March Newsletter 2025
Greetings Friends,
Here’s a snapshot of the residential real estate market.
We’ve had rapid growth of inflation since the “COVID-19 recession.” Much of it came during the “2021-2023 inflation surge.” Interest rates then jumped upwards - but housing prices have not come down.
The cost of renting has increased right alongside of the cost of homeownership. In past cycles, when housing prices went up, the rental market became softer. This pattern was sparked when interest rates were lowered. The reduced mortgage rates made buying more affordable. More renters became homeowners and vacancy rates for apartments rose. This discouraged landlords from raising rents.
In our current climate, inflation is making everything more expensive. These price increases have continued despite the higher interest rates. In January of 2021, a 30-year fixed mortgage was about 2.65%. Today’s rate is about 6.6%. Yet, the cost of both buying, and renting, only moves upwards.
Current homeowners are reluctant to sell. People who purchased - or refinanced - when the rates were around 3.0%, don’t want to relinquish their low interest payments. They might prefer a bigger home, or a different neighborhood, but they don’t want a new mortgage of 6.6%. As such, there’s less movement in the market and a lower inventory of homes-for-sale.
Will housing prices go even higher? According to Zillow statistics, the average home price, nationwide, is $419,200. According to Google statistics, nationwide, the average annual salary is $63,795 and the median salary, a slightly different statistic, is $59,384. Regardless, I’ll use $60,000 for this exercise.
A two-income, “average” household has an income of $120,000 - or $10,000 per month. Mortgage lenders prefer that buyers not spend more than one-third of their before-tax income on housing. To clarify, “housing” means the total cost of the mortgage payment, property taxes and homeowners insurance. By this guideline, a $10,000 monthly income allows $3,333 per month for housing.
With a 20% down payment, a 6.6% interest rate, estimated tax and insurance costs, and a purchase price of $420,000, the monthly obligation is $3,020. This is less than $3,333 - and within the lender’s formula for loan approval.
Of course, many buyers have smaller down payments. With 10% down, the monthly obligation is $3,610. This includes a monthly premium of about $250 for PMI (private mortgage insurance) which is required of buyers with less than 20% down. This total payment exceeds the lender’s guideline of $3,333 - meaning this buyer may not qualify for the needed loan.
When the average wage earner cannot afford to purchase an average-priced home, prices will stop rising.
My sense is that the economy will experience a downturn sometime soon. As such, if you plan on selling a property in the near future, now is very good time.
This spring should still be a good market for sellers. However, I’m uncertain about the latter half of 2025. Possible scenarios include jobs lost to AI automation, a tariff war, a new pandemic and a “confidence crisis” in cryptocurrency.
On the other hand, inflation will continue. Deficit spending by governments, a cause of inflation, will also continue. As such, in the long run, owning real estate is still a wise investment and an important means of saving for the future.
If you have any questions, or wish to share any feedback, I’d love to hear from you. If you’re considering buying or selling a property, please give me a call. I’d love to be of help. As always - thanks for reading this.
With appreciation,
Mark