The 2024 Housing Market in Review

Dave:
If you’re gearing up for a successful investing year in 2025, you need to know what happened in the last 12 months. Today I’m recapping the biggest trends and storylines from one of the wildest years the housing market has ever seen 2024. Hey everyone, it’s Dave and welcome to the BiggerPockets podcast. If you’re anything like me, you’re probably winding down your year and starting to look forward to all the deals you’re hoping to do in 2025. But before you do that, at least for me, I find it very helpful to just take a minute to step back and look back at the year. That was because it helps inform what we’re going to do in the year to come. So today I’m going to break down the most important storylines that you all need to know from the residential real estate market, the commercial real estate market, and I’ll also provide some updates on the rental market as well.

Dave:
Before we get into it, I just want to say keep an eye out on your feeds the next couple of weeks because today we’re going to be sort of setting the stage for what has happened, but in a week or two, we’re going to be dropping a new episode where we make predictions on what we think might happen in 2025. So make sure to check that one out as well. All right, let’s get into our year in review, which as I said, starts with residential real estate, which is basically any building that has four units or fewer. We’ll be talking about the bigger stuff a little bit later in the episode. So when it comes to residential real estate 2024, the best way to describe the housing market was just sluggish. There was extremely low sales volume. So if you’ve been looking at the market trying to jump in and you just feel like things are stuck and really bogged down, you’re absolutely right.

Dave:
This year is actually poised to end at an annualized rate of just 3.8 million home sales. This is for existing homes. That doesn’t count new construction, and that might sound like a lot because about almost 4 million home sales is quite a lot, but it is well below the long-term average over the last couple of decades. Normally, we would expect something more like five and a quarter million, 5.25 million, and I think that one of the things that’s going on right now is that it feels even slower than that because just a couple of years ago during the pandemic era as I mean mainly in 2020 and 2021 home sales were actually well above that long-term average. We were at about 6 million homes. It reached the peak at 6.7 million homes in October of 2020, and now we’re down below 4 million. So this has dropped more than 50% in the last four years.

Dave:
So if you’ve gotten into real estate in the last couple of years, the dynamics of the market have completely changed to one that has a lot slower. And the reason for this slowdown is honestly pretty simple, right? Home buyers and home sellers, both sides of this marketplace are turning away from the market. In my opinion, and this is just my opinion, but I think it is largely due to low affordability. We talk about affordability a lot on this show, but if you don’t know the definition, it basically just means how easily the average American can afford the average price home in the country. There are different ways to measure this, but according to the US Fixed Housing Affordability Index, that is a whole mouthful, but it’s something that NAR, the National Association of Realtors keeps track of. According to this index, we have a score of a 98, which is pretty much the lowest it’s been since the mid 1980s.

Dave:
So we’re at near a 40 year low in terms of affordability and just again, one of the themes that I want to call out here is we are not just seeing a big difference from long-term averages. During the pandemic, things were really good and now they’ve gone to really bad. So the difference feels really, really extreme and low affordability, the number one thing that it does is drives down demand. People who want to buy homes no longer can afford the homes that they want, and so they sit on the sidelines and don’t participate in the housing market. According to the National Association of Home Builders, there are actually 103 million American households currently priced out of the housing market, and I think this is a really important note for everyone to pay attention to here. When we talk about economics, you hear this word demand, right?

Dave:
And I think a lot of people assume that demand just means the desire to buy a home or the desire to buy anything, but it’s actually a combination of the desire to buy something and the ability to buy something. And so we are seeing a breakdown in demand in the housing market, not because people don’t want to buy houses, but because they can no longer afford to buy houses. And actually when you dig into the numbers and surveys and all this other stuff, just as many people want to buy homes as they always have. In fact, I was looking at this article the other day from CNN, they did a poll and it showed that 90% of American renters under the age of 45 want to buy a home. They just can’t afford it. And so this shows two things. One, why the market is sluggish, which is what we’re talking about, but as we’ll talk about later and in future episodes, this also bodes well for the long-term prospects of the housing market because people, Americans still want to buy homes.

Dave:
That demand decline because of low affordability, I think makes sense to a lot of people. The other thing though, that affordability, low affordability does to the housing market is that it constrains supply. In other words, it just causes less people to list their homes on the market for sale, meaning that there’s less options for buyers. And this is one of the most unique elements of the housing market because sellers in the housing market, 78% of them, almost all of them go on to buy a new home, right? You sell one, then you go buy another one. And so that means that when home buying conditions are bad like they are now, that means that home selling conditions also become pretty unappealing. People don’t want to sell their homes right now because they don’t want to sell it, get all this money and then go have to invest that money back into the market in an adverse way, right? And this dynamic, which is off, you’ve probably heard this called the lock in effect in the media, but this dynamic can be seen very plainly in new listing data. Basically, since rates spiked in 2022, a lot fewer people are listing their homes for sale. We’ll get into the implications of this and talk about some regional difference in the residential housing market right after this break.

Dave:
Hey everyone, welcome back to the BiggerPockets podcast. So as I was saying, less people are listing their homes for sale, and that is basically offsetting the decline in demand. We have these two counteracting forces, but they’re both dropping at the same time. This basically allows prices to stay relatively stable or go up. If you want to put this another way, even though a lot of buyers have dropped out of the market due to low affordability, there are still more buyers than sellers in the housing market right now, which keeps prices growing somewhat steadily. And this is why despite all those calls on YouTube or in 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, but this is the last month we actually have data for with September, 2024.

Dave:
The median home price in the US is a whopping $429,000, which is up 4% over the previous year. So again, despite the sharp drop in demand, there are still more buyers than sellers, at least on a national level. Alright, so that was our national level analysis, and I do think it’s super important to look at these broad US level trends to get a sense of the big picture, but of course, real estate is sort of inherently local and there are thousands of different housing markets across the United States. And to fully get a picture of what’s going on, we need to go a little bit deeper and look at some regional and local trends. Now, of course, I don’t have time to talk about every region in the country, so I’m going to make some broad generalizations about what’s going on to help you understand sort of a map of the US and where things are still really hot, where things are slowing down and all of that.

Dave:
So the areas of the country where we’re seeing the strongest price appreciation are actually kind of surprisingly in the northeast and the Midwest. When I was looking at this the other day, actually, I was looking at some of the fastest growing counties in the United States, and five out of the top eight were the suburbs of New York City. We see a lot of western new and central New York, Connecticut has some of the hottest markets, Rhode Island, these are not places in my investing career that are typically as hot as this, but there are areas where there is not a lot of supply, and so prices are going up. The same thing is going on in a lot of the Midwest. If you look at Indiana, Ohio, Michigan, parts of Illinois, parts of Kentucky, we are seeing a lot of growth in those areas. Again, due to supply constraints.

Dave:
Some of the typically hotter areas in the country are actually starting to slow down, and some of them are actually seeing corrections. So most notably Florida as a state has actually seen prices decline, but it’s really mild. It’s like 1% price declines in Florida. There are certain markets in Texas where prices have decline, and I actually think Louisiana does see have a lot of markets where prices are declining as well. And so it’s hard to sort of generalize the whole Southeast, but if I had to, I would say that states that are along the Gulf coast, again, Texas, Louisiana and Florida, those are the places that are experiencing the softest housing markets. Now it’s important, and every time I talk about this, I really think it’s important to caveat that these markets were some of the fastest growing over the last couple of years. So if you’re comparing these states to say 2019 levels in the housing market, they would still probably be two or three of the best states out there.

Dave:
What I’m talking about right now is just year over year from September, 2023 to September, 2024. When you look at the west coast, you actually see a mixed bag. So there are parts of Washington, Oregon, northern California that are seeing declines where Southern California is doing pretty well. Idaho is doing pretty well. Parts of Colorado and New Mexico are still doing well. So it really is a mixed bag on the west, the more defined trends are happening on the east and the southeast of the country. So that’s about the regional discussion that we’re going to have today. If you want to know more about what’s going on in specific regions of the country, you can always go check out our sister podcast on the market. We talk a lot on that show about what’s going on in different states, specific cities, all of that. But for us today on this episode, I’m actually going to switch now from residential real estate to commercial real estate.

Dave:
And again, the definition here, we’re not talking about office here, we’re not talking about retail when we’re talking about commercial real estate. I’m mostly focused on residential real estate here that are properties with five units or more. And I know that this isn’t always the bread and butter for everyone who’s listening to this podcast. I personally invest in both residential and commercial real estate, but I think regardless of whether you actually invest in commercial real estate, it’s important to know what’s going on in that sector of the market because it does have some overlap and spill over into the residential market, which we’ll talk about in a second. If you want to know what’s going on in the commercial real estate market briefly, it’s in a crash. There are certain sub-sectors of commercial like retail, warehousing, industrial that’s doing okay, but for multifamily specifically what we’re talking about here today, property values have declined around 15% nationally and have declined by a lot more in certain parts of the country.

Dave:
Basically what’s gone on here is that during the really large unusually high demand growth for housing units from 2020 to 2022, during the depths of the pandemic construction of multifamily exploded on a national basis, developers basically saw, they saw rising rents, they saw strong absorption, which basically means that new apartment buildings are getting leased up quickly. So they saw these combination of things and they just started building like crazy. It was one of the biggest booms of multifamily development in US history, but because multifamily properties, they’re bigger, they take longer to complete. The impact of that building boom is just being felt right now. It actually started in 2023. We started to see delivery of new units starting to peak, but it’s really coming to a head here in the second half of 2024. So according to RealPage, which is just a real estate analytics firm, we’re actually at a 50 year high for multifamily unit construction, which is really crazy to think about.

Dave:
It is actually going to slow down as we head into 2025, which we’ll talk about in just a minute. But what’s important for us to know today is that we are still in the midst of this huge short-term glut of supply. There’s basically just tons of apartments hitting the market, and this has driven vacancy rates back above pre pandemic levels where they’re actually expected to stay for another year or two. Now, vacancy, if you’re an experienced investor, you know that vacancy kills all deals. That rising vacancy also puts downward pressure on rent growth because basically there’s all these people, investors who own multifamily properties and they’re competing for tenants in really oversaturated markets. And what happens the way that property owners and landlords compete is they lower rents or they offer concessions like a free month or two free months or six months, half off, whatever it is, they offer these concessions and it drives down rent prices.

Dave:
And as such, we see that rent growth has really flattened for multi-family units on a national scale. And markets that have the most new units, the most construction going on are actually seeing rents start to decline. And again, like I said before, with residential real estate, there are going to be big regional differences. Every city’s going to be a little bit different. For example, the Midwest is expected to see a modest 20,000 unit increase in new units in 2024 compared to pre pandemic levels. That’s not that crazy, but meanwhile, when you look at the Sunbelt, it’s expecting 120,000 more units than in 2019. So you can see the difference here. Some markets are going to be able to absorb the new construction relatively well. Others are going to be sort of inundated with new units over the next couple of months. And the reason I’m bringing this up right now is because even though the residential market and the commercial market work somewhat independently, they’re not always doing the same thing as we’ve seen right now.

Dave:
I just talked about how multifamily property values have declined double digits. Meanwhile, residential property values have climb this year, right? So they’re not the same thing, but when it comes to rent, they’re really competing for the same people. I think a lot of tenants are basically just looking for the best value that they can find, and although they might have a preference for a single family home or a duplex, if they’re getting great deals on a new building with great amenities, they’re probably going to take that. And so keep that in mind later on in the episode when we talk about the rental market. But before we get into that, I just want to finish out my thought here on commercial real estate as rent growth slows, I just talked about rent growth slowing, and as that happens, the multifamily market at the same time is experiencing a lot of major cost increases.

Dave:
Lending costs are up and in any given year, right, 15 to 20% of all assets are expected to have to refinance, right? The commercial loans just work differently. Rather than fixing debt for 30 years, they’re usually on a five or seven year adjustable rate term. And so in any given year, a lot of different operators have to refinance and the people who are refinancing last year and this year are refinancing into a higher interest rate environment. And as you can tell, refinancing into higher interest rate environment is going to eat into your profits. At the same time, insurance costs are going up nationwide as are property taxes. And when you look at all these things combined, it’s really tough environment for multifamily operators to maintain or grow operating incomes. And at the same time, all of that wasn’t enough. There are all these macroeconomic conditions that are pushing up cap rates, which is basically just a ratio that helps value commercial real estate and that lowers asset values. So in the commercial market, you see sales volume, super sluggish just like residential, and the sales price per unit nationwide has dropped 15% since 2022. Alright, that is the commercial roundup I have for you guys. We’re going to take one more quick break, but when we come back, I’m going to give a recap on what’s been going on with rent prices nationwide.

Dave:
Welcome back to the BiggerPockets podcast everyone. We are doing our 2024 year in review. So far we’ve talked about residential real estate, we’ve now talked about commercial real estate, and the last step here is to go over what’s happening with rent. Of course, during the pandemic, we had several years of just enormous rent growth, and now in the last couple of years, as the whole market has cooled down, rent growth has cooled to what I would call normal levels of appreciation for single family residents. Rent growth remains above the longterm average, and I think critically importantly, it remains above the rate of inflation at around 5%. This is according to Zillow, and just for some context, so you all understand, normally rent grows three to 4% per year, so 5% is a bit above that. And again, I think it’s notable that for real estate investors, you want rent to at least keep pace with inflation because that way you’re able to similarly pay for all your expenses, right?

Dave:
If inflation’s driving up your expenses, you should hope that rent is at least keeping pace with that, so you could preserve your profit margin. And so what we’re seeing now with rent growth is that it is exceeding the pace of inflation. Of course, again, there are big differences in major metro areas. We are seeing Midwest Northeast dominate growth. Again, Hartford, Connecticut, Columbus, Ohio, Cleveland, Ohio have all seen the highest rent growth in the last year, all above 8% rent growth similar to home prices. The cities that are seeing the weakest growth are in Texas and Florida with Cape Coral, Austin, San Antonio, and Orlando, all at the bottom of the pack. But I think the biggest difference here, obviously the regional differences are important, but given our earlier conversation about what’s going on in the residential market versus the commercial market, it’s important to call out the difference between multifamily rent growth and single family rent growth.

Dave:
If you look at multifamily, it is bogged down by this oversupply issue, and rent growth is just 2.5% in the last year. Now, 2.5% is actually not that bad, especially given how much construction is going on. I think it shows how much demand there is for housing in the United States, but it is just notably less than single family rents, and it is modestly below the pace of inflation. All that is the 2024 year in review that we have for you guys. Before we get out of here, I just want to reiterate a couple key points that you should take away here. Number one, affordability in the housing market is still really low, and that is causing this sluggish, slow market with low inventory that we’ve been in for the last two years. The second thing you should remember though is despite all of that, sales prices are still going up as are rents, which are certainly good things for people who have real estate portfolios.

Dave:
The last thing to remember is that commercial real estate is in the midst of a correction or a crash, and you should be very careful as you head into 2025 with that market because there’s even more uncertainty there than there is in the residential market. Hopefully, this has been helpful for you all in setting the stage for what I think could be a great year for 2025. And make sure to stay tuned to your feeds over the next couple of weeks because I’ll be releasing my predictions about how the housing market might change in the next year in just a couple of days. Thank you guys so much for listening to this episode of the BiggerPockets podcast. I’m Dave Meyer, and I’ll see you all soon.