The 2024 Housing Market in Overview

Dave:
For those who’re gearing up for a profitable investing 12 months in 2025, it’s worthwhile to know what occurred within the final 12 months. At this time I’m recapping the largest traits and storylines from one of many wildest years the housing market has ever seen 2024. Hey everybody, it’s Dave and welcome to the BiggerPockets podcast. For those who’re something like me, you’re in all probability winding down your 12 months and beginning to look ahead to all of the offers you’re hoping to do in 2025. However earlier than you try this, at the very least for me, I discover it very useful to simply take a minute to step again and look again on the 12 months. That was as a result of it helps inform what we’re going to do within the 12 months to come back. So immediately I’m going to interrupt down crucial storylines that you simply all must know from the residential actual property market, the business actual property market, and I’ll additionally present some updates on the rental market as nicely.

Dave:
Earlier than we get into it, I simply wish to say maintain a watch out in your feeds the subsequent couple of weeks as a result of immediately we’re going to be form of setting the stage for what has occurred, however in every week or two, we’re going to be dropping a brand new episode the place we make predictions on what we predict may occur in 2025. So be certain that to verify that one out as nicely. All proper, let’s get into our 12 months in evaluate, which as I mentioned, begins with residential actual property, which is principally any constructing that has 4 models or fewer. We’ll be speaking in regards to the greater stuff just a little bit later within the episode. So in terms of residential actual property 2024, one of the best ways to explain the housing market was simply sluggish. There was extraordinarily low gross sales quantity. So if you happen to’ve been wanting on the market making an attempt to leap in and also you simply really feel like issues are caught and actually slowed down, you’re completely proper.

Dave:
This 12 months is definitely poised to finish at an annualized price of simply 3.8 million residence gross sales. That is for current houses. That doesn’t rely new development, and which may sound like quite a bit as a result of about virtually 4 million residence gross sales is quite a bit, however it’s nicely under the long-term common over the past couple of a long time. Usually, we’d anticipate one thing extra like 5 and 1 / 4 million, 5.25 million, and I feel that one of many issues that’s occurring proper now’s that it feels even slower than that as a result of simply a few years in the past through the pandemic period as I imply primarily in 2020 and 2021 residence gross sales have been truly nicely above that long-term common. We have been at about 6 million houses. It reached the height at 6.7 million houses in October of 2020, and now we’re down under 4 million. So this has dropped greater than 50% within the final 4 years.

Dave:
So if you happen to’ve gotten into actual property within the final couple of years, the dynamics of the market have fully modified to 1 that has quite a bit slower. And the explanation for this slowdown is truthfully fairly easy, proper? Residence patrons and residential sellers, each side of this market are turning away from the market. For my part, and that is simply my opinion, however I feel it’s largely because of low affordability. We discuss affordability quite a bit on this present, however if you happen to don’t know the definition, it principally simply means how simply the common American can afford the common worth residence within the nation. There are alternative ways to measure this, however in accordance with the US Fastened Housing Affordability Index, that may be a entire mouthful, however it’s one thing that NAR, the Nationwide Affiliation of Realtors retains monitor of. Based on this index, now we have a rating of a 98, which is just about the bottom it’s been for the reason that mid Nineteen Eighties.

Dave:
So we’re at close to a 40 12 months low when it comes to affordability and simply once more, one of many themes that I wish to name out right here is we aren’t simply seeing a giant distinction from long-term averages. Throughout the pandemic, issues have been actually good and now they’ve gone to actually unhealthy. So the distinction feels actually, actually excessive and low affordability, the primary factor that it does is drives down demand. Individuals who wish to purchase houses not can afford the houses that they need, and they also sit on the sidelines and don’t take part within the housing market. Based on the Nationwide Affiliation of Residence Builders, there are literally 103 million American households at present priced out of the housing market, and I feel this can be a actually vital observe for everybody to concentrate to right here. Once we discuss economics, you hear this phrase demand, proper?

Dave:
And I feel lots of people assume that demand simply means the will to purchase a house or the will to purchase something, however it’s truly a mix of the will to purchase one thing and the flexibility to purchase one thing. And so we’re seeing a breakdown in demand within the housing market, not as a result of folks don’t wish to purchase homes, however as a result of they will not afford to purchase homes. And truly whenever you dig into the numbers and surveys and all this different stuff, simply as many individuals wish to purchase houses as they all the time have. The truth is, I used to be taking a look at this text the opposite day from CNN, they did a ballot and it confirmed that 90% of American renters below the age of 45 wish to purchase a house. They simply can’t afford it. And so this exhibits two issues. One, why the market is sluggish, which is what we’re speaking about, however as we’ll discuss later and in future episodes, this additionally bodes nicely for the long-term prospects of the housing market as a result of folks, Individuals nonetheless wish to purchase houses.

Dave:
That demand decline due to low affordability, I feel is smart to lots of people. The opposite factor although, that affordability, low affordability does to the housing market is that it constrains provide. In different phrases, it simply causes much less folks to record their houses in the marketplace on the market, that means that there’s much less choices for patrons. And this is among the most original components of the housing market as a result of sellers within the housing market, 78% of them, virtually all of them go on to purchase a brand new residence, proper? You promote one, then you definately go purchase one other one. And in order that implies that when residence shopping for situations are unhealthy like they’re now, that implies that residence promoting situations additionally change into fairly unappealing. Individuals don’t wish to promote their houses proper now as a result of they don’t wish to promote it, get all this cash after which go have to take a position that cash again into the market in an adversarial method, proper? And this dynamic, which is off, you’ve in all probability heard this known as the lock in impact within the media, however this dynamic may be seen very plainly in new itemizing information. Mainly, since charges spiked in 2022, quite a bit fewer persons are itemizing their houses on the market. We’ll get into the implications of this and discuss some regional distinction within the residential housing market proper after this break.

Dave:
Hey everybody, welcome again to the BiggerPockets podcast. In order I used to be saying, much less persons are itemizing their houses on the market, and that’s principally offsetting the decline in demand. We now have these two counteracting forces, however they’re each dropping on the identical time. This principally permits costs to remain comparatively steady or go up. If you wish to put this one other method, regardless that lots of patrons have dropped out of the market because of low affordability, there are nonetheless extra patrons than sellers within the housing market proper now, which retains costs rising considerably steadily. And because of this regardless of all these calls on YouTube or within the media that the housing market was going to crash, the housing market hasn’t crashed. It hasn’t even corrected as of September, 2024. I’m recording this in mid-November, however that is the final month we even have information for with September, 2024.

Dave:
The median residence worth within the US is a whopping $429,000, which is up 4% over the earlier 12 months. So once more, regardless of the sharp drop in demand, there are nonetheless extra patrons than sellers, at the very least on a nationwide degree. Alright, in order that was our nationwide degree evaluation, and I do assume it’s tremendous vital to take a look at these broad US degree traits to get a way of the massive image, however after all, actual property is form of inherently native and there are literally thousands of totally different housing markets throughout the US. And to completely get an image of what’s occurring, we have to go just a little bit deeper and take a look at some regional and native traits. Now, after all, I don’t have time to speak about each area within the nation, so I’m going to make some broad generalizations about what’s occurring that will help you perceive form of a map of the US and the place issues are nonetheless actually sizzling, the place issues are slowing down and all of that.

Dave:
So the areas of the nation the place we’re seeing the strongest worth appreciation are literally form of surprisingly within the northeast and the Midwest. Once I was taking a look at this the opposite day, truly, I used to be taking a look at a few of the quickest rising counties in the US, and 5 out of the highest eight have been the suburbs of New York Metropolis. We see lots of western new and central New York, Connecticut has a few of the hottest markets, Rhode Island, these are usually not locations in my investing profession which can be usually as sizzling as this, however there are areas the place there’s not lots of provide, and so costs are going up. The identical factor is occurring in lots of the Midwest. For those who take a look at Indiana, Ohio, Michigan, elements of Illinois, elements of Kentucky, we’re seeing lots of development in these areas. Once more, because of provide constraints.

Dave:
A number of the usually hotter areas within the nation are literally beginning to decelerate, and a few of them are literally seeing corrections. So most notably Florida as a state has truly seen costs decline, however it’s actually delicate. It’s like 1% worth declines in Florida. There are specific markets in Texas the place costs have decline, and I truly assume Louisiana does see have lots of markets the place costs are declining as nicely. And so it’s laborious to form of generalize the entire Southeast, but when I needed to, I might say that states which can be alongside the Gulf coast, once more, Texas, Louisiana and Florida, these are the locations which can be experiencing the softest housing markets. Now it’s vital, and each time I discuss this, I actually assume it’s vital to caveat that these markets have been a few of the quickest rising over the past couple of years. So if you happen to’re evaluating these states to say 2019 ranges within the housing market, they might nonetheless in all probability be two or three of one of the best states on the market.

Dave:
What I’m speaking about proper now’s simply 12 months over 12 months from September, 2023 to September, 2024. Once you take a look at the west coast, you truly see a combined bag. So there are elements of Washington, Oregon, northern California which can be seeing declines the place Southern California is doing fairly nicely. Idaho is doing fairly nicely. Components of Colorado and New Mexico are nonetheless doing nicely. So it truly is a combined bag on the west, the extra outlined traits are occurring on the east and the southeast of the nation. In order that’s in regards to the regional dialogue that we’re going to have immediately. If you wish to know extra about what’s occurring in particular areas of the nation, you’ll be able to all the time go take a look at our sister podcast in the marketplace. We speak quite a bit on that present about what’s occurring in numerous states, particular cities, all of that. However for us immediately on this episode, I’m truly going to change now from residential actual property to business actual property.

Dave:
And once more, the definition right here, we’re not speaking about workplace right here, we’re not speaking about retail after we’re speaking about business actual property. I’m principally targeted on residential actual property right here which can be properties with 5 models or extra. And I do know that this isn’t all the time the bread and butter for everybody who’s listening to this podcast. I personally put money into each residential and business actual property, however I feel no matter whether or not you truly put money into business actual property, it’s vital to know what’s occurring in that sector of the market as a result of it does have some overlap and spill over into the residential market, which we’ll discuss in a second. If you wish to know what’s occurring within the business actual property market briefly, it’s in a crash. There are specific sub-sectors of business like retail, warehousing, industrial that’s doing okay, however for multifamily particularly what we’re speaking about right here immediately, property values have declined round 15% nationally and have declined by much more in sure elements of the nation.

Dave:
Mainly what’s gone on right here is that through the actually giant unusually excessive demand development for housing models from 2020 to 2022, through the depths of the pandemic development of multifamily exploded on a nationwide foundation, builders principally noticed, they noticed rising rents, they noticed robust absorption, which principally implies that new house buildings are getting leased up shortly. So that they noticed these mixture of issues and so they simply began constructing like loopy. It was one of many largest booms of multifamily improvement in US historical past, however as a result of multifamily properties, they’re greater, they take longer to finish. The impression of that constructing growth is simply being felt proper now. It truly began in 2023. We began to see supply of latest models beginning to peak, however it’s actually coming to a head right here within the second half of 2024. So in accordance with RealPage, which is only a actual property analytics agency, we’re truly at a 50 12 months excessive for multifamily unit development, which is actually loopy to consider.

Dave:
It’s truly going to decelerate as we head into 2025, which we’ll discuss in only a minute. However what’s vital for us to know immediately is that we’re nonetheless within the midst of this large short-term glut of provide. There’s principally simply tons of flats hitting the market, and this has pushed emptiness charges again above pre pandemic ranges the place they’re truly anticipated to remain for an additional 12 months or two. Now, emptiness, if you happen to’re an skilled investor, you realize that emptiness kills all offers. That rising emptiness additionally places downward stress on hire development as a result of principally there’s all these folks, buyers who personal multifamily properties and so they’re competing for tenants in actually oversaturated markets. And what occurs the way in which that property homeowners and landlords compete is that they decrease rents or they provide concessions like a free month or two free months or six months, half off, no matter it’s, they provide these concessions and it drives down hire costs.

Dave:
And as such, we see that hire development has actually flattened for multi-family models on a nationwide scale. And markets which have essentially the most new models, essentially the most development occurring are literally seeing rents begin to decline. And once more, like I mentioned earlier than, with residential actual property, there are going to be huge regional variations. Each metropolis’s going to be just a little bit totally different. For instance, the Midwest is anticipated to see a modest 20,000 unit improve in new models in 2024 in comparison with pre pandemic ranges. That’s not that loopy, however in the meantime, whenever you take a look at the Sunbelt, it’s anticipating 120,000 extra models than in 2019. So you’ll be able to see the distinction right here. Some markets are going to have the ability to take up the brand new development comparatively nicely. Others are going to be form of inundated with new models over the subsequent couple of months. And the explanation I’m bringing this up proper now’s as a result of regardless that the residential market and the business market work considerably independently, they’re not all the time doing the identical factor as we’ve seen proper now.

Dave:
I simply talked about how multifamily property values have declined double digits. In the meantime, residential property values have climb this 12 months, proper? So that they’re not the identical factor, however in terms of hire, they’re actually competing for a similar folks. I feel lots of tenants are principally simply searching for one of the best worth that they will discover, and though they could have a choice for a single household residence or a duplex, in the event that they’re getting nice offers on a brand new constructing with nice facilities, they’re in all probability going to take that. And so maintain that in thoughts afterward within the episode after we speak in regards to the rental market. However earlier than we get into that, I simply wish to end out my thought right here on business actual property as hire development slows, I simply talked about hire development slowing, and as that occurs, the multifamily market on the identical time is experiencing lots of main value will increase.

Dave:
Lending prices are up and in any given 12 months, proper, 15 to twenty% of all belongings are anticipated to need to refinance, proper? The business loans simply work in a different way. Somewhat than fixing debt for 30 years, they’re normally on a 5 or seven 12 months adjustable price time period. And so in any given 12 months, lots of totally different operators need to refinance and the people who find themselves refinancing final 12 months and this 12 months are refinancing into the next rate of interest atmosphere. And as you’ll be able to inform, refinancing into larger rate of interest atmosphere goes to eat into your income. On the identical time, insurance coverage prices are going up nationwide as are property taxes. And whenever you take a look at all this stuff mixed, it’s actually robust atmosphere for multifamily operators to keep up or develop working incomes. And on the identical time, all of that wasn’t sufficient. There are all these macroeconomic situations which can be pushing up cap charges, which is principally only a ratio that helps worth business actual property and that lowers asset values. So within the business market, you see gross sales quantity, tremendous sluggish similar to residential, and the gross sales worth per unit nationwide has dropped 15% since 2022. Alright, that’s the business roundup I’ve for you guys. We’re going to take yet one more fast break, however after we come again, I’m going to provide a recap on what’s been occurring with hire costs nationwide.

Dave:
Welcome again to the BiggerPockets podcast everybody. We’re doing our 2024 12 months in evaluate. To date we’ve talked about residential actual property, we’ve now talked about business actual property, and the final step right here is to go over what’s occurring with hire. In fact, through the pandemic, we had a number of years of simply huge hire development, and now within the final couple of years, as the entire market has cooled down, hire development has cooled to what I might name regular ranges of appreciation for single household residents. Hire development stays above the longterm common, and I feel critically importantly, it stays above the speed of inflation at round 5%. That is in accordance with Zillow, and only for some context, so that you all perceive, usually hire grows three to 4% per 12 months, so 5% is a bit above that. And once more, I feel it’s notable that for actual property buyers, you need hire to at the very least maintain tempo with inflation as a result of that method you’re in a position to equally pay for all of your bills, proper?

Dave:
If inflation’s driving up your bills, you must hope that hire is at the very least conserving tempo with that, so you may protect your revenue margin. And so what we’re seeing now with hire development is that it’s exceeding the tempo of inflation. In fact, once more, there are huge variations in main metro areas. We’re seeing Midwest Northeast dominate development. Once more, Hartford, Connecticut, Columbus, Ohio, Cleveland, Ohio have all seen the very best hire development within the final 12 months, all above 8% hire development just like residence costs. The cities which can be seeing the weakest development are in Texas and Florida with Cape Coral, Austin, San Antonio, and Orlando, all on the backside of the pack. However I feel the largest distinction right here, clearly the regional variations are vital, however given our earlier dialog about what’s occurring within the residential market versus the business market, it’s vital to name out the distinction between multifamily hire development and single household hire development.

Dave:
For those who take a look at multifamily, it’s slowed down by this oversupply challenge, and hire development is simply 2.5% within the final 12 months. Now, 2.5% is definitely not that unhealthy, particularly given how a lot development is occurring. I feel it exhibits how a lot demand there’s for housing in the US, however it’s simply notably lower than single household rents, and it’s modestly under the tempo of inflation. All that’s the 2024 12 months in evaluate that now we have for you guys. Earlier than we get out of right here, I simply wish to reiterate a pair key factors that you must take away right here. Primary, affordability within the housing market remains to be actually low, and that’s inflicting this sluggish, gradual market with low stock that we’ve been in for the final two years. The second factor you must keep in mind although is regardless of all of that, gross sales costs are nonetheless going up as are rents, that are actually good issues for individuals who have actual property portfolios.

Dave:
The very last thing to recollect is that business actual property is within the midst of a correction or a crash, and try to be very cautious as you head into 2025 with that market as a result of there’s much more uncertainty there than there’s within the residential market. Hopefully, this has been useful for you all in setting the stage for what I feel could possibly be an amazing 12 months for 2025. And ensure to remain tuned to your feeds over the subsequent couple of weeks as a result of I’ll be releasing my predictions about how the housing market may change within the subsequent 12 months in simply a few days. Thanks guys a lot for listening to this episode of the BiggerPockets podcast. I’m Dave Meyer, and I’ll see you all quickly.