The Housing Market is Changing (Deals Are Coming in Winter)
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We are rounding out what has been another very interesting year in the real state market. And I find myself looking at the data, trying to understand what the housing market is, trying to tell us us and where the best opportunities may lie this winter.

Along my friends is Steve. Welcome to on the market. In the last couple weeks, i've been doing some analysis, just trying to figure out what's gone on right now. And IT pointed me towards answers to the questions I just post above, and I recorded some replies and thoughts about what's happening this winter and initially put IT on an episode of the bigger pockets real estate poddar ast. But I wanted all of our on the market listeners to enjoy this information as well.

So that's what we're going to do today and to share with you my thoughts on what the housing market is telling us and what we're going to see through the end of the year. And if you are listening to this podcast, the day that IT air, happy thanksgiving, everyone. We appreciate every single one of you, and don't forget to take advantage of the bigger pockets black friday sale where you can get up to sixty percent of our most popular titles, to take advantage of what is honestly our best deal of the entire go a bigger pocket stock comm life black friday to pick up whatever book you've been in and wanting to read.

The cell runs from the veba two thousand nine through december second. There is not going to be any extensions. There is no presale.

Just four good days of good deals with no further. Do let's get into today's episode. So first things first, I know everyone loves talking about Prices, so we're gonna just start there. The national median home Price is now at all time high as IT has been four years, but it's at four hundred and twenty nine thousand dollars, which is up four percent year over a year. Now four percent every year.

IT may not sound like this huge number because especially if you just started investing in the last couple of particularly during the pandemic, there were years when we saw home Prices go up double digits, ten percent, fifteen percent in certain markets. But just for some context, four percent annual growth, which is the same thing as you're over year, is above average. The long term average for housing appreciation is somewhere above three percent.

So this is higher than that, but not by that much. It's kind of actually a Normal year. And the other thing I want to call out about this specific number that is important for investors is that IT is above the rate of inflation.

There are plenty of different ways to measure inflation, but right now, it's somewhere in the low trees by most measurements. And so by seeing home Prices at four percent over your growth, IT is above the rate of inflation, which as investors, is something we definitely want to see. So all in all, pretty good Price growth this year.

But we should also talk about the trend because even though IT is up, IT is slow going down this spring, even when more gate rates were higher than they were now at something like eight percent, Price growth was actually around six percent. And so we're seeing over the course of twenty twenty four, even though by some measurements, it's getting easier to buy homes because mortgage Prices have come down were actually just seeing home Price growth start to slow down. So home Price growth is slowing, but there has obviously not been a crash.

And if you listen to the show, now that i've been saved for a long time, I didn't think there would be a crash in twenty two or in twenty three or this year. But IT is important to remember that there are some markets, even though the national growth is pretty good, that are seeing modest declines, what I would call a correction, not a crash. The most prime examples of markets that are seeing the backsliding in terms of Prices are florida and texas.

And even though they are closing, quote, some of the coolest st markets in the united states right now. It's super important to remember that these are very, very mild corrections. We're actually seeing that these two states, even though lots being made out of the fact that they are down a little bit, they're down less than one percent year over year.

So it's super, super mild. And if you factor in all the growth that these two states in particular have seen, at least the beginning of the pandemic, they are still way up. They are up huge amounts over twenty nineteen, and they're just barely off peak.

And of course, that might get worse over the next couple of months. But again, this is a snapshot of where we are today. And even though they're down, they're down just a little bit.

Meanwhile, on the other end of the picture, we are seeing huge growth in a lot of states and regions of the country that don't necessarily see a lot of growth or at least a lot of investors won't expect to be some of the hottest markets in the country right now. Connected IT of all states connected is actually the fastest growing state in terms of home Price appreciation right now at eleven percent. We also see new york and ohio up nine percent.

So even though some of the more splashy markets look flat and texas are down very modestly, we're seeing some markets that are seeing truth almost three times the national average in terms of appreciation rates. So that's where we are with home Prices right now. Again, here are growing and a pretty Normal year.

Some markets are up a lot, some are down just a little bit, and the average is very close to what we would expect for a Normal year in the market. So when I look at this Price data and listen, I don't know what's going to happen. But when I am looking at all this data, what i'm thinking is, number one, Prices have not crashed despite murder rates going up really rapidly and affordability being pretty low.

At the same time, we're starting to see the market cool. And I actually think that this is going to cool a little bit further as we head into the seasonal decline. IT always starts to cool in the winter, or at least usually when we're not during the medal of a global pandemic.

And so to me, this is one of the main reasons I actually think there might be decent buying conditions in the next couple of months because although the market is slowing a little bit and that means we won't have the same level of appreciation. Personally, i'm a long term investor, and so i'm looking for opportunities to be able to buy things below listing Price and to be able to negotiate with cellars. And I do think the cooling of the national housing market and burger strates come down, which we will talk about in a little bit, that could create opportunities to negotiate and get some pretty good deals on properties that have good intrinsic value.

okay. So Prices were first variable and again, growth relatively Normal. Second thing we need to talk about is home sales volume.

How many transactions there are a year. And this is totally different. This is very abNormal in terms of what we would expect.

What we see for the last day we have september of twenty twenty four was that there were three point eight six million homes sales. And that may sound like a lot, but compared to what what we would expect, it's actually super low. The long term average over the last twenty five years is five point two five million.

So that's about twenty percent below where we would expect. I think for a lot of people, IT feels like IT slow down even more than that. A twenty percent drop is big, but I can feel even more significant than that because covered was abNormal in the other direction.

We were actually seeing more home sales than usual, peaking at more than six million home sales per year. So when we compare twenty, twenty four to where we were just three years ago in twenty twenty one, we're actually seeing a fifty percent decline in home cells. That is a massive decline.

And IT is one of the lowest i've seen in my career. I actually got started investing in twenty ten, which is actually the only time in the last twenty five years that home sales have been this low. And that was obviously very different conditions. But you can understand in the fall out of the great financial Prices, people didn't want to buy. That was the main reason they were so low right now for all accounts of the data shows that people do want to buy, but there actually just Priced out of the housing market because things are just so unaffordable.

So why is this going on? Why are home sales so sluggish? We're going to talk about this a bit throughout the entire episode, but I wanted to call out one thing here that is important just in today's dain age is that home sales are generally pretty slow before president's election.

I am recording this two weeks before the presidential election, and I think a lot of people are just slowing down. So that is just one thing that's going on here that I think we should call out that is probably artificially a little bit lower than IT would Normally be. But don't get me wrong, this is not the whole problem.

The presidential election cells have actually been down for a couple of years now. But I just wanted to call out that it's actually making the market slowdown even further. Now I understand that if you're just an investor or maybe just thinking about investing for the first time, you're wondering why did the number of home sales even matter in the first place.

So actually, there's probably three reasons that the average investor should be paying attention to this. First and foremost, s there's just not a lot of demand or supply and either side. So either way, whether you're trying to sell a home or you try to buy home, there aren't a lot of options out there for you.

And that makes buying and finding deals or optimizing your portfolio or even planning for the future and exit a little bit more difficult. Secondly, I think this just matters for people in the industry. And if you're just an investor, and I don't mean just an investor, but if you're involved in in the housing market is as an investor, you may not notice this as much.

But a lot of people who listen to the show are real state agents or loan officers or property managers, and these home sales volumes really impact their income. And so IT has a drag on the entire industry when homeless es numbers are so low. And then third, IT has an impact on the whole U.

S. economy. There is some data that i've seen that shows that housing in general makes up sixteen percent of the U.

S. GDP. And GDP is basically a measured of the entire economy. And so housing makes up sixteen percent of the entire us. economy.

And that housing number does take into account construction, which is a considerable part of this. But when homes sales volume is so low, that can drag on the entire economy. And we are definitely feeling that and seeing that in the american economy as a whole.

So I just want to stress the point here from all the data that I just cited is that if you are feeling like the market is. Slugged right now, you're right, IT. IT is very slow.

IT is a little bit stuck, and I know that can be frustrating for investors, but I would just advise everyone listening to this to be patient because it's not going to stay like this forever. And although IT might take a little while for this to get Better, there are not as many deals, there are not as many properties to look at right now as there have been historically. And so being patient is definitely advised in this type of market. All right, i've been talking a lot, and I need to take a break, but stick with us because i'm going to share a bit board data after the break and a couple of conclusions that you can use to guide your own investing will be right back.

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Steadily insurance founded landlords for landlords. Welcome back to the episode where I am giving you an update on the housing market in october twenty twenty four. okay.

So we we went over the big headline things here. We talked to about Prices, we talked about home sales. But let's go one level deeper and talk about why these things are happening.

Why is the markets of so? But why do Prices keep rising at the same time, to think through this, we basically need to look at econ one a one. We need to talk about supply and demand.

You've probably heard those things before, but let me just quickly define them in sort of the context of the housing market. Supply is how many homes are for sale at a given time. The second thing is demand, and that is basically how many people want to and can afford to buy a home at a given point in time.

So let's dig into each of those and will start with demand. Demand, in short, has fAllen a lot over the last few years, and this is mostly due to affordability. You've probably heard this term before affordability, and you know, it's kind of this generalized word, but in the housing market, IT actually has this sort of specific definition.

IT basically means how easily the average american can afford the average Price home. And there are different indexes that measure this. But IT basically takes into account home Prices, bargained rates and real wages, how much people money are making.

And when you factor in all three of those things, affordability is near forty year loves. The last time home Prices for this unaffordable for the average american was in the early nineteen eighties, before I was even born. So this is the main reason that demand is dropping off.

And I always dressed us because I think this is a common misconception. But when we talk about the word demand, when IT comes to the housing market, IT isn't just who wants to buy a house. IT is not just who, ideally in a perfect world, would go out there and purchase a house today.

It's a combination of that, the desire to buy a house, but also the ability to buy a house you need to be able to actually afford IT. This is important because when we look at the housing market today, the desire part of demand is still there. There's all sorts of data and surveys that shows that there aren't literally millions of home buyers just sitting on the sideline waiting until model rates come down or Prices drop or they get their next rates so they can afford to buy a home.

We are seeing this all over the place that people are waiting until affordability improves. So that want is still there. It's just the ability peace that is missing.

So if demand has been falling, how can Prices still go up? Well, the short answer is that no one wants to sell their home. One of the unique parts of the housing market is that seventy percent of people who sell their home go on to buy a new one.

And so if buying conditions are not very good, that makes selling conditions worse. And that's why we're seeing not a lot of people want to sell. If this is confusing to you, just imagine at this way, i'm going to use some really easy numbers to try and illustrate this point.

Just imagine that towards the end of the low interest rate error, that was the end of twenty twenty one, early twenty twenty two, this super hot housing market. So just as an example, and again, these are made up numbers, let's just say that for every hundred homes there were for sale, there were two hundred buyers. There were just way more buyers than there were homes for sale, and that's why Prices were going up because when there are more buyers than homes, the buyers can peat to win the bid by offering more and more money that drives a Price.

But then the fed raises rates to reduce demand and that actually we did out about fifty percent of the people. So we are now actually down in our hypothetical situation to just one hundred buyers. But because of the lock, in effect, higher interest rates made people want to sell less.

So instead of having those hundred homes for sale, now we have about ninety. So in total, we have way less demand, but we still have more demand than supply. And again, back to eon, one, a one that tells us that Prices are going to continue rising.

And one more thing on this, since i've already said that affordability is the main thing, slowing down both supply and demand, you may be wondering if affordability will get Better anytime soon, because that's basically what we need to happen for this housing market to get unstuck. And remember, affordability is made up of three things, home Prices, real wages or interest strates Prices. Even though a lot of people forecasting that theyd come down have remained really resilient and they are still up four percent year over year, real wages, which is basically people's income, are now growing faster than inflation after years of the opposite.

But that takes a really a long time of wage growth to actually improve housing affordability. So mortgage rates are really the big variable. If we are going to see affordability improve any time in the near future, at least in my opinion, it's going to come from merger rates going down.

So let's get to the question everyone has on their mind. What is going on with margate rates and is IT going to get any Better? First, let me just provide like a second of context because about a year ago, in october of twenty twenty three, we had more graduates at eight percent.

That is the highest i've ever seen in my investment career. Fast word to today, we're back to six point five percent, give or take. So even though rates haven't come down as much as people were and i've actually got up just a little bit in the last couple of weeks, you have to remember that things have gotten Better.

So i'll just give you my opinion. I'll say that I think it's going to be a slow, volatile, bumpy road to lower more great rates. I think we're going to see a lot more swings of twenty basis points a quarter of a percentage point one way or another for the next couple of month.

But the overall trend is going to be downward. Even though the fed does not control mortar rates, they're said are going to keep cutting, which should put some downward pressure on bony's ds and should provide at least a little bit of relief in the mortgage ge market. Now don't get me wrong, actually don't think we're going to see anything below six percent in twenty twenty four currently possible.

But I think just breathing the t leaves as I do, I don't think that's the most likely outcome. And even in twenty twenty five, and I haven't really put together my full predictions for next year, if I had to voice an opinion right now, I currently thinks that the lower range for rates will be around five point five percent. So you know, if we fast for a year from now, i'd say that merger rates will probably stay between five and a half and six and a half percent for the next year.

Obviously, that's a relatively big range, but there is that much uncertainty, E Y, in the economy that trying to voice something more specific, I just don't feel comfortable doing. And of course, something else could happen outside of that range. But i'm just telling you, given the trends and data that I can see right now, that is what I think the most probable outcome is.

So what does this been for investors as well? I think that if you want to be in the market, I wouldn't wait. And I know we say this all the time, but I think that it's very uncertain what happens with margate rates, and they are likely to come down just a little bit.

At the same time, Prices are continuing to grow. So there's actually knowing if you wait six months, whether you'll actually see an improvement and affordability actually think we might see a modest increase, but I don't feel strongly enough about that. And I don't think you'd be significant enough to wait if you actually find a deal that works with today's rates.

So I could be wrong. I ve been wrong about merger rates in the past. I've been right about them so far this year, and I do think that is the most likely outcome over the next year. We do need to take one more quick break, but i'll be back with my summary of what's going on in the housing market and some action steps that you can take as an investor. I'll be right back.

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Welcome back to our housing market update. Let's think before we get out of here, we have talked all about the housing market, supply, demand, places, home sales, word rates, all of that. But we do have to talk about rent.

When we look at rents across the united states, they are pretty much flat. That's about one percent growth. Now that sounds okay, right? But we need to remember that one percent growth is lower than the rate of inflation.

And so when you're actually talking about and quote, real growth, real, this basically means inflation adjust IT. So when you talk about inflation adJusting growth, we're actually seeing a decline in rents right now because the spending power of that rent is declining. And so as a landlord, as a real state investor, that's not good.

But when you take into the data, as always, there are large variances here. And what you see the the biggest caviar that you need to think about is that there is a pretty big difference between single family homes and small multi family court residential housing. So four units or fewer, those rents are actually up about two point four percent.

That is the lowest growth rate in about a year. But IT is still up like a decent amount, like relatively close to the piece of inflation for single family rents when you look at multi family rents. So this is commercial multifamily, anything that's four units or bigger, we're seeing pretty much flag close to zero growth.

And a lot of markets were actually a negative rent growth for multi family. And so that is really dragging down the national average. When we've look at rents and like with all the data, there's huge regional experiences.

We actually see a lot of the higher Price cities leading rank growth. Seattle actually leads with six percent rent growth. Austin actually has the lowest and growth at negative two percent.

So just for investors, when we look at rent, I think the important thing here that mean take away is not to forecasts and growth. That's at least what i've been doing or may be forecasting IT at one or two percent for the next couple of years, just during the pandemic. Grants grew so quickly.

I think it's what a lot of people call a pull forward, which is basically we take all the growth that we Normally would have over the next couple of years. We pull that forward into just a really short period of time, and that means growth is going to be subdued for the next couple of years. Also, as I talked about, multi family is dragging down rent Prices, and that's likely to continue for at least another six maybe nine months.

We know that there's a lot more multi family supply coming onto the market, and that's going to put downward pressure on rents. And so when you're underwriting deals, highly recommend you do a conservatively with little to know rent growth, at least for the next six months. So that is the state of the housing market today. We have a sluggish slow market, but Prices are still rising and rents are rising a little bit even though that's under th Epace o f i nflation. And although I want to take a few more months of data before I make predictions for twenty twenty five, i'm not personally expecting big changes for the rest of the year.

So what does this all mean in foreign investors? First, we're starting to see some signs of thoughts in markets in some of the markets I invest in and I watched we're seeing increase in days on market, which is means that Prices may flat now or cool little a little bit, but there may be more opportunities for deals. I am eager to watch this, but don't get too excited because I don't think it's going to actually change that match.

I don't think we're oversetting good to see fire sales and where sellers are all of a set good to offering all sorts of concessions and dropping Prices. But for an a student investor who is willing to be patient, there are probably going to be opportunities to negotiate and buy properties under asking Price. And personally, at least for me, I am looking forward to this winter.

I have been watching a couple of properties that have been sitting on the market for longer and longer and longer, although I actually haven't pulled the trigger and did on any of them yet. I am thinking about IT in the next couple of weeks because I think sellers are starting get a little itchy as we head into these traditionally slower months and maybe willing to make a deal happen before we get into the depths of winter, december, january when very few transactions happen. So that's what I see in the housing market.

Hopefully, this has been helpful for you and informing your own investing decision. Thanks for listening, everyone. If you have any questions about any of this, i'm happy to answer questions about IT.

You can always help me up on bike pocket tonic, find my profile there or you can also find me an instagram where i'm at the data delhi. Thanks for listen. I'll see you next time.