US Real Estate & Housing Market
Are we in for a housing market crash later this year and what does 2025 look like?
There’s a lot of wrestling over pessimism about the US housing market now in H2, 2024. And in 2025? Well, the Presidential Election factors prominently, and no ones quite sure how the housing market will respond to a new Republican President of the United States.
The economy is health with recent good jobs reports and the US is in the midst of a Pro-US investment and manufacturing repatriation phase, boosted by its leadership in AI technology. So the economy might not contribute to a crash forecast.
Demand for homes by Gen Z’s and Millennials keeps strengthening, and millions of illegal aliens pouring across the southern US border push demand up too, but for only lower priced housing, of which is in meager supply.
And with President Biden gone, the US will be free to utilize its overwhelming leadership in oil and gas production which means much cheaper energy will be ahead. This will fuel economic growth.
For sure, home prices, energy prices, food prices, crime, immigration and taxes are big issues that will threaten Biden’s attempt to hang onto the office. On every account, he has failed.
Realtor.com® Chief Economist Danielle Hale says: “If people feel like the market itself is not able to meet their needs, then it’s not surprising to see them look to politics to try to find a solution.”
The Return of Donald Trump
President Trump has stated he will stop millions of illegals from crossing the border, and deport those illegals who have entered the US in the last few years. That would reduce demand significantly, thus lowering home prices. Reduced FED money printing would also reduce funds for home buying.
President Trump may have ways to influence the FED and demand lower interest rates, but it’s not guaranteed. The FED may anticipate strong economic growth and investment via Trump, thus raise rates to stop the ensuing inflation. And without builder incentives and lower prices, the housing shortage may never be resolved.
So, while 2024 looks grim, 2025 could be a big turnaround year, with significantly more money from hedge funds and billionaires back from Asia to the US as the repatriation movement picks up pace.
Is it Wise to Buy a Home Right Now?
Joe Biden has spoken about massive spending bills and tax credits to enable unqualified buyers to buy a home, they really can’t afford. Let’s face it, if someone needs a $10,000 giveaway to buy a $400,000 home at a 7% mortgage rate, they really shouldn’t be buying one. The extra funds only encourage them to bid higher, borrowing money from their parents.
Tens of millions of desperate mortgagees face higher refinancing in this 2024 to 2026 period and if rates don’t drop, many will have to sell, thus flooding the market with properties.
This summer of 2025, home sales are down 50% from the 2020/2021 where 6+ million homes were sold (annualized basis). Not such a healthy market for peak season. Home sales slumped to 4 million and it’s only the high end luxury market where sales are happening.
In April, single family home sales dropped 2.1% while prices rose 5.6% to a new median of $412,100 country wide. The median condo price rose 5.4% while sales are down 7% from one year ago.
Yes, it’s a tale of two markets, between big cities and smaller cities, and between the wealthy and the rest of America.
Forecast for the Remainder of 2024?
Likely, over the next few quarters, as one real estate expert pointed out, we’re going to see a correction in prices. And if the FED refuses to lower the central rate, this market pessimism could start a correction.
Of course, some markets may not see it to the same extent of others. She believes it a correction could be a slide of 5 to 10% in home prices. However, NAR has reduced it’s forecast from 7% down to 2% for end of 2024, and MBA continues to predict a 4.8% home price growth year over year at end of 2024.
This year’s home sales are the worst in 40 years with no end sight for housing supply. The next 6 month forecast is subdued as mortgagees face refinancing woes at much higher rates for a big increase in monthly mortgage payments. The thinking is that if the economy gets rolling again, inflation will return.
Given housing is not being built for the millions who need it, bidding on listings will still be intense. Unbelievably, it is still a seller’s market. NAR’s May housing report showed more homeowners are listing.
Wealthy Homeowners Are Selling
So why are the wealthy selling their homes right now? Is it because they:
- see a recession looming?
- a housing market crash?
- prices are flattening and soon to sag, and it’s the right time to unload?
- they don’t want to renew mortgages at high rates?
- they’re putting their money into stocks?
- they’re building new mega mansions to live in
NAR Chief Economist Lawrence Yun believes more housing coming onto the market which should end the price rise parade.
Residential Construction, Okay But Faltering, and Not Enough
Builders Sentiment Still Up, But Darkening
In the last survey of builders, they appear to be pessimistic and indeed permits issued fell during April 2024, down 2% from March. However, historically, their sentiment is high. That’s likely due to building is brisk, where permitted and financed, however, if stimulus spending ends and as more new homes are released, the outlook for price rises drops. Given inflation, risk will grow each month.
With respect to affordable housing or any housing development, has the anti-development lobby been defeated? Are builders building the homes people want, or temporary, high density starter units?
Stats showed no growth in home sales under $250,000 in April. The affordable market simply doesn’t exist. With prohibitive regulations in place, amidst record growth in population, any President may have minimal impact. In fact, during President Trump’s term in office, affordable housing hit its lowest level ever.
The fact is, middle and upper income Americans still don’t see affordable housing as a big issue. In fact, rising real estate prices helps them feel secure about their properties as an asset. Less housing means their $500,000 home becomes $1,500,000. This greed incentivizes anti-development local politicians to regulate housing development and charge higher fees to capitalize on new construction. The other 90% are a little concerned.
Reasons Why People Are Still Eager to Buy Real Estate:
- home prices are appreciating and it’s a safe investment over the long term
- millennials need a home to raise their families
- rents are high giving property owners excellent ROI on rental properties owned
- flips of fixer uppers and older properties continue to create amazing returns
- real property is less risky (unless you get over-leveraged)
- the economy will improve by late 2024
- a home buying frenzy is ahead by 2025 as economy is unleashed (election hopes!)
Will 2025 Be Better?
- there will be more homes listed
- prices may level off and stop climbing
- the economy will regrow
- new construction will continue
- mortgage rates will remain elevated and credit hard to get
- competition for homes will ease off
- some sellers will find it easier to sell and move on with their lives as rates fall
- home price growth will moderate a little (estimates down to 2% growth by NAR, 4.8% by MBA, and 5.9% by Zillow)
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