Dave:
If you happen to’re gearing up for a profitable investing 12 months in 2025, that you must know what occurred within the final 12 months. At the moment I’m recapping the most important tendencies 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. If you happen to’re something like me, you’re most likely winding down your 12 months and beginning to stay up for 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 only 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 return. So at the moment I’m going to interrupt down crucial storylines that you just all have to know from the residential actual property market, the industrial actual property market, and I’ll additionally present some updates on the rental market as properly.

Dave:
Earlier than we get into it, I simply wish to say maintain a watch out in your feeds the following couple of weeks as a result of at the moment we’re going to be type 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 would possibly occur in 2025. So make sure that to test that one out as properly. All proper, let’s get into our 12 months in assessment, which as I mentioned, begins with residential actual property, which is principally any constructing that has 4 items or fewer. We’ll be speaking in regards to the greater stuff a bit bit later within the episode. So in relation to residential actual property 2024, the easiest way to explain the housing market was simply sluggish. There was extraordinarily low gross sales quantity. So for those who’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 charge of simply 3.8 million residence gross sales. That is for current properties. That doesn’t depend new building, and that may sound like loads as a result of about virtually 4 million residence gross sales is rather a lot, however it’s properly beneath the long-term common over the past couple of many years. Usually, we’d count on 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 could be that it feels even slower than that as a result of simply a few years in the past in the course of the pandemic period as I imply primarily in 2020 and 2021 residence gross sales have been really properly above that long-term common. We have been at about 6 million properties. It reached the height at 6.7 million properties in October of 2020, and now we’re down beneath 4 million. So this has dropped greater than 50% within the final 4 years.

Dave:
So for those who’ve gotten into actual property within the final couple of years, the dynamics of the market have fully modified to 1 that has loads slower. And the rationale for this slowdown is truthfully fairly easy, proper? House consumers and residential sellers, either 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 on account of low affordability. We discuss affordability loads on this present, however for those who 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 other ways to measure this, however based on the US Mounted Housing Affordability Index, that may be a complete mouthful, nevertheless it’s one thing that NAR, the Nationwide Affiliation of Realtors retains monitor of. In response to 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. Through the pandemic, issues have been actually good and now they’ve gone to essentially 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 properties now not can afford the properties that they need, and they also sit on the sidelines and don’t take part within the housing market. In response to the Nationwide Affiliation of House Builders, there are literally 103 million American households at the moment priced out of the housing market, and I feel it is 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 need to purchase a house or the need to purchase something, nevertheless it’s really a mixture of the need to purchase one thing and the power 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’ll now not afford to purchase homes. And really whenever you dig into the numbers and surveys and all this different stuff, simply as many individuals wish to purchase properties as they at all times have. In truth, 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 reveals 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 properly for the long-term prospects of the housing market as a result of folks, Individuals nonetheless wish to purchase properties.

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 properties in the marketplace on the market, that means that there’s much less choices for consumers. And this is without doubt one of the most original parts 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, you then go purchase one other one. And in order that signifies that when residence shopping for circumstances are unhealthy like they’re now, that signifies that residence promoting circumstances additionally turn out to be fairly unappealing. Individuals don’t wish to promote their properties 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 opposed manner, proper? And this dynamic, which is off, you’ve most likely heard this known as the lock in impact within the media, however this dynamic might be seen very plainly in new itemizing knowledge. Mainly, since charges spiked in 2022, loads fewer persons are itemizing their properties 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 properties on the market, and that’s principally offsetting the decline in demand. We have now these two counteracting forces, however they’re each dropping on the similar time. This principally permits costs to remain comparatively steady or go up. If you wish to put this one other manner, though a number of consumers have dropped out of the market on account of low affordability, there are nonetheless extra consumers 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 knowledge 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 consumers than sellers, at the very least on a nationwide stage. Alright, in order that was our nationwide stage evaluation, and I do assume it’s tremendous vital to take a look at these broad US stage tendencies to get a way of the massive image, however after all, actual property is type of inherently native and there are millions of completely different housing markets throughout the USA. And to totally get an image of what’s occurring, we have to go a bit bit deeper and take a look at some regional and native tendencies. 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 can assist you perceive type 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 type of surprisingly within the northeast and the Midwest. Once I was taking a look at this the opposite day, really, I used to be taking a look at among the quickest rising counties in the USA, and 5 out of the highest eight have been the suburbs of New York Metropolis. We see a number of western new and central New York, Connecticut has among the hottest markets, Rhode Island, these aren’t locations in my investing profession which can be usually as sizzling as this, however there are areas the place there’s not a number of provide, and so costs are going up. The identical factor is occurring in a number of the Midwest. If you happen to take a look at Indiana, Ohio, Michigan, components of Illinois, components of Kentucky, we’re seeing a number of progress in these areas. Once more, on account of provide constraints.

Dave:
A few 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 really seen costs decline, nevertheless it’s actually delicate. It’s like 1% worth declines in Florida. There are particular markets in Texas the place costs have decline, and I really assume Louisiana does see have a number of markets the place costs are declining as properly. And so it’s arduous to type 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 among the quickest rising over the past couple of years. So for those who’re evaluating these states to say 2019 ranges within the housing market, they’d nonetheless most likely be two or three of the most effective states on the market.

Dave:
What I’m speaking about proper now could be simply 12 months over 12 months from September, 2023 to September, 2024. If you take a look at the west coast, you really see a blended bag. So there are components of Washington, Oregon, northern California which can be seeing declines the place Southern California is doing fairly properly. Idaho is doing fairly properly. Elements of Colorado and New Mexico are nonetheless doing properly. So it truly is a blended bag on the west, the extra outlined tendencies 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 at the moment. If you wish to know extra about what’s occurring in particular areas of the nation, you may at all times go try our sister podcast in the marketplace. We speak loads on that present about what’s occurring in numerous states, particular cities, all of that. However for us at the moment on this episode, I’m really going to change now from residential actual property to industrial actual property.

Dave:
And once more, the definition right here, we’re not speaking about workplace right here, we’re not speaking about retail once we’re speaking about industrial actual property. I’m principally centered on residential actual property right here which can be properties with 5 items or extra. And I do know that this isn’t at all times the bread and butter for everybody who’s listening to this podcast. I personally put money into each residential and industrial actual property, however I feel no matter whether or not you really put money into industrial 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 industrial actual property market briefly, it’s in a crash. There are particular sub-sectors of business like retail, warehousing, industrial that’s doing okay, however for multifamily particularly what we’re speaking about right here at the moment, property values have declined round 15% nationally and have declined by much more in sure components of the nation.

Dave:
Mainly what’s gone on right here is that in the course of the actually giant unusually excessive demand progress for housing items from 2020 to 2022, in the course of the depths of the pandemic building of multifamily exploded on a nationwide foundation, builders principally noticed, they noticed rising rents, they noticed robust absorption, which principally signifies that new residence 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 growth in US historical past, however as a result of multifamily properties, they’re greater, they take longer to finish. The affect of that constructing growth is simply being felt proper now. It really began in 2023. We began to see supply of recent items beginning to peak, nevertheless it’s actually coming to a head right here within the second half of 2024. So based on RealPage, which is only a actual property analytics agency, we’re really at a 50 12 months excessive for multifamily unit building, which is basically loopy to consider.

Dave:
It’s really going to decelerate as we head into 2025, which we’ll discuss in only a minute. However what’s vital for us to know at the moment is that we’re nonetheless within the midst of this big 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 really anticipated to remain for an additional 12 months or two. Now, emptiness, for those who’re an skilled investor, you realize that emptiness kills all offers. That rising emptiness additionally places downward strain on hire progress 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 progress has actually flattened for multi-family items on a nationwide scale. And markets which have essentially the most new items, essentially the most building 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 a bit bit completely different. For instance, the Midwest is anticipated to see a modest 20,000 unit enhance in new items 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 items than in 2019. So you may see the distinction right here. Some markets are going to have the ability to take in the brand new building comparatively properly. Others are going to be type of inundated with new items over the following couple of months. And the rationale I’m bringing this up proper now could be as a result of though the residential market and the industrial market work considerably independently, they’re not at all times 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 relation to hire, they’re actually competing for a similar folks. I feel a number of tenants are principally simply searching for the most effective worth that they’ll 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 most likely going to take that. And so maintain that in thoughts in a while within the episode once 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 industrial actual property as hire progress slows, I simply talked about hire progress slowing, and as that occurs, the multifamily market on the similar time is experiencing a number of main price 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 industrial loans simply work otherwise. Moderately than fixing debt for 30 years, they’re normally on a 5 or seven 12 months adjustable charge time period. And so in any given 12 months, a number of completely different operators need to refinance and the people who find themselves refinancing final 12 months and this 12 months are refinancing into a better rate of interest setting. And as you may inform, refinancing into increased rate of interest setting goes to eat into your income. On the similar 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 setting for multifamily operators to keep up or develop working incomes. And on the similar time, all of that wasn’t sufficient. There are all these macroeconomic circumstances which can be pushing up cap charges, which is principally only a ratio that helps worth industrial actual property and that lowers asset values. So within the industrial market, you see gross sales quantity, tremendous sluggish identical to residential, and the gross sales worth per unit nationwide has dropped 15% since 2022. Alright, that’s the industrial roundup I’ve for you guys. We’re going to take another fast break, however once 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 assessment. To date we’ve talked about residential actual property, we’ve now talked about industrial actual property, and the final step right here is to go over what’s occurring with hire. In fact, in the course of the pandemic, we had a number of years of simply huge hire progress, and now within the final couple of years, as the entire market has cooled down, hire progress has cooled to what I might name regular ranges of appreciation for single household residents. Hire progress stays above the longterm common, and I feel critically importantly, it stays above the speed of inflation at round 5%. That is based on 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 manner 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 preserving tempo with that, so you would protect your revenue margin. And so what we’re seeing now with hire progress 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 progress. Once more, Hartford, Connecticut, Columbus, Ohio, Cleveland, Ohio have all seen the very best hire progress within the final 12 months, all above 8% hire progress much like residence costs. The cities which can be seeing the weakest progress are in Texas and Florida with Cape Coral, Austin, San Antonio, and Orlando, all on the backside of the pack. However I feel the most important distinction right here, clearly the regional variations are vital, however given our earlier dialog about what’s occurring within the residential market versus the industrial market, it’s vital to name out the distinction between multifamily hire progress and single household hire progress.

Dave:
If you happen to take a look at multifamily, it’s slowed down by this oversupply situation, and hire progress is simply 2.5% within the final 12 months. Now, 2.5% is definitely not that unhealthy, particularly given how a lot building is occurring. I feel it reveals how a lot demand there’s for housing in the USA, however it’s simply notably lower than single household rents, and it’s modestly beneath the tempo of inflation. All that’s the 2024 12 months in assessment 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 continues to be actually low, and that’s inflicting this sluggish, sluggish 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 industrial actual property is within the midst of a correction or a crash, and you ought 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 ideal 12 months for 2025. And ensure to remain tuned to your feeds over the following couple of weeks as a result of I’ll be releasing my predictions about how the housing market would possibly 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.