The Ability to Pivot is More Essential Than Ever
by Carole VanSickle Ellis
In his annual address given in August of this year, Federal Reserve Chair Jerome Powell described the national economy as “engaged in a curious kind of balance” that threatens to swing the state of the national economy from “slowdown” to “downturn.” That swing could be bad news for real estate investors unable or unprepared to strategically pivot as the financial health of their local markets shifts.
Powell described the current economy as an “unusual situation,” cited “tariff-driven inflation and a downturn in hiring” as the causes for a “slowdown in both the supply and demand for workers,” and warned “sharply higher layoffs and rising unemployment” could hit the country at almost any time. He also noted the current economic cooling trend is “much larger than assessed just a month ago,” and spoke reassuringly about the current lack of “slack” in the labor market. As long as demand for labor remains relatively strong, Powell said, the economy might avoid a full recession, although he projected price increases would continue to “accumulate over the coming months.”
For real estate investors, an economic downturn or a recession by traditional definitions has never been an entirely bad proposition. Typically, the real estate sector manages to thrive and, ultimately, assists in hauling the rest of the economy out of economic trouble when that trouble occurs. However, in a downturn that is not typical, not predictable, and not entirely precedented, investors will bear a much greater onus than in years past when it comes to monitoring local and national markets for signs of what is to come.
Simply monitoring jobs created, employment numbers, population growth, interest rates, and property values in order to forecast the future state of any given market will no longer make the grade if a real estate business is to maintain momentum and growth in 2025 and beyond. Instead, investors must employ a much larger analytic lens in order to make accurate, pertinent, and timely predictions about their markets and the strategies that will keep their businesses strong in the coming months and years. In that context, REI INK has identified some often-overlooked metrics that may help investors stay ahead of the trends.
Port Performance, Nationally and Locally
As the short-term effects of President Trump’s tariff policies continue to play out, not all regions of the country will be affected equally or simultaneously by shifts in trade and freight patterns. Monitoring local port activity and associated residential and commercial construction trends can provide insight into ports and regions around them that may be more resistant to declining container volumes or that have alternate supply chains in place, such as “dry ports” positioned farther inland, that may make a port more attractive to merchants. If a port has both a steady history of activity (vs. a pre-tariff surge and drop-off) and ongoing commercial development and sales growth in the local area, the residential real estate market in the area is likely to be relatively solid as well.
“Dropped” Transactions on a Local Level
This past July, 15.3% of home sales transactions were “dropped,” meaning they fell through, nationally, setting a new record for dropped-transaction-rates in the process. When homebuyers are willing to drop out of an agreement into which they have already invested significant time and capital, it typically indicates a market is cooling rapidly. Particularly in the southern part of the United States, where San Antonio, Texas posted a 22.7% drop rate in July and Fort Lauderdale (Florida), Jacksonville (Florida), Atlanta (Georgia), and Tampa (Florida) all posted rates around 20%, this type of buyer behavior indicates growing economic uncertainty, a pervasive belief that there plenty of options available, and concerns about high mortgage rates.
Investors employing fix-and-flip strategies should be aware the competition is likely to become fierce not only among retail sellers but also with new construction, which is posting record builder incentives (66% of all builders are currently offering sales incentives, including mortgage-rate buydowns). According to the National Association of Home Builders (NAHB), this is the highest share of builders offering incentives since May 2020.
Shifts in Credit Behaviors
It is not news that the United States is trillions of dollars in debt, nor is it particularly groundbreaking to note that individual citizens are carrying more debt than ever before. It is noteworthy, however, that at the end of June, LegalShield announced more than two-thirds of households and businesses were in “credit distress” due to a rising number of bankruptcies across industries, inflation and debt burden in households rising to a cumulative household debt of $18.2 trillion, and growing investor preference for investments of gold and precious metals.
Carried and delinquent debt are both signs of looming consumer distress and credit deterioration. However, true to the “unusual balance” characteristics of the current economy, it seems only appropriate that credit behaviors are also presenting a “paradox,” with consumer spending remaining robust but increasingly fueled by debt. At present, household debt delinquencies are higher than they have been since 2020, and the Consumer Stress Legal Index (CSLI)’s Bankruptcy Index is signaling a pending wave of filings with measurements nearly 9% higher in Q2 2025 than a year prior.
Real estate investors are typically the “port in the storm” for a troubled economy and real estate the first sector to react, adjust, and recover. However, with this economy’s “unusual balance” in play, investors must pay closer attention than ever to every element and strategy at work in today’s real estate market.
