building. And I think it's sort of a key component of a healthy housing market. Number four is solid transaction volume. I know that for a lot of casual observers of the real estate market, they just look at prices or prices going up, that's good. Are prices going down, that's bad. Or maybe you want prices to go down, I don't know. But most people just look at prices. I believe that you need a reasonable amount of transaction volume. You need homes to be bought and sold. This is key for a healthy market. Anyone who's an agent, anyone who's a loan officer already knows this because their whole business depends on it. But this is important for the whole country. Housing makes up about 16% of our GDP of total economic output for the country. And so what? Housing. To be a pillar of our society and our economy, which I think we do, we need homes to be bought and sold. So that's number four. And then the last one is just low rates of distress, right? We can't have a lot of delinquencies in the market. We can't have a lot of foreclosures in the market. People who are not paying their mortgages or, you know, are being forced to sell their property at inopportune times, we can't have those. So those are the five criteria. Just as a reminder, it's a good balance between supply and demand, prices, keeping up with inflation, reasonable affordability, solid transaction volume, and low rates of distress. And by these criteria, the housing market has not been healthy at all in recent years. Think about 2022 to now. We are missing at least three of the five criteria. Supply and demand. Balance. No, it has been a strong seller's market for five plus years. So we definitely haven't had balance transaction volume. It's terrible. It's down 50% from 2022, it's down 30% from what is normal. So I would definitely say we're failing on that one. Affordability, it is close to the worst we have seen in 40 years. So those three right there, three criteria that we are missing, we are and have been hitting the other two, which is prices keeping up with inflation. They have done that at least and more for many, many years now. And we have also had low rates of distress. That's actually been a bright spot for the housing market. And despite the fact that that the housing market is sort of softening, that continues to be one of the bright spots for the housing market. It has been a signal of health. So all this to say, I wouldn't blame anyone for thinking that the idea that we're in a healthy housing market is just absolutely insane given where we've been in the last few years. But Logan, getting back to the article that sort of brought about this episode, Logan has some points here that I want to share. In just the last few weeks, we have now seen year over year pending sales growth. So that means despite higher mortgage rates, we're actually starting to see transaction volume go up on a year over year basis. And just so you know, I tend to like year over year data when I look at the housing market because it is a seasonal market. And so we need to compare March to March, April to April. That's the best way to look at sort of long term trends and patterns in the housing market. And what we're seeing, it's not a lot, but it is modest growth in sales volume in just the last few weeks. The second thing that's gone on is even though mortgage rates have really gone up and stayed higher than a lot of people were calling for and expecting, demand has actually remained pretty high. It's up year over year. I like to measure demand in the housing market by looking at something called the Mortgage Purchase Index. It's basically how many people are applying to buy new homes right now. And that is still up. And so that's encouraging as well. The last thing is that inventory is rising. The number of homes for sale at any given point is up 32% over last year, still well below pre pandemic levels. But if we want to tick one of those boxes in my criteria for a healthy housing market, we need more supply and supply is going up. So all of these are pretty good points here. And I should mention that this article talks about a lot of the points and data that we share with you or I share with you every month in our housing market updates and I am working on that one for May. That will be out in a couple of weeks. But if you want to know in depth more what's going on with inventory, pending demand, all of that, I'm going to give a really detailed update on that in just a couple of weeks. But back to our article here. What Logan has pointed out is that even though we're not sort of back to pre pandemic levels, things are moving back towards something that resembles at least normality. But does that make it healthy? Are we actually in a market that is good and healthy? We do have to take a quick break, but I'll give you my take when we get back.