Dave:
Hey friends, welcome to On the Market this prediction season. We are doing everything we can to bring you the lovely gift of sound data and analysis from us and real estate industry experts. And recently I broke down some of Redfin’s predictions over on the BiggerPockets Real Estate podcast and I want to make sure that you all got to hear that analysis too. So let’s jump into it. Redfin is one of the most reliable sources around for real estate industry news. So today I’m going to review their predictions that their economics team put together for 2025. They’ve put together a total of 10 predictions and I’ll tell you I definitely don’t agree with all of them, so make sure to stick around to see where we differ in opinion. And if you want to see all of my personal predictions for real estate in 2025, you can check out our YouTube channel or maybe you’re watching there already, but if you’re listening to this as a podcast, we recently released videos about where I see mortgage rates, home prices and rents trending in the next 12 months, so you can go check those out.
Alright, onto Redfin’s prediction number one. First prediction from Redfin about the housing market in 2025 reads, home prices will rise 4% in 2025. I’ll just read you all a couple of lines that explain some of their logic here and then I’ll give you my reaction to it. Redfin writes, we expect the median US home sale price to rise steadily throughout 2025, ending the year 4% higher than it was in 2024. Prices will rise at a pace similar to that of the second half of 2024 because we don’t expect there to be enough new inventory to meet demand. Rising prices are one factor that will keep home ownership out of reach for many Americans leading some would be home buyers to rent instead. So Redfin thinks that prices will grow 4%. I think this is a pretty realistic prediction. I’ve looked at probably, I don’t know, 10, 12, maybe 15 different predictions.
This is from big companies that you’ve probably heard of like Redfin or Zillow or more specialty boutique shops, lenders who all make these sorts of predictions and the consensus seems to be that home prices will rise somewhere between two to 5% next year. In nominal terms, I’ve made some of my own predictions for the following year and I actually came out maybe just slightly lower than this, three, three and a half percent, but at that point you’re kind of splitting hairs. So I generally agree with this, but let’s just talk about why I, and it sounds like a lot of other forecasters think that we’re going to see pretty stable house growth, 4% or anywhere really around the pace of inflation is what is considered normal appreciation or price growth in the housing market. And so let’s just talk a little bit about why we think that most of us at least think that prices are going to go up a little bit.
The first thing to me is just trend. We have seen home prices going up for the last several years. Of course, past results are not indicative of future results, but for the last several years, even with high interest rates, we have seen demand outpaced supply. A lot of people thought the housing market was going to crash in 2022 when rates went up. It didn’t. People thought that they would crash in 2023 or at least come down a little bit. They didn’t, at least on a national level. Definitely some markets that did same thing in 2024 people said it’s going to slow down, they’re going to go negative. Sure there are places in Texas or Louisiana that are negative, but on a national level we are still up about 4%. Some people even say 5% year over year and that is above average growth. The long-term average is like 3.4%.
So I think this idea that the housing market is going to crash or that prices are going to come down because demand is going to evaporate, I just don’t think that’s true. It hasn’t happened. We’ve seen the worst of mortgage rates increase and it hasn’t caused a crash yet and there’s a lot of reason to believe that in the coming year in 2025 that there’s actually going to be more demand In just the last couple of weeks since the presidential election, there are a couple of measurements of demand that have started to tick up and show some more life in the housing market. One comes from Redfin, the company we’re talking about today, but they have their own measurement of demand. It’s like a home buyer index and basically it just tracks how many people on their website request tours and are looking around their website and they track this and been doing it for years and it has gone up significantly since the election 17% month over month and it’s actually at the highest point it has been at since September of 2023.
So there’s a sign that demand is actually going up for houses, but of course we can’t talk about demand without talking about supply and we have to think about whether supply is going to come back proportionally and we are seeing new listings tick up, but just a little bit with interest rates forecast to probably go down and because of some other trends, it does seem like we’re also going to see some more supply next year. But my expectation, and it kind of seems like this is what Redfin is getting at as well, is that both demand and supply are going to come back at a relatively equal pace. And if this happens, then price growth will stay probably pretty similar to where it is this year. And so that’s why Redfin and I think a lot of other forecasters are predicting that we’ll see similar growth rates in 2025 to what we saw here in 2024.
I think it might be a little bit lower on a national level, but I’m basically just splitting hairs. So overall I agree with Redfin on this one. Redfin’s second prediction for 2025 reads mortgage rates will remain near 7%. Mortgage rates are likely to remain in the high sixes range throughout 2025 with the weekly average rate fluctuating throughout the year, but averaging around 6.8%. Investors are anticipating that if president-elect Donald Trump implements a significant portion of his proposed tax cuts and tariffs and the economy stays strong, the fed will only cut its policy rate twice in 2025. Keeping mortgage rates high tariffs could be inflationary and enacting more tax cuts would increase the US deficit, both of which would push mortgage rates up. High mortgage rates are the second part of the equation that will keep home buying unaffordable. Okay, there’s a lot to dig into with this one, but mortgage rates remaining near 7%.
I don’t necessarily agree with this. I do agree with the sentiment that rates are going to stay higher than most people think. If you go on social media or if you look at a lot of forecasters, people are saying that rates are going to get into the fives. I’ve heard people say that they’re going to get into the fours and personally I don’t believe any of that. I think that rates are going to stay somewhere in the sixes next year. I do think there’ll be a little bit lower than Redfin is predicting. So lemme just explain briefly why I think rates are going to stay a little bit higher. It all comes down to bond yields and I know this is boring if you’ve heard me talk about this, but just give me one minute and I’ll try my best to explain this to you.
Mortgage rates are not controlled by the Fed. They are really influenced by bond investors and bond investors don’t really think like real estate investors or like stock investors. They’re majorly concerned with things like inflation and recession risk. And typically when inflation is on their mind, if they’re worried about inflation, that means bond yields go up and that pushes mortgage rates up when instead of inflation, investors are worried about the other side of the equation, which is a recession. They usually pour money into bonds that pushes yields down and take mortgage rates down as well. And so the reason I’m saying that I think that bond yields are going to stay up is because at least the market is telling us right now that bond investors are more afraid of inflation in the coming years than they are of a recession. The economy by most traditional metrics has looked okay over the last year and Trump has promised to implement a lot of stimulative policies which are likely to boost the economy.
When an economy gets boosted too much, there is fear of inflation and so that’s likely what we’re seeing right now with rates staying high. That’s why mortgage rates, even since the Fed rate cut in September have increased. All this is to say I think we will see a strong economy next year and that means mortgage rates will likely stay higher, but I do think we are sort of on this hopefully long downward trend for mortgage rates. When I say long downward trend, I think it’s going to take more than a year for them to sort of settle into the new normal and I’m hopeful, I don’t know, this isn’t a prediction, but I’m hopeful that the new normal will be somewhere around five and a half percent that’s close to the long-term average. It’s sort of makes sense given what the Fed has said they’re going to do.
That’s sort of what I’m thinking, but I don’t think that’s going to happen in 2025. Personally, I think it is more likely that that happens in 2026, maybe even to 2027. It’s just not going to move as quickly as things have in the last couple of months and that’s why I think investors, everyone listening to this is better off planning for a higher interest rate environment and making investment decisions based on that. And if I’m wrong and rates go down more, great, that means that you’re going to have a lot more tailwinds to support your investing. But being cautious and presuming that rates are going to stay a little bit higher will help you be a little bit more conservative and protect yourself against any downside risk. So so far we’ve talked about redfin’s predictions about home prices and mortgage rates. Next we’re going to talk about the direction of home sales volume in 2025 right after the break.
Hey everyone, welcome back to the show. Today we are reviewing redfin’s 2025 predictions for the housing market and we are on to prediction number three, which reads, there will be more home sales in 2025 than 2024. Gosh, I hope this is right and I think it is. We have been in, some people have been calling it a housing recession or a slump or a slowdown or the market is stuck, whatever. The fact is that there just aren’t that many homes being sold right now compared to historical norms for 2024. The year’s not over yet, but we have a high degree of confidence that the number of homes that will be sold this year will be less than 4 million and 4 million is still a lot, right? We have to be honest that a slowdown is not that crazy because there’s still 4 million, but it’s a really big difference compared to the long-term average, which is about five and a quarter million.
So it’s like 2020 5% down from the long-term average and it is also down more than 50% from the peak in 2021 when it was selling an annualized rate of 6.7 million. So that is really crazy because it is down from the long-term average, but when you compare where we are today to where we are just three years ago, the delta, the chain has been just enormous. And so having home sales start to pick up would be a good thing and I do think that’s going to happen. Why I think home sales are going to increase is based on what I was saying earlier, we talked a little bit in the first section when we were talking about home prices about supply and demand and I told you that I think that demand is going to come back. I don’t know how aggressively, but I do think there will be an increase in demand in 2025.
I also think there will be an increase in supply just reverting back to econ 1 0 1. If you look at supply and demand, if both things go up, if supply goes up and demand goes up, volume goes up, quantity goes up. And so there’s I think a really good case to be made that there is going to be more home sales in 2025 than 2024. So I totally agree with this one. That said, before we move on, I just want to caveat this and say that it’s probably going to be a small increase. We’re probably talking, Redfin says they think that it’s going to go up to 4.1 million to 4.4 million, so that’s maybe a two, three, 4% increase, maybe a little bit higher than that, but that is not going to restore home sales volume to the long-term average, but it’s a step in the right direction.
If you’re picking up on the theme of what I think is going to happen next year, it’s that things are going to get better, but just marginally. So I don’t think we’re reverting back. We’re not going back to this period where we have huge affordability, massive home sales, huge home price appreciation. I think it’s going to be a long, slow and steady recovery for the housing market, but you got to start somewhere, right? We have to hit a bottom and start turning around and I think that this is the time that that’s going to happen. I think 2024 is going to represent the low for home sales for us and as we go into 2025, we are going to see a slightly more active market and hopefully that can just build on itself after 2025 in the out years so that we restore a more healthy, robust and active market.
Alright, well onto Redfin’s fourth prediction, which reads 2025 will be a renters market. Their explanation reads, many Americans will remain renters or become renters while the cost of buying a home will increase, rental affordability will improve. We expect the median US asking rent to remain flat year over year in 2025 that will make rent payments more affordable to the typical American because wages will rise. There will also be more new rentals coming on the market with many of the units builders started working on during the pandemic apartment building, boom coming to fruition. This will create more supply than demand motivating landlords to offer concessions like free parking a month of free rent, more amenities or hiatus on rent increases in order to retain residents. I couldn’t have written this one better myself. I wholeheartedly agree with this prediction from Redfin. They are basically saying that this is going to be a year where tenants and renters have more of the power in negotiating rent prices.
This again just comes down to a supply and demand question. We’ve covered this a bit on the show, but right now we are in this sort of unique time in the housing market where we’re seeing basically just a flood of new apartments coming online. This is because during 20 21, 20 22 things were great for multifamily operators, rents were going up, cap rates were low, valuations were skyrocketing, and developers wanted to get in on that. And so they started building a ton of multifamily properties in a lot of hot markets throughout the south and the Sunbelt, you probably know a bunch of this, but because multifamily takes several years to complete, we are only just now seeing all of those units from this building, boom, come online and hit the market. And the cool thing about multifamily investing is that all the data is there. It’s really easy to forecast this and you could basically see that through the first half of 2025, that dynamic is going to continue and this will hurt rent growth, right?
This is again, supply and demand. There’s just going to be too many apartments available for rent for the number of people who want to lease those apartments, and that means that operators, landlords, property owners need to compete for tenants. And how do they compete for tenants? Well, Redfin mentioned it. It’s like stuff like a month of free rent, lowering rents, free parking, all things that are going to lower income, lower profits for investors and be beneficial to tenants. And so when they say that they think 2025 will be a renter’s market, I agree, it’s not like rents are going down. They’re actually relatively flat on a nominal basis right now, and I don’t actually think that they’re going to go negative in a nominal terms next year. I just think they’re going to probably grow lower than the pace of inflation. And although that’s not something to panic about, if we have negative 1% real returns, that’s hopefully not going to really change anything for anyone.
But it’s something to note because obviously as investors all of your expenses are going to go up, insurance is going crazy, taxes are going up, labor materials, all these different things are going up, but your rents are probably not going to keep pace with that. Again, this isn’t in every market, but on a national scale that’s likely the dynamic that’s going to happen. This is sort of a tangent because we’re talking about 2025 predictions here, but I do want to just mention that this trend will end, right? We know that starting in 2022, that building boom that I was just talking about completely stopped, pendulum swung one way and we had a ton of building it, swung back all the way the other way and we have very little building right now. So that means starting probably in the second half of 2025, we’re going to have not a lot of apartments coming online and we might have the opposite situation because the reality, the long-term view of this is that the US doesn’t have enough housing units, right?
We are somewhere between one and 7 million housing units short of what we need. And so we need all of these apartments, but they’re just all coming online at the exact same time. And that’s creating sort of this inefficiency in the market that is benefiting renters and tenants right now and hurting the landlord side of things. That will probably even out in the next couple of years once all of this new supply gets absorbed, probably close to the end of 2025 or somewhere around there. So just to summarize this, I agree I wouldn’t count on a lot of rent increases over the next year, but the long-term forecast for rent growth still remains positive. So that’s my take on the rent forecast Coming up after the break, I’m going to talk about how construction regulation could change the market and I’ll do rapid fire reactions to five more predictions that Redfin put out. We’ll be right back.
Welcome back to our reaction show where we are discussing Redfin’s 2025 housing market predictions. The fifth prediction that we are going to talk about right now reads fewer construction regulations will lead to more home building. Their explanation says we expect home builders to construct more single family homes in 2025. That’ll take a few years for the increase in home building to make buying a house significantly more affordable. The Republican sweep of the White House Senate and House has improved builder confidence by bringing renewed optimism that regulatory burdens may ease. Builders will also bank on the fact that the mortgage rate lock-in effect will put a lid on the amount of existing inventory competing with new builds. Easing regulations should also lead to a rebound in multifamily housing starts. That will be a reversal from 2024 when builders pulled back on apartment starts because of the glut of supply.
Okay, so do I agree with this idea that fewer construction regulations will lead to more home building? This is kind of a yes and no. I agree with the sentiment here. What they said is that fewer construction regulations is building up builder confidence. Things are looking ripe for more construction and I do think that’s true. I think that is going to provide some upward pressure on construction starts. Basically this is going to give builders some more confidence and should help. But I also want to mention that there is maybe going to be some counter pressure. There is some other variables in the housing market and the broader economy that might damper some of this effect of deregulation and that is mostly tariffs. And we talked about that earlier and again, we don’t know exactly what it’s going to do if they’re going to happen, how severe they’re going to be.
So I’m just want to throw out one situation that could happen. But if Trump implements tariffs to the tune of 40%, he said recently 40% for China, 20% for Mexico, things like that. Most economists believe that if there are tariffs implemented, it will create a one-time cost increase. It’ll be inflationary, but just for this one time when the tariffs are increased, but those tariffs are likely to come in 2025. So builders will feel the impact of those tariffs in the next year. Now again, I don’t know if that’s necessarily going to happen, I just want to provide some context to this prediction that yeah, deregulation could and probably will improve builder confidence, but there are some other things that we have to wait and see to know whether or not there’s actually going to be a significant increase in construction. I hope this is right because we do need more housing supply in the United States.
We just talked about that and I think we do need to work on building our way out of this housing deficit that we’re in, but I just want to temper people’s expectations and just provide some counter narrative here. Alright, so those are our first five predictions. Again, we talked about home prices, we talked about mortgage rates, home sales, that renters will have the upper hand of the next year and what will happen with construction with deregulation. Redfin has actually made five more predictions and I’m just going to rapid fire a couple of these last ones because we don’t have time for all of them and I think I can answer them pretty quickly. So prediction number six says, wealthy people will pay less to buy and sell homes as commissions decline slightly. I actually agree with this. I do think there’s this downward trend in commissions, but I don’t think it’s going to be as dramatic as a lot of people think it’s going to take some time for all of this NAR fallout to work through the real estate market.
And so it is likely that commissions will trend down, but I think it’s not going to be that dramatic. Redfin is basically saying that wealthy people who have high price listings or buying high price homes will enjoy the benefit of lower commissions most because the commissions are going to be so big that ages are going to be more willing to negotiate on those and that logic makes sense to me. So I buy into this one. Prediction number seven is the real estate industry will consolidate. They said that under the new administration, the FTC will be more likely to approve mergers and acquisitions among the large companies, unlike other industries with a few dominant players, the US real estate industry has long been fragmented with multiple real estate search sites and brokerages, all of sizes business models competing for agents and customers. I agree with this.
I don’t know if it’s coming this year, but it does seem inevitable that real estate needs to consolidate. It is really fragmented. I agree with that. I don’t know if more mergers and acquisitions is the thing that finally provides that catalyst, and I don’t know if it happens in 2025, but I do think consolidation is likely at least in the next couple of years. Prediction number eight reads, climate risk will be priced into individual homes, especially in coastal Florida. The explanation says the risk of natural disasters will start pushing down home prices or slowing price growth in climate risky places like coastal Florida, wildfire prone parts of California and hurricane prone parts of Texas. Overall, I agree with this. I think we’re already seeing this, so I don’t know if this is so much of a forward-looking thing, but we’re already starting to see a lot of these market seen home price declines.
And I don’t necessarily think it’s because people aren’t moving there. People are clearly moving to Florida. A lot of people are moving to Texas, but insurance costs are so expensive that it’s becoming unaffordable for the people who want to live in these markets to live there. And so something has to give, and I am pretty sure insurance companies are not going to give. And so that is putting pressure on home sellers to lower prices. I think we’re already seeing this. So I agree with this general prediction that this trend is going to continue. Prediction nine Mayors in blue cities will help reverse the flight from urban centers. This says San Francisco elected a pro-business democrat as its new mayor. This year, Portland, Oregon elected a mayor who pledged to end unsheltered homelessness and several other big cities and blue states are enacting tough on crime policies to revive their downtowns and retain residents.
So I think generally this is too broad of a prediction to either agree or disagree with saying mayors in blue cities will cause this shift in demographic trends, I think is a bit much perhaps in some cities with certain mayors, with certain policies that might happen. But we’re seeing a lot of signs that not just in blue cities, that people are moving to the suburbs, people are favoring more suburban neighborhoods. And so I think there’s an uphill battle here in blue cities or red cities to stop the flight from urban centers. And so I don’t know if this is going to happen in 2025. Last prediction number 10, gen Z will rewrite the American dream, cutting home ownership from the script. This one is something I’m really glad they mentioned here because it’s something I have been thinking about a lot. Maybe we’ll just do a whole show on this in the future because home ownership has just become so unaffordable and if you believe what Redfin wrote here and some of the things that I agree with Redfin on, it’s that home ownership and affordability is not going to get that much easier in the next couple of years.
It might get a little easier next year and hopefully will sort of snowball and get easier and easier over the next couple of years, but it does feel right now unlikely that we’re going back to a level of affordability that we saw in the 2010s or during Covid, and that has huge implications for our entire society. Honestly, home ownership is such an important part of the American dream of what Americans consider success. What does it mean that fewer people are likely to be able to afford homes? Is it, as Redfin said that Gen Z is going to rewrite the American dream and maybe home ownership is no longer part of that dream? I don’t know exactly what this means, but I think it’s a really important topic and thing to think about as a real estate investing industry. And we’ll probably make a whole show about this topic of home ownership and the near future. So make sure to stay tuned for that. Alright, those are my reactions to Redfin’s 10 housing market predictions for 2025. I’m very curious to hear if you agree with Redfin. If you agree with me, please make sure to let me know. If you’re watching in YouTube, make sure to let me know in the comments below or just shoot me a message on BiggerPockets or on Instagram and let me know what you think is going to happen here in 2025. Thank you all so much for listening. We’ll see you next time for the BiggerPockets podcast.