Are Our Predictions Already Wrong?

Dave:
Was I mistaken 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 degree, the housing market continues to defy expectations as costs enhance regardless of increased rates of interest, rising stock and renewed inflation considerations. 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? As we speak we’re diving into our Q1 housing market replace. Hey everybody, it’s Dave and right this moment we’re looking across the total business. 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 provide you with 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 start out with the fundamentals and simply speak in regards to the excessive degree stuff that everybody cares about, like mortgage charges, costs, stock, all that. First issues, first costs, not less than based on Redfin, are nonetheless up a powerful quantity, 4.8% yr over yr. Only for reference, the common, the long-term common appreciation price is round 3.4%. A standard yr within the housing market is when it retains tempo with inflation, so that might be round 3% for final yr. So costs had been good based on Redfin outpaced inflation in 2024, and that has continued not less than into the primary month right here of 2025. So actually irrespective of the way you take a look at it, calls are saying that the market was crashing.
Not precisely true, however there’s something that we have to speak about that’s that costs have gotten fairly near the speed of inflation. And so when you consider the housing market proper now, in right this moment’s day and age, it’s very useful to take a look at what are referred to as actual worth modifications and the time period actual in economics mainly means inflation adjusted. So in case you’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 price from appreciation, and in order that’s why you would possibly hear folks say that costs are comparatively flat and I agree that they’re comparatively flat, they’re going up in nominal phrases, and in case you simply take 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 degree and naturally actual property is tremendous native. We speak about this on a regular basis. Let’s take a look at what’s happening at particular person property degree. One actually attention-grabbing improvement right here that actually I didn’t assume we’d be at this level in 2025 we’d be this, however a brand new research 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 worth progress. And that is fairly uncommon. It occurred through the pandemic, however I feel we will all agree that what was happening through the pandemic was fairly uncommon and that we shouldn’t be basing our expectations of future efficiency for the housing market on what was happening again then. If you happen to look again to 2018, yeah, generally you noticed all 50 of fifty high markets, however within the years and months main as much as the pandemic, it was like 43, 45 out of the highest 50 could be all rising yr over yr.
That’s what I’d say is kind of regular. 80 90% of housing markets in america are rising. A few them are simply experiencing regular fluctuations. That is simply how regular markets work. Then through the pandemic, everyone knows all the pieces 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 number of markets in Florida, numerous markets in Texas had been in modest corrections, nothing loopy, however Tampa was down half a % or Austin was down in all probability essentially the most of anywhere within the nation at three or 4%, Jacksonville, San Antonio. Now all these markets are modestly rising. They’re nonetheless rising under the tempo of inflation. So that’s the key factor I would like everybody to recollect right here. Once I say Orlando is up 1.3%, yeah, costs went up, however it’s not conserving tempo with inflation. With, as traders we wish, we wish 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 pattern that’s value 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 worth appreciation, though mortgage charges have been at 7% or above 7% for a number of years, there’s no method I’d’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 might be sometimes referred to as cheaper housing markets with decrease appreciation, each are at 15% yr over yr progress. That’s insane. Philadelphia, 14% Chicago, 11%, Miami 12%. These are large, large numbers and it’s necessary to do not forget that the markets exterior of Miami, the opposite 4 that I’m mentioning listed below are markets that grew slower through the pandemic. So it’s not like they had been conserving tempo with Austin and Tampa from 2020 to 2022 and so they’ve simply kind of saved on this rocket ship trip, however they’re now kind of taking the expansion place, whereas numerous these different markets that grew actually rapidly through 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 speak about stock and simply as a reminder, stock is a superb metric to trace. If you happen to solely take 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 an excellent 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 during the last couple of years. We’ve been in a vendor’s market and also you’re in a vendor’s market when there aren’t numerous properties on the market when there are extra consumers than there are sellers. This offers sellers energy available in the market. 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 a fantastic purchaser’s market, however a number of the dynamics, a number of the indicators that you just search for to see a shift are beginning to change and that is necessary for traders. The very first thing that we take a look at is one thing referred to as energetic listings. That’s simply what number of properties 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 all the pieces must be taken right into a grain of salt. It’s nonetheless nicely 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 circumstances 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 numerous consumers for only a few sellers that give sellers all the ability. 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 take 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 total, mainly 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 numerous 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 absolutely modest. The higher metric, not less than in my thoughts to take a look at in case you actually wish to look at 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 if you do that evaluation, it seems very, very totally different. All the northeast, the entire Midwest remains to be destructive. Truly 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 in all places. 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, perhaps it’s, however how does it evaluate to a standard market? It’s nonetheless 50% under, so that’s one thing to bear in mind. There are nevertheless, some markets, and these are the markets that you need 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 numerous the locations that grew tremendous quickly through the pandemic at the moment are 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 possibly can see a continuation of the place we’re at right this moment the place, yeah, costs are technically going up, however they aren’t conserving tempo with inflation, which as an investor isn’t a fantastic 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 subject, mortgage charges, and we’re going to speak a few shift in a single key metric that has me questioning if my predictions is likely to be just a little bit off for this yr.
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Hey everybody, welcome again to the BiggerPockets podcast. As we speak we’re giving our Q1 housing market replace. We’ve talked up to now about pricess, we’ve talked about stock. Subsequent, we’re going to speak about mortgage charges. That’s clearly going to have a really huge impression on the path 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 because the election. They did shoot up for a short while in December and early January as much as about seven and 1 / 4. That’s the common price on a 30 yr fastened for an investor, it’s in all probability a bit increased than that. It’s often like 50 foundation factors increased, so in all probability at 7, 7, 5, one thing like that. And that basically occurred on the potential of tariffs, which we’ll speak about 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 feel that’s excellent news and personally I don’t assume 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 making an attempt 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 circumstances the place the Fed is clearly going to decrease charges and there are different issues happening within the bond market that may maintain mortgage charges excessive. I do know bond yields isn’t everybody’s favourite subject, however let’s simply speak about 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’s worry of inflation or there’s precise inflation, mortgage charges keep excessive or they go increased.
And there are mainly two explanation why traders, bond traders, 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 rather a lot. It’s not going up like loopy, however it’s gone up 0.1%, 0.2%, and that’s not going to be vastly detrimental to the financial system or something like that, however it’s a reversal of a pattern that’s fairly necessary, proper? We have now all as group as traders notably suffered via excessive rates of interest to get inflation below management. And if inflation isn’t below management, that’s going to alter the Fed’s decision-making. They simply 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 consider that the Fed goes to decrease rates of interest a few times right here in 2025, and that would assist present some modest profit to mortgage charges.
However on condition 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 state of affairs with tariffs that has been happening, and we’ve made some episodes about this so I gained’t get into it in big element, however mainly most economists consider that tariffs are inflationary. If you happen to’re unfamiliar with the way it works, if you implement a tariff, let’s say a ten% tariff in opposition to China just like the one which was applied a few weeks in the past, which means US-based firms which might be importing items from China, they need to pay. The US firm has to pay 10% extra to import that good. That worth usually will get handed alongside to US customers, which raises worth for us customers not less than in a one-time inflationary occasion. This has bond traders spooked about inflation and that retains bond yields excessive. And as we all know, mortgage charges should not tied to the federal funds price.
They’re tied to bond yields and this worry of inflation introduced on by tariffs is conserving 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 motive I’m cautioning and advising traders 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 in all probability going to get applied 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 traders and bond traders who actually dictate mortgage charges simply don’t know what to anticipate till they know what to anticipate.
I feel we’re going to see numerous volatility within the mortgage market and we shouldn’t rely on charges coming down not less than within the subsequent three, six months. May I be mistaken? In fact, I may positively be mistaken, 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 guess 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 speak about what this implies as a result of I simply stated that stock was going up and that charges are in all probability 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 take a look at this from an financial perspective, we now have 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 properties is staying constant or happening. As a result of if increased mortgage charges lowers demand, that would soften housing costs. But when demand stays comparatively sturdy, then we will count on housing costs to in all probability keep considerably near the place they’re. So there are two ways in which we take a look at demand. None of them are good, however I like these two. One is one thing referred to as the mortgage buy index, which is mainly 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 during the last yr. It’s been fairly steady for the final 15, 18 months and by some measures it’s really been up just a little bit in January.
So regardless of charges staying comparatively excessive, demand exhibits fairly sturdy. Now that’s not an ideal measure, and so I prefer to kind of cross-reference that with some non-public sector knowledge. So Redfin has a cool metric that measures demand on their platform. So that they’re mainly capable of see what number of occasions folks attain out to schedule showings or how a lot visitors is on their web site. And so they have this demand index. And what it exhibits is mainly the identical factor. That demand has remained comparatively unchanged during the last yr. If we take 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 if you take 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, however it’s not going up like loopy. Or if the expansion price isn’t accelerating, demand is staying comparatively the identical, which is why I’ve been saying that I feel 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 assume that’s nonetheless essentially the most possible state of affairs. In fact, it’s going to range market to market, like we’re going to see some actually sizzling markets, some slower markets, however my learn on the nationwide housing market actually hasn’t modified. Alright, we do need to take a fast break, however once we come again, I’m going to speak a few shift in a single metric that we actually don’t speak about that a lot on the present that I feel has fairly huge 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 traders. You possibly can automate your advertising and marketing skip hint totally free, ship junk mail and join along with your leads multi function place. Head over to re merely.com/biggerpockets now to start out 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 numerous the widespread metrics that we observe on this present, however I needed to carry your consideration to a really slight shift in a metric that we don’t speak about as a lot on this present, however I feel is tremendous necessary. And that is mortgage delinquency charges. Now, I don’t understand how shut you all take note of this sort 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’d know that it’s coming as a result of there could be a enhance in misery available in the market. And we will take a look at that in foreclosures. However foreclosures knowledge takes some time to return round, and I feel the higher factor to take a look at is mortgage delinquency charges.
That is mainly 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 take a look at conventional mortgages, typical mortgages the place individuals are placing 20% down, the efficiency of these loans are fairly good. They’re really considerably close to historic lows. However in case you take a look at the subsections of this knowledge, you possibly can see that really two forms of mortgages are beginning to see will increase in delinquencies, and that’s FHA mortgages and VA mortgages. These are sometimes decrease down fee forms of mortgages that sometimes are utilized to decrease priced properties. Once you take 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 evaluate 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’d see this knowledge altering throughout typical mortgages, throughout jumbo mortgages, throughout all the pieces. We’re not seeing that typical mortgages are doing simply high quality, however as a result of this represents a reasonably vital shift from the place we’ve been during the last couple of years, I feel it’s one thing that all of us should be maintaining a tally of as a result of if delinquencies go up, that would result in what’s referred to as for promoting that would enhance stock in the marketplace. There won’t be demand for these forms of market, and it will put downward stress on pricing. Now, I don’t wish to be alarmist. I wish to be sure 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 doable and attempt to determine these tendencies earlier than they arrive mainstream and earlier than they begin impacting your complete 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 are going to, I’ll replace you on. I don’t assume it’s something you have to be overly involved about at this level, however I discovered it. I feel it’s attention-grabbing. It’s one thing I’m writing down as one thing to control each single month, and I’ll let if something modifications right here, simply to maintain this all in perspective. Earlier than we go, I simply wish to say that if you take a look at the housing market and also you take a look at whole critical delinquencies, which is delinquencies, that are greater than 90 days late, that’s fully unchanged from 2023 to 2024. So once more, trying on the huge image, not tremendous critical. If you happen to take a look at the quantity of properties which have really 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 maintaining a tally 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 mainly each main metro space throughout america, which is fairly exceptional. Stock numbers have gone up about 10% yr over yr, which might be why we’re seeing residence worth develop reasonable to shut to even with inflation. However it does additionally imply as traders that there could possibly be higher offers on the market. We’re shifting from what was a brilliant sturdy 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. You need to be very aggressive, however costs are in all probability going up.
Now we’re in a extra reasonable market the place costs are nonetheless going up, however you won’t need to be as aggressive and also you may 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 speak about mortgage charges. These I feel personally are going to stay fairly risky, 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 mistaken, however that’s my learn on the state of affairs. 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 kind of recap and evaluation is helpful to you. I’d love to listen to your ideas on the housing market or what’s happening 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.