The 2024 Housing Market in Review

Dave:
In case you’re gearing up for a profitable investing 12 months in 2025, you’ll want to know what occurred within the final 12 months. As we speak I’m recapping the most important tendencies and storylines from one of many wildest years the housing market has ever seen 2024. Hey everybody, it’s Dave and welcome to the BiggerPockets podcast. In case you’re something like me, you’re most likely winding down your 12 months and beginning to stay up for all of the offers you’re hoping to do in 2025. However earlier than you try this, at the very least for me, I discover it very useful to simply take a minute to step again and look again on the 12 months. That was as a result of it helps inform what we’re going to do within the 12 months to return. So at present I’m going to interrupt down a very powerful storylines that you just all must know from the residential actual property market, the industrial actual property market, and I’ll additionally present some updates on the rental market as effectively.

Dave:
Earlier than we get into it, I simply need to say hold an eye fixed out in your feeds the following couple of weeks as a result of at present we’re going to be type of setting the stage for what has occurred, however in every week or two, we’re going to be dropping a brand new episode the place we make predictions on what we predict would possibly occur in 2025. So make certain to examine that one out as effectively. All proper, let’s get into our 12 months in overview, which as I mentioned, begins with residential actual property, which is mainly any constructing that has 4 items or fewer. We’ll be speaking in regards to the larger stuff somewhat bit later within the episode. So on the subject of residential actual property 2024, one of the simplest ways to explain the housing market was simply sluggish. There was extraordinarily low gross sales quantity. So in case you’ve been trying on the market attempting to leap in and also you simply really feel like issues are caught and actually slowed down, you’re completely proper.

Dave:
This 12 months is definitely poised to finish at an annualized fee of simply 3.8 million residence gross sales. That is for current houses. That doesn’t rely new development, and that may sound like so much as a result of about nearly 4 million residence gross sales is quite a bit, however it’s effectively under the long-term common over the past couple of many years. Usually, we might anticipate one thing extra like 5 and 1 / 4 million, 5.25 million, and I feel that one of many issues that’s occurring proper now could be that it feels even slower than that as a result of simply a few years in the past through the pandemic period as I imply primarily in 2020 and 2021 residence gross sales have been really effectively above that long-term common. We have been at about 6 million houses. It reached the height at 6.7 million houses in October of 2020, and now we’re down under 4 million. So this has dropped greater than 50% within the final 4 years.

Dave:
So in case you’ve gotten into actual property within the final couple of years, the dynamics of the market have utterly modified to 1 that has so much slower. And the explanation for this slowdown is truthfully fairly easy, proper? House consumers and residential sellers, each side of this market are turning away from the market. For my part, and that is simply my opinion, however I feel it’s largely attributable to low affordability. We speak about affordability so much on this present, however in case you don’t know the definition, it mainly simply means how simply the common American can afford the common value residence within the nation. There are other ways to measure this, however in accordance with the US Fastened Housing Affordability Index, that could be a complete mouthful, nevertheless it’s one thing that NAR, the Nationwide Affiliation of Realtors retains observe of. Based on this index, we’ve got a rating of a 98, which is just about the bottom it’s been for the reason that mid Nineteen Eighties.

Dave:
So we’re at close to a 40 12 months low when it comes to affordability and simply once more, one of many themes that I need to name out right here is we’re not simply seeing a giant distinction from long-term averages. In the course of the pandemic, issues have been actually good and now they’ve gone to actually unhealthy. So the distinction feels actually, actually excessive and low affordability, the primary factor that it does is drives down demand. Individuals who need to purchase houses not can afford the houses that they need, and they also sit on the sidelines and don’t take part within the housing market. Based on the Nationwide Affiliation of House Builders, there are literally 103 million American households at the moment priced out of the housing market, and I feel this can be a actually essential be aware for everybody to concentrate to right here. After we speak about economics, you hear this phrase demand, proper?

Dave:
And I feel lots of people assume that demand simply means the will to purchase a house or the will to purchase something, nevertheless it’s really a mixture of the will to purchase one thing and the flexibility to purchase one thing. And so we’re seeing a breakdown in demand within the housing market, not as a result of folks don’t need to purchase homes, however as a result of they’ll not afford to purchase homes. And really while you dig into the numbers and surveys and all this different stuff, simply as many individuals need to purchase houses as they at all times have. In actual fact, I used to be taking a look at this text the opposite day from CNN, they did a ballot and it confirmed that 90% of American renters below the age of 45 need to purchase a house. They simply can’t afford it. And so this reveals two issues. One, why the market is sluggish, which is what we’re speaking about, however as we’ll speak about later and in future episodes, this additionally bodes effectively for the long-term prospects of the housing market as a result of folks, People nonetheless need to purchase houses.

Dave:
That demand decline due to low affordability, I feel is smart to lots of people. The opposite factor although, that affordability, low affordability does to the housing market is that it constrains provide. In different phrases, it simply causes much less folks to listing their houses in the marketplace on the market, which means that there’s much less choices for consumers. And this is among the most original components of the housing market as a result of sellers within the housing market, 78% of them, nearly all of them go on to purchase a brand new residence, proper? You promote one, you then go purchase one other one. And in order that implies that when residence shopping for situations are unhealthy like they’re now, that implies that residence promoting situations additionally develop into fairly unappealing. Folks don’t need to promote their houses proper now as a result of they don’t need to promote it, get all this cash after which go have to speculate that cash again into the market in an adversarial manner, proper? And this dynamic, which is off, you’ve most likely heard this referred to as the lock in impact within the media, however this dynamic might be seen very plainly in new itemizing knowledge. Principally, since charges spiked in 2022, so much fewer individuals are itemizing their houses on the market. We’ll get into the implications of this and speak about some regional distinction within the residential housing market proper after this break.

Dave:
Hey everybody, welcome again to the BiggerPockets podcast. In order I used to be saying, much less individuals are itemizing their houses on the market, and that’s mainly offsetting the decline in demand. We’ve got these two counteracting forces, however they’re each dropping on the similar time. This mainly permits costs to remain comparatively steady or go up. If you wish to put this one other manner, despite the fact that numerous consumers have dropped out of the market attributable to low affordability, there are nonetheless extra consumers than sellers within the housing market proper now, which retains costs rising considerably steadily. And this is the reason regardless of all these calls on YouTube or within the media that the housing market was going to crash, the housing market hasn’t crashed. It hasn’t even corrected as of September, 2024. I’m recording this in mid-November, however that is the final month we even have knowledge for with September, 2024.

Dave:
The median residence value within the US is a whopping $429,000, which is up 4% over the earlier 12 months. So once more, regardless of the sharp drop in demand, there are nonetheless extra consumers than sellers, at the very least on a nationwide stage. Alright, in order that was our nationwide stage evaluation, and I do assume it’s tremendous essential to have a look at these broad US stage tendencies to get a way of the massive image, however after all, actual property is type of inherently native and there are literally thousands of totally different housing markets throughout the US. And to completely get an image of what’s occurring, we have to go somewhat bit deeper and have a look at some regional and native tendencies. Now, after all, I don’t have time to speak about each area within the nation, so I’m going to make some broad generalizations about what’s occurring that can assist you perceive type of a map of the US and the place issues are nonetheless actually scorching, the place issues are slowing down and all of that.

Dave:
So the areas of the nation the place we’re seeing the strongest value appreciation are literally sort of surprisingly within the northeast and the Midwest. Once I was taking a look at this the opposite day, really, I used to be taking a look at a few of the quickest rising counties in the US, and 5 out of the highest eight have been the suburbs of New York Metropolis. We see numerous western new and central New York, Connecticut has a few of the hottest markets, Rhode Island, these usually are not locations in my investing profession which can be sometimes as scorching as this, however there are areas the place there may be not numerous provide, and so costs are going up. The identical factor is happening in numerous the Midwest. In case you have a look at Indiana, Ohio, Michigan, elements of Illinois, elements of Kentucky, we’re seeing numerous development in these areas. Once more, attributable to provide constraints.

Dave:
A number of the sometimes hotter areas within the nation are literally beginning to decelerate, and a few of them are literally seeing corrections. So most notably Florida as a state has really seen costs decline, nevertheless it’s actually delicate. It’s like 1% value declines in Florida. There are particular markets in Texas the place costs have decline, and I really assume Louisiana does see have numerous markets the place costs are declining as effectively. And so it’s laborious to type of generalize the entire Southeast, but when I needed to, I’d say that states which can be alongside the Gulf coast, once more, Texas, Louisiana and Florida, these are the locations which can be experiencing the softest housing markets. Now it’s essential, and each time I speak about this, I actually assume it’s essential to caveat that these markets have been a few of the quickest rising over the past couple of years. So in case you’re evaluating these states to say 2019 ranges within the housing market, they might nonetheless most likely be two or three of the very best states on the market.

Dave:
What I’m speaking about proper now could be simply 12 months over 12 months from September, 2023 to September, 2024. If you have a look at the west coast, you really see a combined bag. So there are elements of Washington, Oregon, northern California which can be seeing declines the place Southern California is doing fairly effectively. Idaho is doing fairly effectively. Elements of Colorado and New Mexico are nonetheless doing effectively. So it truly is a combined bag on the west, the extra outlined tendencies are taking place on the east and the southeast of the nation. In order that’s in regards to the regional dialogue that we’re going to have at present. If you wish to know extra about what’s occurring in particular areas of the nation, you may at all times go try our sister podcast in the marketplace. We discuss so much on that present about what’s occurring in numerous states, particular cities, all of that. However for us at present on this episode, I’m really going to change now from residential actual property to industrial actual property.

Dave:
And once more, the definition right here, we’re not speaking about workplace right here, we’re not speaking about retail after we’re speaking about industrial actual property. I’m principally centered on residential actual property right here which can be properties with 5 items or extra. And I do know that this isn’t at all times the bread and butter for everybody who’s listening to this podcast. I personally spend money on each residential and industrial actual property, however I feel no matter whether or not you really spend money on industrial actual property, it’s essential to know what’s occurring in that sector of the market as a result of it does have some overlap and spill over into the residential market, which we’ll speak about in a second. If you wish to know what’s occurring within the industrial actual property market briefly, it’s in a crash. There are particular sub-sectors of economic like retail, warehousing, industrial that’s doing okay, however for multifamily particularly what we’re speaking about right here at present, property values have declined round 15% nationally and have declined by much more in sure elements of the nation.

Dave:
Principally what’s gone on right here is that through the actually massive unusually excessive demand development for housing items from 2020 to 2022, through the depths of the pandemic development of multifamily exploded on a nationwide foundation, builders mainly noticed, they noticed rising rents, they noticed robust absorption, which mainly implies that new house buildings are getting leased up rapidly. So that they noticed these mixture of issues they usually simply began constructing like loopy. It was one of many largest booms of multifamily improvement in US historical past, however as a result of multifamily properties, they’re larger, they take longer to finish. The influence of that constructing increase is simply being felt proper now. It really began in 2023. We began to see supply of recent items beginning to peak, nevertheless it’s actually coming to a head right here within the second half of 2024. So in accordance with RealPage, which is only a actual property analytics agency, we’re really at a 50 12 months excessive for multifamily unit development, which is basically loopy to consider.

Dave:
It’s really going to decelerate as we head into 2025, which we’ll speak about in only a minute. However what’s essential for us to know at present is that we’re nonetheless within the midst of this big short-term glut of provide. There’s mainly simply tons of residences hitting the market, and this has pushed emptiness charges again above pre pandemic ranges the place they’re really anticipated to remain for one more 12 months or two. Now, emptiness, in case you’re an skilled investor, you understand that emptiness kills all offers. That rising emptiness additionally places downward stress on hire development as a result of mainly there’s all these folks, buyers who personal multifamily properties they usually’re competing for tenants in actually oversaturated markets. And what occurs the best way that property homeowners and landlords compete is that they decrease rents or they provide concessions like a free month or two free months or six months, half off, no matter it’s, they provide these concessions and it drives down hire costs.

Dave:
And as such, we see that hire development has actually flattened for multi-family items on a nationwide scale. And markets which have essentially the most new items, essentially the most development occurring are literally seeing rents begin to decline. And once more, like I mentioned earlier than, with residential actual property, there are going to be huge regional variations. Each metropolis’s going to be somewhat bit totally different. For instance, the Midwest is predicted to see a modest 20,000 unit improve in new items in 2024 in comparison with pre pandemic ranges. That’s not that loopy, however in the meantime, while you have a look at the Sunbelt, it’s anticipating 120,000 extra items than in 2019. So you may see the distinction right here. Some markets are going to have the ability to take up the brand new development comparatively effectively. Others are going to be type of inundated with new items over the following couple of months. And the explanation I’m bringing this up proper now could be as a result of despite the fact that the residential market and the industrial market work considerably independently, they’re not at all times doing the identical factor as we’ve seen proper now.

Dave:
I simply talked about how multifamily property values have declined double digits. In the meantime, residential property values have climb this 12 months, proper? So that they’re not the identical factor, however on the subject of hire, they’re actually competing for a similar folks. I feel numerous tenants are mainly simply on the lookout for the very best worth that they’ll discover, and though they may have a choice for a single household residence or a duplex, in the event that they’re getting nice offers on a brand new constructing with nice facilities, they’re most likely going to take that. And so hold that in thoughts afterward within the episode after we discuss in regards to the rental market. However earlier than we get into that, I simply need to end out my thought right here on industrial actual property as hire development slows, I simply talked about hire development slowing, and as that occurs, the multifamily market on the similar time is experiencing numerous main value will increase.

Dave:
Lending prices are up and in any given 12 months, proper, 15 to twenty% of all belongings are anticipated to need to refinance, proper? The industrial loans simply work in another way. Moderately than fixing debt for 30 years, they’re normally on a 5 or seven 12 months adjustable fee time period. And so in any given 12 months, numerous totally different operators need to refinance and the people who find themselves refinancing final 12 months and this 12 months are refinancing into the next rate of interest setting. And as you may inform, refinancing into greater rate of interest setting goes to eat into your earnings. On the similar time, insurance coverage prices are going up nationwide as are property taxes. And while you have a look at all this stuff mixed, it’s actually robust setting for multifamily operators to take care of or develop working incomes. And on the similar time, all of that wasn’t sufficient. There are all these macroeconomic situations which can be pushing up cap charges, which is mainly only a ratio that helps worth industrial actual property and that lowers asset values. So within the industrial market, you see gross sales quantity, tremendous sluggish similar to residential, and the gross sales value per unit nationwide has dropped 15% since 2022. Alright, that’s the industrial roundup I’ve for you guys. We’re going to take another fast break, however after we come again, I’m going to offer a recap on what’s been occurring with hire costs nationwide.

Dave:
Welcome again to the BiggerPockets podcast everybody. We’re doing our 2024 12 months in overview. To date we’ve talked about residential actual property, we’ve now talked about industrial actual property, and the final step right here is to go over what’s taking place with hire. In fact, through the pandemic, we had a number of years of simply huge hire development, and now within the final couple of years, as the entire market has cooled down, hire development has cooled to what I’d name regular ranges of appreciation for single household residents. Lease development stays above the longterm common, and I feel critically importantly, it stays above the speed of inflation at round 5%. That is in accordance with Zillow, and only for some context, so that you all perceive, usually hire grows three to 4% per 12 months, so 5% is a bit above that. And once more, I feel it’s notable that for actual property buyers, you need hire to at the very least hold tempo with inflation as a result of that manner you’re in a position to equally pay for all of your bills, proper?

Dave:
If inflation’s driving up your bills, it is best to hope that hire is at the very least conserving tempo with that, so you may protect your revenue margin. And so what we’re seeing now with hire development is that it’s exceeding the tempo of inflation. In fact, once more, there are huge variations in main metro areas. We’re seeing Midwest Northeast dominate development. Once more, Hartford, Connecticut, Columbus, Ohio, Cleveland, Ohio have all seen the very best hire development within the final 12 months, all above 8% hire development just like residence costs. The cities which can be seeing the weakest development are in Texas and Florida with Cape Coral, Austin, San Antonio, and Orlando, all on the backside of the pack. However I feel the most important distinction right here, clearly the regional variations are essential, however given our earlier dialog about what’s occurring within the residential market versus the industrial market, it’s essential to name out the distinction between multifamily hire development and single household hire development.

Dave:
In case you have a look at multifamily, it’s slowed down by this oversupply situation, and hire development is simply 2.5% within the final 12 months. Now, 2.5% is definitely not that unhealthy, particularly given how a lot development is happening. I feel it reveals how a lot demand there may be for housing in the US, however it’s simply notably lower than single household rents, and it’s modestly under the tempo of inflation. All that’s the 2024 12 months in overview that we’ve got for you guys. Earlier than we get out of right here, I simply need to reiterate a pair key factors that it is best to take away right here. Primary, affordability within the housing market continues to be actually low, and that’s inflicting this sluggish, gradual market with low stock that we’ve been in for the final two years. The second factor it is best to bear in mind although is regardless of all of that, gross sales costs are nonetheless going up as are rents, that are actually good issues for individuals who have actual property portfolios.

Dave:
The very last thing to recollect is that industrial actual property is within the midst of a correction or a crash, and try to be very cautious as you head into 2025 with that market as a result of there’s much more uncertainty there than there may be within the residential market. Hopefully, this has been useful for you all in setting the stage for what I feel may very well be an ideal 12 months for 2025. And ensure to remain tuned to your feeds over the following couple of weeks as a result of I’ll be releasing my predictions about how the housing market would possibly change within the subsequent 12 months in simply a few days. Thanks guys a lot for listening to this episode of the BiggerPockets podcast. I’m Dave Meyer, and I’ll see you all quickly.