What Are the Keys to a Successful Real Estate Market in 2025?

The Weekly Recap

Good morning and happy Friday! Florida got walloped by another hurricane, some on the Fed are calling for “gradual reductions” to interest rates, the median Manhattan rent on new leases fell to $200 to $4200 per month. The September jobs report exceeded market expectations pushing treasuries higher while US inflation rose slightly more than forecasted, the US is weighing breaking up Google, Elon Musk and Tesla unveiled their Cybercab and believe it or not the Mets are still playing playoff baseball.

If you missed last weeks newsletter on Why Kamala Harris’ Plan for Housing Is a Bad One for the Market, you can read that through the link.

What Are the Keys to a Successful Real Estate Market in 2025?

As we enter a new age of quantitative easing from the Fed with lower rates on the horizon, the real estate market in 2025 will be shaped by a complex intertwining of economic, social and political forces. Successful markets require adaptability and as the market moves through both macro and microeconomic changes, its important to look ahead at what those shifts and changes could looks like. Here are some key drivers that are likely to shape success in real estate moving into 2025.

Interest Rates and Monetary Policy: Stability in interest rates will be crucial as low or stable interest rates typically encourage borrowing and home buying. The central banks monetary policy moving into 2025 with not just the frequency of cuts but with their size will be important. Historically, the Fed takes “the stairs” up when increasing rates but takes the “elevator down” when cutting them. With mixed inflation data coming to light from September and notes from the last Fed meeting that not everyone was onboard with a 50bps cut, it will be interesting to see how the rest of this year plays out with cuts and what that would mean for next year.

Supply and Demand Balance: The key to a healthy and robust real estate market depends on the level and increase of supply. There was a 12% increase YoY in September of new homes coming to the market which is a good sign that we’re trending in the right direction. In areas where supply remains constrained, prices could not only remain elevated but increase as mortgage rates work their way down. Currently there is a 3.2 percentage point difference between existing mortgage rates and what new lending rates are. As that difference shrinks we can expect more inventory to come on with sellers finding an acceptable threshold to sell their home in a rate environment that was higher than when they initially bought. 40% of homes currently do not have a mortgage so we could see all cash deals continue to play a big role in the marketplace. We will see an influx of more buyers hit the market before we see more inventory.

Government Policies and Regulation: On a local level, the amount of impact that governments have on housing policy can either continue to choke inventory levels by not creating policies that support building and development or can lead to a boom in supply. Lifting permitting, zoning and building restrictions would go a long way to creating not just more housing, but more affordable housing as well that would also take pressure off the rental markets.

Successful real estate markets will rely on adaptability, innovation, and local leaders' regulatory awareness. As interest rates decline, any savings may be offset by increased competition from buyers, drawn in by cheaper borrowing costs, in a market with limited new inventory. You are better off buying in a higher rate environment with lowering pricing than a low rate environment with higher pricing.

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.

Mortgage Rate Update

Following the release of a stronger than expected jobs number, interest rates saw their largest one week increase since April. The rising rates are due to shifts in expectations and not the underlying economy, which has been strong for most of the year. Although higher rates make affordability more challenging, it shows the economic strength that should continue to support the recovery of the housing market.

News You Can Use

• NYC Apartment Renters Get a Break But Bargains Remain Elusive Bloomberg

• US Job Creating Roared Higher in September as Payrolls Surged CNBC

• Why A Key Borrowing Rate is Above 4% Again CNN

• US CPI Rises More Than Forecast, Stalling Inflation Progress Bloomberg

• Momentum In the Housing Market is Positive CNBC

• Long-term Interest Rates Move Up After Cut Axios

• What Septembers Mixed Inflation News Means for the Fed Morningstar

• Fed’s Musalem Warns Against Easing Too Quickly, Prefers Patience Bloomberg

• A Surprisingly Resilient US Economy is Once Again Leading Stocks Higher Yahoo Finance

• Fed’s Bostic Says Fed Aiming to Balance Rocks to Both Inflation, Jobs Bloomberg

• Fed Officials Were Divided on Whether to Cut Rates by Half a Point in September CNBC

• The Flood Insurance Crisis Facing Americans Axios

• Anxious Europeans Hoard Savings as US Consumers Boost Global Economy Financial Times

• Musk Shows Tesla Cybercab Bloomberg

• DOJ Infdicates It’s Considering Google Breakup Following Monopoly Ruling CNBC

• Younger, Rural US Households Have Lower-Than-Average Inflation Bloomberg

The Deep Insight

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