Aug 07 • 3 min read
What’s Going On With Real Estate?
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Real estate plays a central role in most people's financial lives. Whether you own just your primary residence or you've expanded into vacation homes and rental properties, the health of the real estate market affects your financial well-being. In fact, here in the U.S., real estate practically is the economy. Given its significance, I've been getting a lot of questions lately:
While I'm not a real estate professional, I’m personally interested (and invested) in the asset class and closely follow market trends. In today's email, I'm sharing recent insights and updates to help make sense of today's evolving housing market. But first... Did you catch this week's podcast? 👇 What’s Going on with Real Estate?Redfin describes the real estate market as the most imbalanced in over a decade. More specifically, sellers now outnumber buyers by approximately 500,000—the largest gap since tracking began in 2013. Additionally, interest rates remain significantly higher than the historically low rates we saw from 2009 to 2021, and it's unlikely we'll revisit those rates anytime soon. The market imbalance, along with high interest rates, has led to 44% of active listings remaining on the market for at least 60 days. Why Haven't Prices Dropped?Despite sluggish sales activity, home prices have so far only seen modest declines. Redfin forecasts a 1% year-over-year drop in the median U.S. home-sale price by the end of 2025. As of April 2025, the median home price rose just 1.6% from a year earlier to $431,931—the slowest growth in nearly two years. This “stand-off” is partially driven by a mismatch in expectations For example, many sellers are still listing their homes based on peak 2022 prices, while buyers are expecting further drops, reminiscent of the 2008 market crash. The result could be a decade-long fizzle, where home prices slowly decline and fail to keep pace with inflation instead of a sudden crash. As Nick Maggiulli recently put it: "I don’t see how prices crash, but I don’t see how they continue to rise either. Median incomes can’t support home prices at their current levels (let alone at higher levels), so I’m thinking that inflation slowly solves this problem for us." The Affordability CrisisMost buyers purchase based on monthly mortgage payments rather than the total home price. With mortgage rates fluctuating between 6% and 8% over the past three years, payments have surged beyond reach for many prospective buyers. To put this into perspective, the median mortgage payment increased from $1,525 in 2021 to $2,205 earlier this year—a nearly 50% jump in just four years. Additionally, owning is now 2x as costly as renting. Will Interest Rates Decline Soon?Unfortunately, there's no clear answer. The Federal Reserve remains committed to a "higher-for-longer" approach due to persistent inflation concerns. While some economic forecasts suggest the Fed could begin gradual rate cuts later in 2025, major reductions are considered unlikely until at least 2026. Analysts expect the average 30-year mortgage rate to remain in the 6–7% range for the foreseeable future. So, we find ourselves in a holding pattern. It’s uncertain whether buyers or sellers will blink first. Will interest rates drop sufficiently to attract buyers, or will sellers eventually lower prices? Bottom LineUltimately, individual circumstances drive decisions in real estate. Life events often dictate whether someone must buy or sell, irrespective of market conditions. Transactions will persist, albeit at a slower pace. However, broader market uncertainty will likely remain for the foreseeable future, leaving many buyers and sellers watching, waiting, and hoping for clarity. It may not be what anyone wants to hear, but we’ll just have to wait and see. 📚 What I've Been Reading
Thank you for reading! Reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |