BiggerPockets Real Estate Podcast - Feb 2025 Housing Market Update: Are Our Predictions Already Wrong?

Episode Date: February 14, 2025

The 2025 housing market has already defied most expectations, but a worrying “shift” could throw everything off track. Home prices keep rising in every major metro—even with interest rates stuck in the sevens. It seems that nothing can stop the wave of demand hitting home sellers even as affordability reaches lows we haven’t seen in decades. But what could be the housing market’s kryptonite—the one thing that could lead to lower prices and distress in the market? Today, we’re giving you a Q1 housing market update with the latest data coming in from January 2025, sharing must-know metrics about home sales, prices, mortgage rates, buyer demand, and even mortgage delinquencies.  Is Dave already off on his 2025 housing market predictions? He could be, as housing has seen unexpected strength despite last year’s big election, inflation rising once again, and interest rates more than double what they were just a few years ago. Will we see mortgage rates (and prices) drop at any point this year? What’s the one thing that could flip this housing market? We’re getting into the mystery metric you MUST watch to know what’s coming next. In This Episode We Cover: A Q1 2025 housing market update: prices, rates, demand, inventory, and more! One troubling metric that could spell pain for the housing market in 2025  The markets where inventory is exploding, but does that mean prices will fall? Is there a chance that mortgage rates will drop this year, or has the Fed paused for good? The often overlooked (and cheap!) real estate markets seeing sizable home price appreciation  And So Much More! Links from the Show Join BiggerPockets for FREE Let Us Know What You Thought of the Show! Ask Your Question on the BiggerPockets Forums BiggerPockets YouTube Try REsimpli, The Only All-In-One Real Estate Investor CRM Software That Helps You Manage Data, Marketing, Sales, and Operations Reserve Your Spot at BPCON2025 and Get $100 Off Your Ticket Grab Dave’s Book, “Start with Strategy” Find an Investor-Friendly Agent in Your Area New Tariffs Mean Much More for Mortgage Rates Than You Think Connect with Dave Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1083 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [e-mail]. Learn more about your ad choices. Visit megaphone.fm/adchoices

Was I wrong about the 2025 housing market? Most of my predictions have been reliant on this one metric not shifting that much. But just a month into 2025, it's starting to shift. So what does that mean about the housing market? Today, we're getting into it. So at a high level, the housing market continues to defy expectations as prices increase despite higher interest rates, growing inventory, and renewed inflation concerns.

But will that continue? Or do the shifts that I'm saying, that I'm seeing in this one key metric, I've been telling you all to pay attention to, mean that the market is heading for a downward shift. Today, we're diving into our Q1 housing market update. Hey, everyone, it's Dave. And today we're taking a look around the entire industry. We're talking about inventory.

We're talking about interest rates. And again, we're going to talk about this one metric that has me questioning my own predictions for the year. I'm going to report on the data. I'll give you my analysis and opinion. and I will make some updated predictions on how this year is going to shape up. Let's get into it. We're going to start with the basics and just talk about the high-level stuff that everyone cares about,

like mortgage rates, prices, inventory, all that. First things first, prices, at least according to Redfin, are still up a resounding amount, 4.8% year over a year. Just for reference, the average, the long-term average appreciation rate is around 3.4%. a normal year in the housing market is when it keeps pace with inflation. So that would be around 3% for last year. So prices were good, according to Redfin outpaced inflation in 2024. And that has continued at least into the first month here of 2025. So really, no matter how you look at it, calls are saying that the market was crashing, not exactly true. But there is something that we need

to talk about, that is that prices are becoming pretty close to the rate of inflation. And so when you think about the housing market right now in today's day and age, it's very helpful to look at what are called quote unquote real price changes. And the term real in economics basically means inflation adjusted. So if you're looking at the case shiller and you say prices went up 3.8%, but inflation last year was 3.2%, then real prices really only went up 0.6%. Right? You subtract the inflation rate from appreciation. And so that's... That's why you might hear people say that prices are relatively flat. And I agree that they are relatively flat.

They are going up in nominal terms. If you just look at the dollar amount, yes, they're going up. But in inflation-adjusted terms, they are relatively flat. So that's on the national level. And of course, real estate is super local. We talk about this all the time. Let's look at what's going on, an individual property level. One really interesting development here that honestly, I didn't think we would be at this point

in 2025, we'd be looking at this. But a new study just came out, again from Redfin, that shows that every single one of the 50 biggest metro areas in the U.S. Every single one had year-over-year price growth. And this is pretty unusual. It happened during the pandemic, but I think we can all agree that what was going on during the pandemic was pretty unusual and that we shouldn't be basing our expectations of future performance for the housing market on what was going on back then.

If you look back to 2018, yeah, sometimes you saw all 50 of 50 top markets. But in the years and months leading up to the pandemic, it was like 43, 45 out of the top 50 would be all growing year over year. That's what I would say is sort of normal. 80, 90% of housing markets in the United States are growing. A couple of them are just experiencing normal fluctuations. This is just how normal markets work. Then during the pandemic, we all know everything was growing. just couldn't miss. But that changed when interest rates started to go up. And we saw that go from

100% of markets down to 90%. And then it bottomed out to about only 40% of markets were growing year over year in the first half of 2023. And it's slowly been recovering. And now, as of the last month of 2024, was the first time since back in late 2021, since we've had 50 out of 50. So this is pretty unusual. Just a couple of months ago, we were expecting and we got used to seeing certain markets being in decline, right? A lot of markets in Florida, a lot of markets in Texas were in modest corrections. Nothing crazy, but, you know, Tampa was down half a percent or Austin was down probably the most of any place in the country at three or four percent. So Jacksonville, San Antonio. Now all those markets are modestly increasing. They're still increasing below the pace of inflation,

So that is the key thing I want everyone to remember here. When I say Orlando is up 1.3%, yeah, prices went up, but it's not keeping pace with inflation, which as investors, we want, right? We want our money to at least keep pace with inflation. And it's not happening in Orlando, but prices are starting to go up, which is a reversal of a trend that is worth noting. On the other end of the spectrum, we're seeing markets grow like crazy. If you were to ask me three years ago, could you see a environment where three years from now

we were seeing double digit price appreciation, even though mortgage rates have been at 7% or above 7% for several years. There's no way I would have said, yes, I wasn't thinking there was a crash. But this is beating my expectations. Right now, Cleveland and Milwaukee, two Midwest cities that are typically known as cheaper housing markets with lower appreciation, both are at 15% year-over-year growth. That is insane. Philadelphia, 14%. Chicago, 11%, Miami, 12%.

These are massive, massive numbers. And it's important to remember that the markets outside of Miami, the other four that I am mentioning here are markets that grew slower during the pandemic. So it's not like they were keeping pace with Austin and Tampa from 2020 to 2022 and they've just sort of like kept on this rocket ship ride. But they are now sort of taking the growth position, whereas a lot of these other markets that grew really quickly during the pandemic are slowing down. but again, pretty crazy to see that all 50 out of 50 markets are growing in this environment. So let's move on for pricing and now talk about inventory. And just as a reminder, inventory is a great metric to track. If you only look at a couple of things in the housing market, inventory is one you want to keep an eye on because it really measures the balance between supply and demand.

It gives you a good sense of where prices are going to go, where transaction volume is going to go in a given housing market. And inventory, just as a reminder, context has been really low over the last couple of years. We've been in a quote unquote sellers market. And you're in a seller's market when there aren't a lot of properties for sale, when there are more buyers than there are sellers. This gives sellers power in the market, right? They have the ability to negotiate. It's why we saw for years people bidding over asking prices or waiving inspections or waiving

their contingencies. It's because we're in a seller's. market. That, though, is starting to shift. Not a ton. We are still not in like a great buyer's market, but some of the dynamics, some of the indicators that you look for to see a shift are starting to change, and this is important for investors. The first thing that we look at is something called active listings. That's just how many homes properties are per sale at a given point. And right now, it's at about 900,000, which represents an 11% increase from this time last year. That's pretty.

It's also represents nearly a 50% increase from where we were in 2022. Now, everything needs to be taken in a grain of salt. It is still well below where we were in 2019 and before the pandemic. But this shows that we are slowly getting back to more normal housing market conditions where there are more properties for sale. And we'll get to this more in just a couple of minutes, but that indicates to me that there are going to be better buying opportunities, right? You're in this scenario where there are a lot of buyers for very few sellers that give sellers all the power. That balance is starting to

shift back a little bit more. Now, again, that is on a national basis, and there are some regional differences, but the increase in inventory is happening somewhat universally. If you look at how things have changed from January 24 to January 25, almost every market in the country has seen an increase in inventory. There are some random, small, low population markets in North Dakota and South Dakota and Montana that have seen a decline. But overall, basically the whole country is seeing this reversion back to normal. And again, this isn't something I personally worry about that much. I'm not breaking out because, oh, inventory is going up. We're going to see some market crash. We're not even back to normal. We're not even back to 2019 levels.

If you were going to see a crash, you would see it at least approaching those sort of levels. And in a lot of markets, like in New York, in the Northeast, in the Midwest, they're going up, but they're just going up 10%, 20% year over year, which is really modest. The better metric, at least in my mind, to look at if you really want to examine inventory in your local area, is to compare how inventory was in, let's say, January of 2019 to January of 25, right? Because January 2019 was a relatively normal housing market. If we want to understand where we are today, it's good to compare to that relatively normal market.

And when you do this analysis, it looks very, very different. All of the Northeast, all of the Midwest is still negative. Actually, it's still about 50% lower than it was pre-pandemic. This is happening in New England. It's happening in West Virginia, in Virginia, in Wisconsin, in Michigan, in Illinois, in Indiana, in Ohio. It's happening pretty much everywhere. And so keep these things in mind.

If you see some media or news out there saying inventory is up 25% from last year, yeah, maybe it is. But how does it compare to a normal market? It's still 50% below. So that is something to keep in mind. There are, however, some markets, and these are the markets that you should be careful with, where inventory is above pre-pandemic levels. And this is happening primarily in Texas. It's happening in Florida. It's happening a bit in Louisiana, and there are also places in Colorado, like in Denver where I invest, some places in Idaho.

We're seeing it in Utah in a couple of places. So a lot of the places that grew super rapidly during the pandemic are now seeing a reversion, right? Not just a reversion back to 2019 levels, but we are seeing inventory go above 2019 levels. Now, of course, I just said a couple minutes ago that prices are going up in every market. So it's not leading to a crash, but it is something to keep an eye on. If inventory in these markets keep going up and up, if demand doesn't keep pace, you know, you could see a flattening of prices and going down in nominal levels. Or you can see a continuation of where we're at today where, yeah, prices are technically going

up, but they are not keeping pace with inflation, which as an investor is not a great thing. All right. So we've talked about prices. We've talked about inventory. When we come back from our break, I'm going to talk about, Everyone's favorite topic, mortgage rates, and we're going to talk about a shift in one key metric that has me wondering if my predictions might be a little bit off for this year. But before we take our break, I also want to remind everyone of one other thing, which is that the Bigger Pockets Conference, BPCon, is back. We're heading to Las Vegas, and tickets are now on sale with early bird pricing.

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on the direction of the market for the rest of the year. Now, the somewhat good news about mortgage rates is that they've been relatively stable, at least since the election. They did shoot up for a little while, in December and early January, up to about seven and a quarter. That's the average rate on a 30-year fixed. For an investor, it's probably a bit higher than that.

It's usually like 50 basis points higher. So probably at 7.75, something like that. And that really happened on the potential of tariffs, which we'll talk about in just a second. But now that those tariffs are mostly on pause, they're back down to about 7%. So I think that is good news. And personally, I don't think it's going to change that much. I know that everyone has been saying that mortgage rates are going to go down. I've been trying to be cautious about that and warn people that that might not happen.

And I'm feeling more confident in that advice than I was just a couple of months ago. We just don't see conditions where the Fed is obviously going to lower rates. And there are other things going on in the bond market that can keep mortgage rates high. I know bond yields is not everyone's favorite topic. But let's just talk about it for a minute because this really does matter. Basically, this all comes down to inflation, right? We all know this. We've talked about it.

But when there is fear of an inflation or there is actual inflation, mortgage rates stay high or they go higher. And there are basically two reasons why investors, bond investors, the Fed, are fearful that inflation will reignite. The first is actual data. We are seeing the Fed's favorite inflation gauge, which is the PCE, has gone up the last two months. It's not gone up a lot.

You know, it's not going up like crazy, but it's gone up 0.1%, 0.2%. And that's not going to be hugely detrimental to the economy or anything like that. But it is a reversal of a trend that is pretty important, right? We have all, as a group, as investors, particularly sort of suffered through high interest rates to get inflation under control. And if inflation is not under control, that's going to change the Fed's decision making. They just had a meeting in January and they decided not to lower rates. They kept them stable, which was largely expected. That wasn't unusual.

Most markets still believe that the Fed is going to lower interest rates once or twice here in 2025. And that could help provide some modest benefit to mortgage rates. But given that, the Fed may not lower rates as much as we were thinking. So that's one thing. The second thing is this whole. situation with tariffs that has been going on. And we've made some episodes about this, so I won't get into it in huge detail. But basically, most economists believe that tariffs are

inflationary. If you're unfamiliar with how it works, when you implement a tariff, let's say a 10% tariff against China, like the one that was implemented a couple of weeks ago, that means U.S.-based companies that are importing goods from China, they have to pay, the U.S. company has to pay 10% more to import that good. That price often gets passed along to U.S. consumers, which raises price for U.S. consumers, at least in a one-time inflationary event. This has bond investors spooked about inflation, and that keeps bond yields high. And as we know, mortgage rates are not tied to the federal funds rate. They are tied to bond yields.

And this fear of inflation brought on by tariffs is keeping mortgage rates high. Now, of course, we don't know exactly what's going to happen, right? Mortgage rates shot up when there was tariffs announced on Mexico and Canada. Those tariffs have been paused, at least for now, and mortgage rates come. back down. But the reason I am cautioning and advising investors not to count on rates going down is we just don't know. There's just too much uncertainty. Clearly, it seems that some of Trump's proposed tariffs are used as a negotiating tactic. Some of them are probably going to get implemented and stick around and could cause some short-term inflation. Now, of course, Trump believes that

those tariffs and the potential for short-term inflation are worthwhile. But investors and bond investors who really dictate mortgage rates just don't know what to expect. And until they know what to expect, I think we're going to see a lot of volatility in the mortgage market and we shouldn't count on rates coming down, at least in the next three, six months. Could I be wrong? Of course, I could definitely be wrong,

but I just advise caution, right? The level of uncertainty in the mortgage market has been very high. It remains very high. And until some key market dynamic shift, I wouldn't bet my own money that rates are coming down anytime soon, And so that's why I'm offering the same advice to you. Now, let's just take a minute and talk about what this means because I just said that inventory was going up and that rates are probably going to stay at least in the 7% range for at least the next couple of months. Does this mean that housing prices are going to soften?

When you look at this from an economic perspective, we have to talk about this in terms of demand, right? Because if supply is going up, we need to know if demand, the amount of people who want to buy those homes is staying consistent. or going down. Because if higher mortgage rates lowers demand, that could soften housing prices. But if demand stays relatively strong, then we can expect housing prices to probably stay somewhat close to where they are. So there are two ways that we look at demand. None of them are perfect, but I like looking at these two. One is something called the Mortgage Purchase Index, which is basically how many people are applying for purchase mortgages in any given week. And when I say purchase mortgage. It's just as opposed to a refinance mortgage. And what we see is that demand is actually

doing pretty good. Like not much has changed over the last year. It's been quite stable for the last 15, 18 months. And by some measures, it's actually been up a little bit in January. So despite rates staying relatively high, demand shows pretty strong. Now, it's not a perfect measure. And so I like to sort of cross-reference that with some private sector data. So Redfin has a cool metric. that measures demand on their platform. So they're basically able to see how many times people reach out to schedule showings or how much traffic is on their website and they have this demand index. And what it shows is basically the same thing, that demand has remained relatively unchanged over

the last year. If we look at year over year, it's down 1% to me from a statistical standpoint. 1%. It really doesn't make any difference. So when you look at this situation, you see that the housing market is probably going to remain pretty similar to where it is. Inventory's up a bit, but it's not going up like crazy or the growth rate is not accelerating.

Demand is staying relatively the same, which is why I've been saying that I think this year in the housing market, that we're going to see prices go up in nominal terms, but in inflation-adjusted terms, they're going to be relatively flat. I personally think that is still the most probable scenario. Of course, it's going to vary market-to-market, like we're going to see some really hot markets, some slower markets, but my read on the national housing market really hasn't changed. All right, we do have to take a quick break. But when we come back, I'm going to talk about a shift in one metric that we honestly

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slight shift in a metric that we don't talk about as much on the show, but I think is super important. And this is mortgage delinquency rates. Now, I don't know how close you all pay attention to this kind of stuff, but I've said in the past that if there's going to be any sort of crash or significant correction in the housing market, we would know that it's coming because there would be an increase in distress in the market. And we can look at that in foreclosures, but foreclosure data takes a while to come around. And I think the better thing to look at is mortgage delinquency rates. This is basically how many people are falling behind on their normal mortgages. And I've said in the past that mortgage delinquency rates are very, very low. And that is still true on a broad basis.

If you look at traditional mortgages, conventional mortgages, where people are putting 20% down, the performance of those loans are pretty good. They're actually somewhat near historic lows. But if you look at the subsections of this data, you can see that actually two types of mortgages are starting to see increases in delinquencies. And that's FHA mortgages and VA mortgages. These are typically lower down payment types of mortgages. that typically are applied to lower priced homes.

When you look at FHA loans, you see that they are now above 2019 levels. And that, to me, is significant, right? 2019, like I was just saying, we want to compare our data to 2019 because that is a relatively normal housing market. And we are starting to see that this subsection, again, it's just a smaller subsection of the mortgage market

is seeing distress. And this, if it continues, could, spell some trouble for some sections of the housing market. Again, if we were going to see a broadspread crash, we would see this data changing across conventional mortgages, across jumbo mortgages, across everything. We're not seeing that. Conventional mortgages are doing just fine. But because this represents a pretty significant shift from where we've been over the last couple of years, I think it's something that we all need to be keeping an eye on. Because if delinquencies go up, That could lead to what's known as for selling.

That could increase inventory on the market. There might not be demand for those types of market, and it would put downward pressure on pricing. Now, I don't want to be alarmist. I want to make sure everyone knows that this is a slight increase. It's just a modest change. And it's just for one small portion of the mortgage market. But my job as a housing market analyst is to look for these things as soon as possible and try to identify these trends before they come mainstream and before they start impacting

the entire market. And so that's where I'm sharing this with you. It's something that if we do this again next quarter, which we will, I will update you on. I don't think it's anything you need to be overly concerned about at this point. But I found it. I think it's interesting. It's something I'm writing down as something to keep an eye on every single month. And I will let you know if anything changes here.

Just to keep this all in perspective before we go, I just want to say that when you look at the housing market and you look at total serious delinquencies, which is delinquencies, which are more. than 90 days past due. That is completely unchanged from 20203 to 2024. So again, looking at the big picture, not super serious. If you look at the amount of homes that have actually reached foreclosure, unchanged year over year. So further downstream, we're not seeing a huge problem, but again, something we're going to be keeping an eye on on this show over the next couple of months. All right. So that is my housing market roundup for Q1 of 2025. Just to read, recap what we talked about, housing prices continue to outpace inflation, and we are actually seeing housing prices grow in basically every major metro area across the United States,

which is pretty remarkable. Inventory numbers have gone up about 10% year over year, which is probably why we're seeing home price grow moderate to close to even with inflation, but it does also mean, as investors, that there could be better deals out there. We are shifting from what was a super strong sell. market to a more balanced market. And there are pros and cons of every kind of market, right? Sellers market, it's super competitive. You have to be very aggressive, but prices are probably going up. Now we're in a more moderate market where prices are still going up, but you might not have to be as aggressive and you might have more negotiating leverage in your deals and in your bidding.

When it comes to demand, demand has remained relatively unchanged. It's proven very resilient in despite of high mortgage rates. We talk about mortgage rates. Those I think personally are going to remain pretty volatile and I am not as optimistic as everyone else is that rates are going to come down in the next couple of months. I could be wrong, but that's my read on the situation. And then lastly, we are seeing a couple small signs of distress in one pocket of the mortgage market that we are going to keep an eye on. Hopefully this type of recap and analysis is useful to you. I'd love to hear your thoughts in the housing market. or what's going on in your specific market in the comments below.

Thank you all so much for listening to this episode of the Bigger Pockets Podcast. We'll see you next time. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K,

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