Are Our Predictions Already Wrong?

Dave:
Was I flawed in regards to 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 in regards to the housing market right this moment? We’re entering into it. So at a excessive stage, the housing market continues to defy expectations as costs enhance regardless of greater rates of interest, rising stock and renewed inflation issues. 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? Immediately we’re diving into our Q1 housing market replace. Hey everybody, it’s Dave and right this moment we’re looking across the whole trade. 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 info. 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 discuss in regards to the excessive stage stuff that everybody cares about, like mortgage charges, costs, stock, all that. First issues, first costs, not 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 fee is round 3.4%. A standard yr within the housing market is when it retains tempo with inflation, so that may be round 3% for final yr. So costs had been good in accordance with Redfin outpaced inflation in 2024, and that has continued not less than into the primary month right here of 2025. So actually regardless of the way you have a look at it, calls are saying that the market was crashing.
Not precisely true, however there’s something that we have to discuss that’s that costs have gotten fairly near the speed of inflation. And so when you concentrate on the housing market proper now, in right this moment’s day and age, it’s very useful to have a look at what are known as actual value adjustments and the time period actual in economics principally means inflation adjusted. So for those who’re trying 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 fee from appreciation, and in order that’s why you may hear folks say that costs are comparatively flat and I agree that they’re comparatively flat, they’re going up in nominal phrases, and for those who simply have 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 discuss this on a regular basis. Let’s have a look at what’s occurring at particular person property stage. One actually attention-grabbing growth right here that truthfully I didn’t suppose we might be at this level in 2025 we’d be this, however a brand new examine simply got here out once more from Redfin that exhibits that each single one of many 50 greatest 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 believe 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. If you happen to 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 can be all rising yr over yr.
That’s what I might say is kind 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 part 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 all the way down to 90% after which it bottomed out to about solely 40% of markets had 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 had been anticipating and we obtained used to seeing sure markets being in decline.
A variety of markets in Florida, a number of markets in Texas had been in modest corrections, nothing loopy, however Tampa was down half a % 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 growing. They’re nonetheless growing under the tempo of inflation. So that’s the key factor I need everybody to recollect right here. After I say Orlando is up 1.3%, yeah, costs went up, nevertheless it’s not retaining tempo with inflation. With, as buyers we would like, we would like our cash to not less than maintain tempo with inflation and it’s not taking place in Orlando, however costs are beginning to go up, which is a reversal of a development that’s price noting. On the opposite finish of the spectrum, we’re seeing markets develop like loopy. If you happen to had been to ask me three years in the past, may you see a setting the place three years from now we had 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 stated sure.
I wasn’t considering there was a crash, however that is beating my expectations proper now. Cleveland and Milwaukee, two Midwest cities which are sometimes referred to 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 large, large numbers and it’s necessary to keep in mind that the markets exterior 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 had been retaining tempo with Austin and Tampa from 2020 to 2022 and so they’ve simply kind of saved on this rocket ship journey, however they’re now kind of taking the expansion place, whereas a number 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 every one 50 out of fifty markets are rising on this setting.
So let’s transfer on from pricing and now discuss stock and simply as a reminder, stock is a good metric to trace. If you happen to solely have a look at a few issues within the housing market. Stock is one you wish to control as a result of it actually measures the steadiness between provide and demand. It offers 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 over the past couple of years. We’ve been in a vendor’s market and also you’re in a vendor’s market when there aren’t a number of properties on the market when there are extra consumers than there are sellers. This offers sellers energy out there. 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 amazing purchaser’s market, however a number of the dynamics, a number of the indicators that you simply search for to see a shift are beginning to change and that is necessary for buyers. The very first thing that we have a look at is one thing known 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% enhance from this time final yr. That’s fairly notable. It’s additionally represents practically a 50% enhance from the place we had been in 2022. Now every part must be taken right into a grain of salt. It’s nonetheless effectively under the place we had been in 2019 and earlier than the pandemic, however this exhibits that we’re slowly getting again to extra regular housing market situations 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 a number of consumers for only a few sellers that give sellers all the facility. That steadiness is beginning to shift again just a little bit extra. Now, once more, that’s on a nationwide foundation and there are some regional variations, however the enhance in stock is occurring considerably universally. If you happen to have a look at how issues have modified from January 24 to January 25, virtually 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 general, 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.
If you happen to had been going to see a crash, you’d see it not less than approaching these kind of ranges and in a number 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 actually modest. The higher metric, not less than in my thoughts to have a look at for those who actually wish 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 wish to perceive the place we’re right this moment, it’s good to check to that comparatively regular market. And once you do that evaluation, it seems very, very totally different. The entire northeast, the entire Midwest continues to be unfavorable. Really it’s nonetheless about 50% decrease than it was pre pandemic. That is taking place in New England, it’s taking place in West Virginia, in Virginia, in Wisconsin, in Michigan, in Illinois, in Indiana, in Ohio.
It’s taking place just about all over the place. And so maintain these items in thoughts. If you happen to see some media or information on the market saying stock’s up 25% from final yr, yeah, possibly it’s, however how does it examine to a standard market? It’s nonetheless 50% under, so that’s one thing to remember. There are nevertheless, some markets, and these are the markets that try to be cautious with the place stock is above pre pandemic ranges, and that is taking place primarily in Texas, it’s taking place in Florida, it’s taking place 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 a number 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 stated 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 control if stock in these markets maintain going up and up. If demand doesn’t maintain tempo, you would see a flattening of costs and happening in nominal ranges or you’ll be able to see a continuation of the place we’re at right this moment the place, yeah, costs are technically going up, however they aren’t retaining tempo with inflation, which as an investor shouldn’t be an amazing factor. All proper, so we’ve talked about costs, we’ve talked about stock. Once 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 couple of shift in a single key metric that has me questioning if my predictions could be just a little bit off for this yr.
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Hey everybody, welcome again to the BiggerPockets podcast. Immediately we’re giving our Q1 housing market replace. We’ve talked to this point about pricess, we’ve talked about stock. Subsequent, we’re going to discuss mortgage charges. That’s clearly going to have a really large impression on the route of the marketplace for the remainder of the yr. Now, the considerably excellent news about mortgage charges is that they’ve been comparatively steady not less than for the reason that 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 fee on a 30 yr fastened for an investor, it’s most likely a bit greater than that. It’s normally like 50 foundation factors greater, so most likely at 7, 7, 5, one thing like that. And that basically occurred on the potential of tariffs, which we’ll discuss in only a second. However now that these tariffs are totally on pause, they’re again all the way down to about 7%.
So I believe 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 situations the place the Fed is clearly going to decrease charges and there are different issues occurring within the bond market that may maintain mortgage charges excessive. I do know bond yields shouldn’t be everybody’s favourite matter, however let’s simply discuss it for a minute. This actually does matter. Principally, this all comes all the way 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 greater.
And there are principally two the explanation why buyers, bond buyers, the Fed are fearful that inflation will reignite. The primary is precise knowledge. 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 lots. It’s not going up like loopy, nevertheless it’s gone up 0.1%, 0.2%, and that’s not going to be massively detrimental to the financial system or something like that, however it’s a reversal of a development that’s fairly necessary, proper? We’ve all as group as buyers notably suffered via 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 only had a gathering in January and so they determined to not decrease charges. They saved them steady, which was largely anticipated. That wasn’t uncommon. Most markets nonetheless imagine that the Fed goes to decrease rates of interest a few times right here in 2025, and that might assist present some modest profit to mortgage charges.
However provided that the Fed might not decrease charges as a lot as we had been considering, in order that’s one factor. The second factor is that this complete scenario 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. If you happen to’re unfamiliar with the way it works, once you implement a tariff, let’s say a ten% tariff towards China just like the one which was carried out a few weeks in the past, meaning US-based corporations which are importing items from China, they must pay. The US firm has to pay 10% extra to import that good. That value typically will get handed alongside to US shoppers, which raises value for us shoppers not less than in a one-time inflationary occasion. This has bond buyers spooked about inflation and that retains bond yields excessive. And as we all know, mortgage charges aren’t tied to the federal funds fee.
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, not less than for now, and mortgage charges come again down. However the purpose I’m cautioning and advising buyers to not rely on charges happening 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 carried out 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 buyers and bond buyers who actually dictate mortgage charges simply don’t know what to anticipate till they know what to anticipate.
I believe we’re going to see a number of volatility within the mortgage market and we shouldn’t rely on charges coming down not less than within the subsequent three, six months. Might I be flawed? After all, 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 discuss what this implies as a result of I simply stated that stock was going up and that charges are most likely going to remain not less than within the 7% vary for not less than the subsequent couple of months. Does this imply that housing costs are going to melt? Once you have a look at this from an financial perspective, we have now to speak about this by way of demand, proper?
As a result of if provide goes up, we have to know if demand the quantity of people that wish to purchase these houses is staying constant or happening. As a result of if greater mortgage charges lowers demand, that might soften housing costs. But when demand stays comparatively robust, then we will anticipate housing costs to most likely keep considerably near the place they’re. So there are two ways in which we have a look at demand. None of them are good, however I like these two. One is one thing known 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 over the past yr. It’s been fairly steady for the final 15, 18 months and by some measures it’s truly been up just a little bit in January.
So regardless of charges staying comparatively excessive, demand exhibits fairly robust. Now that’s not an ideal measure, and so I wish to kind of cross-reference that with some non-public sector knowledge. So Redfin has a cool metric that measures demand on their platform. In order 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. They usually have this demand index. And what it exhibits is principally the identical factor. That demand has remained comparatively unchanged over the past yr. If we have 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 have a look at this example, you see that the housing market might be going to stay fairly just like the place it’s. Stock is up a bit, nevertheless it’s not going up like loopy. Or if the expansion fee shouldn’t be accelerating, demand is staying comparatively the identical, which is why I’ve been saying that I believe 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. After all, it’s going to range market to market, like we’re going to see some actually scorching markets, some slower markets, however my learn on the nationwide housing market actually hasn’t modified. Alright, we do must take a fast break, however once we come again, I’m going to speak a couple of shift in a single metric that we truthfully don’t discuss that a lot on the present that I believe has fairly large implications for the way forward for the housing market. However earlier than we do this and earlier than we go on the break, I wish to thank our sponsor for this phase. Merely they’re the all-in-one CRM constructed for actual property buyers. You’ll be able to automate your advertising skip hint at no 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 a number of the frequent metrics that we monitor on this present, however I wished to deliver your consideration to a really slight shift in a metric that we don’t discuss as a lot on this present, however I believe is tremendous necessary. And that is mortgage delinquency charges. Now, I don’t know the way shut you all take note of this type of stuff, however I’ve stated previously that if there’s going to be any kind of crash or vital correction within the housing market, we might know that it’s coming as a result of there can be a enhance in misery out there. And we will have a look at that in foreclosures. However foreclosures knowledge takes some time to return round, and I believe the higher factor to have a look at is mortgage delinquency charges.
That is principally how many individuals are falling behind on their regular mortgages. And I’ve stated previously that mortgage delinquency charges are very, very low. That’s nonetheless true on a broad foundation. If you happen to have a look at conventional mortgages, typical mortgages the place persons are placing 20% down, the efficiency of these loans are fairly good. They’re truly considerably close to historic lows. However for those who have a look at the subsections of this knowledge, you’ll be able to see that really two kinds of mortgages are beginning to see will increase in delinquencies, and that’s FHA mortgages and VA mortgages. These are sometimes decrease down cost kinds of mortgages that sometimes are utilized to decrease priced houses. Once you have 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 wish to examine our knowledge 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 hassle for some sections of the housing market.
Once more, if we had been going to see a broad unfold crash, we might see this knowledge altering throughout typical mortgages, throughout jumbo mortgages, throughout every part. We’re not seeing that typical mortgages are doing simply tremendous, however as a result of this represents a fairly vital shift from the place we’ve been over the past couple of years, I believe it’s one thing that all of us have to be keeping track of as a result of if delinquencies go up, that might result in what’s referred to as for promoting that might enhance stock in the marketplace. There may not be demand for these kinds of market, and it might put downward stress on pricing. Now, I don’t wish to be alarmist. I wish to be certain everybody is aware of that this can be a slight enhance, 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 developments earlier than they arrive mainstream and earlier than they begin impacting your entire 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 believe it’s attention-grabbing. It’s one thing I’m writing down as one thing to control 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 wish to say that once you have a look at the housing market and also you have a look at whole severe delinquencies, which is delinquencies, that are greater than 90 days late, that’s utterly unchanged from 2023 to 2024. So once more, trying on the large image, not tremendous severe. If you happen to have a look at the quantity of houses which have truly reached foreclosures, unchanged yr over yr.
So additional downstream, we’re not seeing an enormous drawback. 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 average to shut to even with inflation. However it does additionally imply as buyers that there could possibly 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. It’s a must to be very aggressive, however costs are most likely going up.
Now we’re in a extra average market the place costs are nonetheless going up, however you may not must be as aggressive and also you might need extra negotiating leverage in your offers and in your bidding on the subject of demand, demand has remained comparatively unchanged. It’s confirmed very resilient despite excessive mortgage charges. We discuss mortgage charges. These I believe personally are going to stay fairly unstable, and I’m not as optimistic as everybody else is that charges are going to return down within the subsequent couple of months. I could possibly be flawed, however that’s my learn on the scenario. 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 control. Hopefully this sort of recap and evaluation is helpful 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.