Housing Market Update: The Crash Bros are Wrong (Again!)

0:00Dave:The buyer's market is here. Deals are getting better, but there is risk in the market too. So the key is to understand exactly what's happening right now so you know a good deal when you see it and you can avoid costly mistakes. Are home prices likely to go up or down? Could the correction turn into a crash? Today, we're breaking down the most recent housing market data to help you understand how to find and execute on the increasing opportunities in the housing market.

0:34Dave:Today on the show, we're going to be looking at the data as we do every single month. And today we have a lot to cover. The market is moving into a correction, as I've been saying was likely all year. And this creates interesting dynamics for investors, both good and bad. So today we'll start with what's happening with both prices nationally and regionally. We'll talk a little bit about what's likely to happen with price growth and appreciation in the next year. We'll even get into how rents are trending a little bit, inventory trends, housing market health because we got to monitor if the correction is going to turn into a crash.

1:13Dave:And then, of course, at the end, we'll talk about what this all means. Let's do it. So let's talk about price growth first because this is an important one, of course. Everyone wants to know this one, and it's the one that really is changing. I think, according to the data, we are in a correction at this point. It really depends on who you ask what the exact number is, but most reliable sources have price appreciation somewhere between positive 1 % and negative 1%, so pretty darn close to even, but that is on a nominal level, and that is really important to remember. We'll talk about that a couple times throughout the show, but when I'm saying they're up or flat, I am not talking about inflation-adjusted prices.

1:57Dave:So on the high end, they might be up 1 % year over year. When you just look on paper, yeah, they're up a little bit. But when you compare that to inflation, which is up about 3%, you're actually losing a little bit of ground. And as a real estate investor, I want to know that difference. That difference matters a lot to me, the difference between nominal and real. Real just means inflation-adjusted pricing. And I think for most of the year at this point, we've seen that we are in negative real price appreciation, even though we're kind of flat on nominal home prices. So personally, I would categorize that as a very mild correction.

2:39Dave:This isn't a crash yet, and we'll talk more about whether or not that is likely. And it is certainly not happening in every region of the country. We're seeing very different performance depending on where you are, what state you are. Even different cities in the same state are seeing really different performance. But I think on a national level, this kind of lull that we're feeling, I think at this point we can qualify it as a correction and a buyer's market. And as I said at the top, and we'll get into a lot today, that means there's both risk and opportunity. But before we talk about how you should go about playing this new market dynamic that we're in, just wanted to drill into some of those regional differences that we're seeing quickly.

3:22Dave:not much has changed in terms of patterns. Just the scale has changed a little bit. So if you're living in the Midwest or you're living in the Northeast right now, you're probably not sensing that correction that I'm talking about. Because even if you look at the numbers, seasonally adjusted and inflation adjusted, you're probably seeing positive home price growth year over year. Almost all of the markets in the Northeast are still positive. The Midwest is starting to see more of a mixed bag. But like I said, the scale is changing. So even those markets that were really positive, take Milwaukee, like the beginning of the year, Milwaukee was like 8 % year over year growth.

4:03Dave:Cleveland was really hot. We saw Indianapolis really hot. They're still positive. They're just less positive. So now they're 3 % year over year. Now they're 4 % year over year. And so that's why I am saying that we are in a buyer's market and we're probably heading into more of a buyer's market, it was because even the markets that are doing well are doing less well. Now, that is certainly not an emergency, but you see the same trend of slowing appreciation in pretty much every market in the country. At this point, the markets that have actually turned negative in terms of sales price are mostly concentrated in the West.

4:39Dave:We see markets in California and Washington, Oregon, Arizona, Denver for sure, and then in the Southeast and in Texas, with the biggest declines still being in Florida and along the Gulf Coast. So overall, mixed bag. But the reason I'm saying that we're a buyer's market is there's just a lot of evidence. There's data that buyers now have a lot more leverage in the market. And this can be a very good thing for investors, as we'll talk about. But there's this metric I want to share. It's called the sale to list percentage. It's basically a ratio of what percentage of the asking price does it ultimately wind up selling for?

5:17Dave:So if you were in a perfectly balanced market, which pretty much never happens, it would be at 100%. That means every seller gets exactly the price that they list it for. If it is above 100%, that usually means that you're in a seller's market because people are bidding over asking in order to lock down deals. Or like we are seeing right now, when that number falls below 100, that usually means that you're in a buyer's market and buyers have regained power. Right now, according to Redfin, the average sale to list percentage or ratio has dropped to below 99%. So it's not like we are seeing a huge difference, but it means on average, sellers are not getting their list price.

6:01Dave:And this is across the entire country. And so we'll talk about this more at the end, but one key takeaway that every investor should be thinking about when they hear this news is that they should be offering below list price because they probably, according to the average, are going to be able to get that. And of course, 1%, not crazy, but that's the average. And so for investors who want to buy below current comps, who want to get the best possible deal that they can, not only should you be offering below list price, but the chances that you'll get a below list offer accepted are going up. So that's what we see so far in terms of sales prices across the country.

6:41Dave:Of course, I'm sure everyone wants to know now, where do we go from here? And actually pull together forecasts from a couple of the top, you know, most reliable data providers out there to share with you. And then I'll give you my reaction in just a second. Zillow, which I know people knock on Zillow data, but I really appreciate one thing about Zillow's data. They revise their forecast every single month. And what they are saying right now is that they think through the end of 2025 that we'll wind up with home prices at negative 1 % nominally. So similar to where we're at, but a modest correction.

7:19Dave:Now that is a change from where we started the year. Zillow was forecasting modestly positive prices, but they haven't changed that much. They've just pulled it down a little bit over the course of the year. Now we have the case Schiller lens, which comes from Reuters. They actually updated their forecast in September, and they are still forecasting a positive increase in appreciation of 2.1%. They say that they think home prices will grow next year, 1.3%. CoreLogic says 1.4 % year over year. Goldman Sachs, they haven't updated since April, so I don't take that one as seriously, but they were saying 3.2%.

7:56Dave:And Realtor.com hasn't updated there since December, so take that one with a grain of salt, but they're saying 3.7 % year over year. So that is what some of the more notable names in the industry think is going to happen. And I'm going to share with you what I think is going to happen. But first, I need to share with you what's going on with inventory and new listings, because I'm going to base all of my predictions and forecasts about pricing for the rest of the year and into 2026 based on inventory data and demand data. That is what is sort of the lead indicator for prices in the housing market.

8:31Dave:So let's dive into that. But first, we got to take a quick break. We'll be right back.

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10:45Welcome back.

10:46Dave:I'm here giving you my September housing market update. So far, we talked about that housing prices are pretty flat on a national basis, and we are still seeing some of those regional trends. And I shared with you what many of the big forecasters in the industry think are going to happen. Now, I want to share with you my projection for the rest of the year and just some early thoughts about 2026. But first, I need to tell you what's going on with inventory, new listings. We need to dive into some of this other data because that is what informs us where prices are going to go. Inventory, that word, is basically just a measure of how many homes are for sale at any given point.

11:26Dave:And what we saw in August was actually really surprising. The pattern over the last several years, basically since 2022, when rates started to go up, is that inventory has been climbing. And that makes sense if you have been paying attention to these housing market updates. But basically what's been going on is more and more people are starting to sell their home. And even though there is some demand, there is still stable demand. We are seeing homes sit on the market longer. And that means inventory is going up. Just for some reference, from 2012 to 2017-ish, the average number of homes for sale at any given point in the United States was about 2 million.

12:10Dave:For the years leading up to the pandemic, from 2017 to about 2020, it was, you know, 1.7, 1.8 million-ish. Then during the pandemic, it dropped all the way down to about 1.1 million. That was during peak craziness, and it has been slowly climbing back up, and we are now back above 1.5 million for the first time since 2019. So that's pretty significant, and that is worth noting, and you're going to see a lot of headlines saying that inventory is climbing like crazy. But remember that even though it has been going up and we're about 1.5 million, we're still about 16 % below pre-pandemic levels. And I think the most interesting statistic I saw while I was researching and pulling the data for this episode is that inventory actually fell from July to August, according to Redfin.

13:03Dave:And that should make you pause because the narrative in the media and the truth has been that inventory has been going up like crazy. And I reference this media narrative because I think I hear this a lot from people who are saying that the market is going to crash. And they point to inventory going up over the last several years as evidence of that. And if inventory were to go up indefinitely at the pace that it is going up for the last couple of years, sure, yeah, the market would crash. But there is no guarantee or no reason to even believe that inventory would go up forever. So seeing inventory fall from July to August, which is the last month we have data for, is really notable.

13:48Dave:It is showing that inventory is starting to level off. And it is only one month of data. So we're going to have to look at this for a few months. But just even seeing it level off for one month is really notable. And there are reasons to believe that this pattern, the shift in pattern could be sustainable. And that is because we have this other lead indicator that we need to look at, which is new listings. Now, I know it's a little bit confusing, but new listings and inventory are actually different metrics. Inventory measures how many homes are for sale at a given point in time. the new listings actually measures how many people put their home for sale on the market in that month.

14:27Dave:So we're talking about August. And the difference is that, you know, you could have a lot of new listings and inventory can actually go down because there's a lot of demand and those homes are selling quickly. But actually what we're seeing is inventory go down because new listings are actually going down as well. And this is another super important dynamic. We've actually seen this in the data for the last month or two, that counter to the crash narrative that are saying more and more people are selling their homes, they're desperate, they're going to do anything to sell their homes. No, that is not what is happening.

15:03Dave:What's happening is that people are recognizing that this might not be a great time to sell your home. They are also noticing, sellers also notice that there is a correction going on. And they're probably thinking, you know what, I don't really want to sell right now. And so I'm going to not list my home for sale. And I think that is what's going on. That mindset is what's happening throughout the market. People are just choosing not to sell. And that is one reason. And I'll share some other data with you. I believe we are in a correction, but we are not likely heading for a crash because for as long as people have the option not to sell, it is very unlikely that you get crash dynamics that really just hasn't happened before.

15:46Dave:And so it remains very unlikely. Now, this is going to be one that we're going to watch really closely. As you probably know, we do these housing market updates every single month. And so when we report back in October for, you know, September data, I will share with you what's going on with inventory and new listings, because I am personally very curious if we see this fall. And for those of you who are astute observers of the housing market, you're probably saying, oh, maybe they fell because of seasonality. They always fall this time of year. And that is true. But the data I've been sharing with you is seasonally adjusted, which is how we want to look at this kind of stuff.

16:23Dave:There are all sorts of ways that analysts seasonally adjust this data, and we're seeing it fall on a seasonally adjusted basis, which is why it's so significant. Now, of course, there are still markets that are seeing huge increases in inventory. Lakeland, Florida is the biggest example. I actually pulled some data that shows the change in inventory from pre-pandemic levels, because I think that's still the metric we want to use here. Because sure, it might not ever go back to pre-pandemic levels, but looking at inventory year over year, which is how you would want to look at it, it just doesn't really make sense.

17:01Dave:because coming up from a artificial low like we've been in the last few years doesn't really tell us all that much. And so if you look at inventory changes from 2019 to the same month in this year, that's what really tells you a lot. And what we see is in certain markets like Lakeland, Florida, that's the number one. It's up 60 % over pre-pandemic levels, which is huge. Austin is up above 30%. San Antonio above 30%. Denver is sitting at about 27%. We see Tampa pretty high. New Orleans pretty high above pre-pandemic levels. That's why these markets are likely going to see price declines. Meanwhile, you look at places like Providence, Rhode Island and Hartford, Connecticut.

17:47Dave:They're still like 60 % below pre-pandemic levels. So the chances of them seeing corrections are relatively small, but it's still absolutely possible. So given all that, my forecast for the remainder of the year is that we are going to remain relatively flat. I'm sticking with the prediction I made in November of last year is that we were going to be plus or minus two or three percentage points on a national basis. But the general vibe of the housing market is going to be pretty much flat. And I think that's what we were seeing. And my hypothesis about that is that affordability in the housing market just wasn't going to change that much.

18:25Dave:I know that in the beginning of the year, a lot of people were saying mortgage rates were going to be in the fives. I never bought that. I have been saying that they are going to stay in the sixes, somewhere between 6.25, 6.75, somewhere in that range for most of the year. And that has been accurate. And I think that's where mortgage rates are staying for the remainder of this year. I know that the Fed has said that they are going to cut rates two more times this year. I don't think it's going to move mortgage rates that much, maybe a little bit. But I would be pretty surprised if it goes below 6 % by the end of this year, just because of what is going on with inflation, what is going on with the risk of recession.

19:01Dave:I just don't think mortgage rates are going to move. And I think inventory is starting to level off. So if you look at those two things combined, I think we're going to get more of the same, at least for the remainder of 2025, which it's crazy to say is really only three more months. So as we look forward to 2026 to understand if we're going to get into a crash or if the housing market will recover, or if we'll have more of the same, we really need to understand the state of the American homeowner. And we're going to do that right after this break. April is a beautiful month. The flowers are blooming.

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23:01Dave:We've talked about prices, we've talked about inventory, and I want to turn our attention to a third bucket of data that I think is super important going forward. This is homeowner health. Just generally, how is the average American homeowner doing with their properties that they own? Because to me, this is another lead indicator, maybe the main lead indicator that we need to look at going into 2026 about whether the correction that we're in is going to turn into a crash. Like I mentioned, inventory is super important to that. But if we want to understand why inventory is leveling off and whether that's going to change and it's going to start accelerating again, to me, it really comes down to homeowner health.

23:46Dave:As I said earlier, people right now, the reason inventory is leveling off is because they are choosing not to sell. They don't have to sell. In other words, they are not being forced to sell, which is the term that we use in the housing market to describe when people no longer can pay their mortgage and are forced to sell their property on the market. This dynamic can really push up inventory and can flood the market in the right circumstances to create crash scenarios. So we need to know if this is going to happen. And luckily, we have tons of data that help us understand whether or not this is likely.

24:23Dave:The first thing that I like to look at is just delinquencies, right? This is how many people are behind on their mortgage payment. Because I know people look at a price declines and think, oh, my God, they're going to get foreclosed on. That is not actually how this works. This is a common misconception about the housing market. You cannot be foreclosed on just because the value of your property goes down. If you are, quote unquote, underwater, that does not mean that the bank can foreclose on you. The only way that foreclosures start to happen is if people start to default on their mortgages.

24:59Dave:Basically, they stop making their payments. And as of now, that is not happening. What we saw in 2008 and that time, we saw delinquencies go up above 10%. They were above 5 % from about 2006 to, I don't know, 2014. So for eight years, we saw delinquencies rate above 5%. As of right now, they're at 3.5%. Before the pandemic, they were about 4%. So even in 2019, when the housing market felt relatively normal, the delinquency rate was higher than it was today. And this actually makes sense, right? Think about how many people refinance their mortgages during 2020, 2021, 2022. The ability for people to pay their mortgages has only gone up over the last couple of years.