We Survived to ‘25... So, What’s Next for Real Estate?

The Weekly Recap

Good morning and happy Friday! Congestion pricing began in NYC, some CO-OP’s are open to having purchases be in LLC’s, Janet Yellen admits that Covid stimulus contributed to inflation, the incoming administration is considering doubling the SALT write-off to $20,000, Meta has stopped fact-checking, the stock market was closed yesterday for the funeral of former President Jimmy Carter and who is ready for the Gulf of America?!

We Survived to ‘25… So, What’s Next for Real Estate?

In the aftermath of the COVID-19 pandemic and the onset of the Federal Reserve's quantitative tightening cycle, real estate and mortgage professionals were advising to simply “survive until 2025.” Now that we've reached this point, the question is: what indicators can we use to assess the strength of the real estate market over the next 12 months?

In November, U.S. households expressed the highest level of financial optimism since early 2020, with nearly 38% anticipating an improvement in their financial situation within the next year, according to a survey by the Federal Reserve Bank of New York. This surge in optimism signals a growing sense of consumer confidence in the market.

We’ve also witnessed a 12.1% year-over-year increase in new homes hitting the market, coupled with a rise in home sales. Furthermore, the resurgence of Class A commercial properties and the near full return of employees to office spaces, along with expectations of heightened IPO and M&A activity, suggest a stabilizing market. With these factors in play, buyers should feel increasingly confident stepping off the sidelines and making purchases.

Existing home sales topped 4 million in November, the most since March. With home sales momentum building, buyers are showing that they are prepared to purchase in higher rate environments where just a few years ago that was simply unrealistic. Contract closings increased in three of four US regions, led by a 8.5% jump in the Northeast. Sales of single family homes rose 5% to its fastest pace since March with 30% of purchasers being first-time homebuyers.

This level of confidence is coming against a backdrop where CPI as a measure of inflation is 22% higher than in January 2020. This means that the prices of all goods and services that consumers spend money on are up, on average, 22% even though inflation rates have been coming down closer to the Fed’s 2% target goal. For example, the price of cereal is 30% higher, household electricity is 32% higher, and car insurance is 52% higher. Even though the cost of day-to-day goods is higher, perceived inflation from a behavioral standpoint is lower than what reality is relaying.

Following the Fed’s December meeting, the outlook for more rate cuts is coming into focus. In November 2024, U.S. inflation rose at an annual rate of 2.7%, with a monthly increase of 0.3%, driven largely by shelter costs. Core inflation (excluding food and energy) remained steady at 3.3% year-over-year and also increased 0.3% monthly. These figures align with market expectations and was one of the key indicators for the Fed rate cut in December. Despite inflation being below its mid-2022 highs, it remains above the Fed's 2% target, leading officials to signal a cautious pace of rate cuts moving forward.

With the new cautious approach to rate cuts, this sudden shift in expectations signals a potential recalibration in the Fed's economic outlook and may cast uncertainty over broader market dynamics.

Market Performance

Here are how some other indexes and asset classes have performed as of this morning’s opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past WEEK as well as newly signed contracts in Manhattan. More inventory has hit the market in the new year.

Mortgage Rate Update

In the first full week of the new year, the 30-year fixed-rate mortgage remained elevated at just under 7 percent. The continued strength of the economy has put upward pressure on mortgage rates, and along with home prices, continues to impact housing affordability. The lack of entry-level supply also remains an issue nationwide, especially for those looking to become first-time homeowners.

News You Can Use

• NYC Congestion Pricing Begins In a High Stakes Test for the Model’s US Viability NPR

• Brooklyn Home Prices, Sales, Jump in 4th Quarter Brownstoner

• Elite CO-OP’s Are Begrudgingly Accepting LLC’s Curbed

• Hochul Seeks to Limit Private Equity Ownership of Homes in NY NY Times

• Fed’s Bostic Expects Inflation to Decline But Warns Fed to Be Cautious Bloomberg

• Fannie Mae, Freddie Mac Shares Surge After Federal Agencies Reveal Privatization Path Reuters

• US Job Openings Rise to Six-Month High on Business Services Bloomberg

• Trump Advisers Consider Raising SALT Write-Off Limit to $20,000 Bloomberg

• Janet Yellen: Covid Stimulus May Have Contributed ‘A Little Bit’ to Inflation CNBC

• US New Car Sales Rose to Five-Year High in 2024 Yahoo Finance

• Mayor Adams Unveils Plans to Help Homeless in State of the City Speech NY Post

• Barr to Step Down As the Fed’s Head of Banking Supervision to Avoid Clash with Trump CNBC

• JPMorgan to Bring Back Workers to the Office 5 Days a Week Yahoo Finance

The Deep Insight

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