The Real Estate Question: 2025
Investors Must Leverage the Data at Their Disposal
by Andy Bates
Not quite the dynamic environment seen in recent years since the pandemic, 2024 has maintained its own brand of tension for those involved in real estate. Throughout the year, uncertainty has been stoked through tight margins, unfavorable rates, and seemingly slow movement in the market. Such an environment has everyone from seasoned industry professionals to fledgling mom-and-pop investors asking, “Will the real estate market ever recover?”
For the determined investor, there is much to consider rounding out the corner of the year into 2025. Maintaining an awareness of the climate in the market as well as relying on actionable data-points could mean the difference between those who are successful and those who only break even, or worse, are forced out of the market altogether.
The following is a summary of recent trends and developments throughout the real estate industry with the aim of highlighting and interpreting several key factors. With the proper framework, these datapoints can be leveraged to help investors better understand not only what has happened in the space, but what may be to come.
A Matter of Interest / Is Anyone Interested?
For investors, no discussion of the potential state of the industry into 2025 would be complete without an examination of interest rates. This necessitates a conversation about the Federal Open Market Committee and its decisions.
The September decision by the Fed to slash rates by 50 basis points has big implications for the space. Those 50 basis points represent a change to a new target Fed Fund rate of 4.75-5%. This, and other decisions of a seemingly dovish tendency, may herald the ending of a “higher-for-longer” rate environment.
Core inflationary numbers have seen a .2 descent in percentage points in 2024 (down to 2.6%) per one assessment by JPMorgan. This is largely expected to taper to a low of 2% flat by 2026.
Such movements in the fed fund rate portend for investors the potential for a shift towards a lesser cost to borrow. Lowered borrowing costs would provide investors with a greater opportunity for capital from private and commercial lending sources. The S&P CoreLogic Case-Shiller Home Price Index shows home cost appreciation has increased consistently in the vast majority of US markets throughout 2024. This lowered cost to capital will enable investors seeking non-conventional funding to remain not only active, but competitive in the space with overall greater access to funding and success with private lenders.
Activity in the Space / What’s Happening Here?
Beyond interest rates, there are several other factors of which investors should take note when attempting to analyze the market. These factors take into account housing market activity and understanding where these figures have been can help determine where they might be going.
Housing starts have increased steadily month over month throughout 2024. This means that, whatever the rate comparison year over year, housing inventory is being steadily addressed. There is still not quite enough inventory in the space to sate demand, or stimy competition between primary-buyers and investors, and so home price appreciations remain relatively high. Keeping track of housing starts, and specifically taking note of these figures by location or area market, can help investors predict when inventory will become available and can help to source deals, even getting properties under contract, ahead of the competition.
If housing starts can represent anticipated inventory in the space, completed projects are a valuable trend for following new inventory as it becomes readily available. Data provided by the United States Census Bureau released in late October show that completion rates on newly developed residential properties have increased month over month since Q4 of 2023. This represents hundreds of thousands more housing projects seeing their way to completion than even before the onset of the 2020 pandemic.
In spite of the high costs of acquisition, housing demand has not slackened. Total home sales are a metric that often directly correlates to, and is representative of, housing demand. One report from Redfin.com shows home sales have increased as recently as Q4 of 2024. The report also highlights that this increase in home sales was likely driven by two primary factors; the first of which are the recent rate cuts issued by the Fed discussed earlier in this article and the second being the expectation of further interest rate cuts as outlined in a plan by the Federal Reserve.
The combination of these factors — housing-starts, completions, and home sales — speaks to a trend toward normalcy and health in the housing market. It is worth noting that while prices across the real estate industry could stabilize, it may be a step too far to expect that they should drop to any significant degree. That being said, even with such tight margins between home prices and the power of investment capital, market activity should continue at an even course.
Finding the Right Answers
Even with the real estate markets’ diverse history fraught with hard years and shifting economies, it is fair to say that this year, in 2024, the real estate market has truly been tested. It is imperative, perhaps now more than ever, that investors leverage the data at their disposal. The question of where the industry is ultimately headed persists. In answer to these challenges one thing remains consistent: real estate investing maintains its status as a lucrative and worthwhile endeavor for those with a keen mind for the market and wherewithal to see their vision through.
