July 2025 Housing Market Update: A New "Correction" Begins

0:00The buyer's market is here. So if you've been sitting on the sideline saying you can't invest again until the market is better, no more excuses. The water is warm. It is time to dive in. Today I'm explaining how we know it's becoming a good time to buy and the best ways to take advantage and grow your portfolio before the housing market shifts again.

0:26Hey everyone, welcome to BiggerPockets monthly housing market update. I'm Dave Meyer, real estate investor, housing market analyst, and obsessive follower of economic data. And if you listen to the show often, you know that we do these housing market updates monthly as they're an important context for your investing decisions. And since we are doing this here in July, we're now halfway through the year. So I'm going to spend the episode today giving you a summary of what we've seen in the first half of 2025, and then move on to some thoughts on what we can all expect for the rest of the year. In this episode, I'm going to mostly focus on, first, the big shifts we're seeing in inventory and new listings, and the transition to a buyer's market that I alluded to.

1:13Because this is the big change many of us have been waiting for, so we're really going to want to dig into this data. Next, we'll talk about what's going on with buyer demand because I'm hearing so many people say there are no buyers out there. But is that actually true? We'll next talk about how home prices are trending both on a national and regional level and my projections for the rest of 2025. And I'll also cover a few key quote-unquote crash watch metrics that we need to keep an eye on to ensure that we're not tipping too far into the buyer's market and heading into the danger zone. So we'll talk about that at the end as well.

1:51Let's do it. All right. First and foremost, like we said, we're going to talk about inventory because the story of 2025, at least so far, first half, has been about inventory. The story of 2024 was also about inventory. 2023, inventory. 2022, also inventory. This is what's really been driving prices and activity on both the national and a regional level for the last couple of years. And what you need to know about 2025 is unlike the last few years when the story was slowing and very low inventory, is that inventory now for the last year or so has been going up. And this is a really big and really important change.

2:31According to Redfin, and different providers measure this differently, but they're all showing that it's going up, general inventory, which is the number of properties that are for sale at any given time is up 15 % year over year. That's a pretty big jump in a single year, but it's important to keep this in context and know that it's still under pre-pandemic levels. Like if you go look at any historical charts, what you can see is that, you know, back in 2012 to 2015, the average amount of inventory on the market was about 2 million. Then, you know, from 2016 to 2020, it dropped to 1.7 million.

3:09Right now, we're still below 1.5 million. So even though it's up from where we were in the depths of the pandemic, where it's all the way down to like 1 million, we are still not back to what anyone I think would call normal levels of inventory. So that's sort of the big picture on inventory. But I do think we need to talk about why inventory is moving the way it is. Because a lot of people, when they hear the idea of inventory and that it measures how many properties are for sale, they think, oh, it's just because everyone's listing, there are no buyers. But there's actually different ways that inventory can move because why inventory is so important in the market is because it measures the balance between supply and demand.

3:49So we're going to dig in a little bit into what's actually driving this. The big thing that has changed over the last year is that we are now seeing more new listings. That is the supply side of inventory because we need to track how many people are putting up their houses for sale on the market. That's what new listings is. The difference is that inventory is how many properties are for sale at any given time. And so you can have a lot of new listings, but if there are a lot of buyers, inventory can stay low. That's sort of what was going on in 2020 and 2021. But right now, inventory is mostly rising just because more people are listing their properties for sale.

4:30It is absolutely up on a year over year basis. This is a continuation of a trend. But that growth, how much it's going up, is actually slowing down. So we're not seeing it grow as quickly as it had been in the first half of 2025. First quarter of the year, it was going up pretty quickly. And that's why price growth slowed and why a lot of very loud people were saying the market is crashing and running around, fear-mongering and all that. But the new growth listing is slowing. And this is a super important point. I'm going to come back to this in a little bit. So remember that. Remember that new listing growth is slowing down because this little tidbit matters a lot when we talk about what we think is going to happen for the rest of the year.

5:14Now, of course, what I'm talking about is on a national basis and what's going on regionally is totally different. So there are markets where new listings are actually climbing pretty rapidly. These are places in the Midwest. So we see like Warren, Michigan up 10%, Cleveland 7.5%, Milwaukee 5%, Boston 5%. Whereas in the other end of the spectrum, some of the markets that are seeing declines in new listings are Tampa, Florida, 18%, Orlando, 16%, San Diego, 12%. So we're seeing pretty big differences, right? Some are really down, some are really up. We're going to come back to that in a little bit, but you should be looking at your own market to really understand the dynamics going on there.

5:57So that is what's happening on the supply side of the equation, right? We are seeing new listings are absolutely up year over year, but they actually went down monthly. And it's the biggest increase that we've seen year over year in more than six months. So that's really notable. Active listings are still up year over year, but it's the smallest increase we've seen in over a year. So again, that growth is starting to slow down. And just as a reminder, this stuff really matters because prices and the number of homes that are sold all come down to supply and demand, and we're clearly seeing supply has gone up.

6:33Not crazy up, not crash levels, don't freak out, but it is up. Next, let's turn to the demand side because that's how we really understand what's going to happen in the future. Demand is a little bit harder to track in the housing market, but we use one metric called mortgage purchase applications. And this is basically how many people are applying for a mortgage every month. And it is a good directional indicator of how much demand there is for housing at a given time. And what we're seeing in this data, I think is going to really surprise people because everyone on social media is saying, there's no buyers out there.

7:11No one wants to buy a home with these interest rates. No one wants to buy a home at these prices. That is not true. That is absolutely false. Actually, what we're seeing is mortgage purchase applications, the total number has gone up 22 weeks in a row. We are sitting in the beginning of July right now. That's basically the whole year. We have seen every week the number of mortgage purchase applications go up. So if you hear people telling you that there are no buyers out there, that is incorrect. The number of buyers is actually going up on a year over year basis. and the reason that inventory is going up where you can sort of get the whole picture now is not because there are no buyers, it's just that there are more sellers.

7:55So that's sort of what's going on. And the interesting thing here is, remember I said that yes, inventory's up, but that's slowing down? Well, demand is up and that's actually getting faster. We've actually now had nine weeks in a row of double digit increases to buyer demand. That is significant, mostly because even though rates are down a little bit recently, they're not down by that much, right? Like they haven't gone below 6.65-ish in a really long time. So people are just getting more comfortable with mortgage rates and want to buy. And this is all national data. Unfortunately, we don't really get good regional data for this.

8:31So I can't really say much about what's going on in one market or another. That would just be more guessing. So I'm not even going to go into that, but it is a good indicator for demand overall. So now that we've covered this, we know what's happening. with the key variables, supply and demand. And if you remember anything from maybe being in an econ class, then you know that with supply and demand, once we understand those things and what direction that they're moving, we can understand what is likely to happen with prices and home sales volume, which is what we as investors really want to dig into.

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12:51Welcome back to the Bigger Pockets podcast. I'm Dave Meyer doing our July sort of mid-year housing market review and look forward for the rest of 2025. Before the break, we covered the major things we need to understand supply and demand to sort of extrapolate what we think might happen for the rest of the year in terms of prices and in terms of total home sales. What you should know right now is that nationally, home prices are still appreciating. They're up 1.4 % year over year. But again, that growth rate is falling. And that really is what matters. You know, as an analyst, what I usually try and look for, the absolute number kind of matters, 1.4%.

13:32I don't care if that's 1.4 or 2%. What I care about is trend, which way the line is going. And the trend is clearly down. Just as an example, like a year ago, last May, the appreciation rate nationally was 5%. Now it's 1.4%. And it has been going down pretty steadily. It's not volatile going up and down. It has just been slowly declining from 5 % a year ago down to about 1.4%. There's just one point I want to make here is that that 1.4 % increase is not adjusted for inflation. And so the appreciation rate in the US right now is now below the rate of inflation, which is roughly 2.5 % ish. And so I think this is sort of a key thing to remember is that for me as an investor, I really want my property values to keep pace with inflation.

14:21That can't always happen. Sometimes the market just turns and you can't do anything about it. But you do want to sort of adjust your expectations and what deals you're kind of buying, if that's true. And right now we are seeing values lower than inflation. Now that's going to impact people who have no debt on their property more. If you have leverage, like if you are five to one leverage, you put a 20 % down, then you're still beating inflation because you basically multiply your appreciation rate by five, which would be roughly 7.5%. So if you compare that to inflation, you're still doing better.

14:52But it is a point I just think is really important to note. Now, of course, there are some regional differences that I want to call out. The metros with the biggest year-over-year increases are in the Midwest and are in the Northeast. So we have Detroit at 10%, Newark, New Jersey, 10 % roughly. Cleveland at 7%, Nassau County, New York, 6%, New York, 6%. A lot around New York City. Three of the top five are close to New York City, New York metro area there. The markets that are declining the fastest are expensive markets. Top two are in California, in Oakland and San Diego, West Palm Beach, Florida, Atlanta, and then Tampa.

15:29So we have seen 11 of the top 50 markets decline just in the last month. So that's notable. But, you know, on an overall national level, most markets, they are still at least up, even if it's just mildly year over year. So that's sort of what we got price wise. in terms of home volumes, this is just not doing well. We have seen pretty darn low home sales volume over the last couple of years. During the pandemic, we shot up to about 6.22 million home sales per year, which was really high. That was unusually high. A normal level of home sales is like five and a quarter million, 5.25 million. Right now, we're at 4 million or maybe even a little bit below.

16:12And so for investors, if you're just buying your first deal like this might not matter that much to you, but if you're a real estate agent or a loan officer or a property manager, you are noticing this. This is like the recession, the slump that we have been seeing. And unfortunately, this is continuing. I was hoping and actually projected, I want to be candid about my forecast. I was forecasting a very modest increase in volume growth this year. I was expecting it to grow like, you know, two, three, 5%, but just having hit bottom and going up a little bit. But unfortunately we haven't hit bottom and we're actually down a little bit year over year.

16:47Not a lot, like, you know, 1%, but I was hoping we'd start to see, you know, just a little bit of improvement. Unfortunately, we're seeing just a little bit of declines continuing there. So that stinks for our industry. It also drags on U S GDP and is going to slow down growth. And so total home sales volume, I know a lot of people focus on price, but volume is really important for the industry in general, just the health of the housing market. And when volume is as low as it is, it's just not a healthy housing market. So hopefully that will turn around. But so far this year, it has not. So big picture, when we're looking at what has been going on in the first half of 2025, is that we are sort of entering a normal correction.

17:28And correction can mean different things to different people. But we had five plus years of abnormally high appreciation in the housing market. And that happened even after interest rates went up, even in 22 and 23 and 24, 5 % year over year growth that we saw last May. That's abnormally high. The long term average for appreciation in real estate is 3.4%. And so what we're seeing is a reversion back. And so that correction is going to look different nationally than it looks different in your market. And different markets are going to respond to this differently. But I think it's safe to say at this point we are going to see sort of this wholesale slowing down of appreciation.

18:16So in markets that are hot right now that are growing at 8%, that might not mean they go negative. They might just mean they drop down to 3%, right? But I think a lot of markets that are sort of close to even right now may turn negative in the next couple of months. Because affordability, I think, is the big problem here. With mortgage rates staying as high as they have at 6.6%, 6.7%, with prices continuing to go up, there just aren't enough buyers for the number of sellers that are going out there, right? Remember we said there are still buyers, and that's actually growing a little bit. but the number of sellers in the market is starting to outpace those buyers, and that's going to put downward pressure on pricing.

18:56Now, I don't think that means we are going to go in a crash, right? Because I want to come back to something that we talked about earlier. These types of corrections where home prices slow down after years of growth is totally normal. Housing market is cyclical, just like every market. The stock market is cyclical. The business cycle is cyclical. These things happen and we are entering just a slower period of appreciation and we need that. I think we need affordability to start to get restored and I think we are going to enter a period where affordability might start to get a little bit better.

19:30But I want to say, and this is really important for your own decision making about your portfolio, is that just because prices start to decline, that does not mean that there is going to be a crash. And I know that the last time that crisis declined in the financial crisis, there was a crash. That is absolutely indisputably true. But that does not always happen. And in fact, that is the exception to what normally happens. That has only happened one time in the last 100 years. And I want to share with you guys some data about this because I know people have very loud opinions and you might be hearing some things on social media or in the media about a crash.

20:09And I want to share with you just some of the fundamentals and mechanics of how the housing market works and why I think a correction is likely, but a crash is very unlikely. To do this, I want to go back to the thing I told you to remember earlier. Remember I said there's this tidbit that new listings are going up, but the amount they're going up by is slowing down. New listing growth is moderating. Why is this happening? because it's not a good time to sell. Remember, I started the show by saying that we are entering a buyer's market. That means it's a more advantageous time for buyers because they have the leverage in the housing market.

20:50There are fewer buyers than there are sellers, meaning sellers have to compete for the buyers and they do that by negotiating. So it's a good time to be a buyer because you get to negotiate. Now, sellers are looking at the situation saying, it's a buyer's market, maybe I won't choose to put my house up for sale. Maybe I'll just wait a little bit. Because housing is unique. People don't have to sell their property. They could just choose not to. They probably are locked in at super low mortgage rates. Like 90 % of people have a mortgage rate below 5%. So they're just saying, looking at their market saying, I'm not going to get the price that I want.

21:29Or it's going to take me six months to sell this house instead of three months. So I'm just not going to sell. I'm just going to keep paying my mortgage and living in my house. And this is super important, right? Because this is how a normal correction works, right? The pendulum swings back and forth. Right now, it is swinging towards a buyer's market. And so sellers have to reconsider whether or not they want to sell. Eventually, the market will again reach equilibrium because fewer people will list their markets, more buyers will come back, will achieve some sort of balance, and then maybe it will swing back in the seller's direction.

22:05That's how this thing goes. And that's why sometimes we are seeing modest declines in housing prices. But for the most part, in most years, we see modestly increasing housing prices. And so the fact that this is happening and that new listing growth is moderating is super important because you'll see these people on social media, they'll point to a chart and say, new listings are up and they extrapolate that new listings are going to grow forever. And that's why there's going to be a crash. But new listings are not going to grow forever. Sellers are logical people. They are going to react to what is going on in the market.

22:39And fewer people are going to start listing their home for sale if it's not a good time to list. Just look at the data that I shared with you early about the different regions. Where were new listings decreasing the most? Well, it's the places where prices are declining the most, right? Talk about Tampa. Why are new listings going down there? Because prices are going down there and people don't want to sell when prices are going down. Why is Orlando and Austin and these places seeing new listings decline? Because prices are going down. Think about the other thing. Why was Cleveland on both of our lists for most new listings and price appreciation?

23:18Because people are seeing great selling conditions in Cleveland and so more people are trying to sell their house. This makes total sense. It is the thing that the crash bros and people who are fear-mongering on the internet completely miss. This is exactly what is supposed to happen. It is the logical thing that happens in the housing market. And this, to me, is why we are likely to see a correction in a lot of markets and maybe even on a national basis, but not a crash. I really want to hammer this home because if you're afraid of a crash in a correction, you might miss out on a buying opportunity.

23:54So I want to share with you one more super important data set about a potential crash. We do have to take one more quick break though. We'll be right back.