Join us for a timely fireside chat featuring Danielle Hale, Chief Economist at Realtor.com®, and Audrey Whittington, SVP Strategic Partnerships and Industry Relations at Local Logic. Together, they will delve into the complexities of today’s real estate landscape, exploring the potential economic impacts as we close out 2024 with unique insights into how elections shape the future of U.S. housing.

In this masterclass, you’ll learn more about:

• Current Market Conditions in Real Estate: An overview of the latest trends in interest rates, down payments, inventory, and buyer demand. Danielle and Audrey will discuss Realtor.com’s recent findings, which highlight significant changes in buyer behavior amid shifting rates and how these trends could affect market activity in the months ahead.
• Impact of Presidential Elections on the Economy: This session will also explore how presidential elections affect housing affordability, economic regulation, and long-term real estate strategies, offering insights into how elections may shape interest rates, buyer affordability, and overall market stability in 2025.
• Seasonal Trends and Key Metrics: With Realtor.com’s recent Fall Housing Market Rankings, Danielle and Audrey will discuss what key economic metrics are important to watch and how they affect and predict optimal buying or selling periods giving attendees a data-driven perspective on long-term planning.

➡️ Current Market Conditions in Real Estate

With the recent U.S. election, the economy has taken center stage as one of the most pressing concerns for voters. Economic issues consistently dominated conversations, reflecting the anxiety many feel about the nation’s financial health.

However, there is a noticeable disconnect between public sentiment and the underlying data. Exit polls and consumer confidence surveys reveal widespread economic concerns, yet key economic indicators suggest a relatively healthy economy. Growth is occurring at a pace close to or slightly above the long-term potential, and inflation — a major pain point — is declining. The Personal Consumption Expenditures (PCE) Index, the Federal Reserve’s preferred measure of inflation, is now nearing its 2% target, reflecting substantial progress in stabilizing price levels.

Decoding Inflation with the PCE and CPI in a Shifting Housing Market

The PCE, compiled by the Bureau of Economic Analysis, is the Federal Reserve’s preferred measure of inflation, targeting a 2% rate. While the Consumer Price Index (CPI) receives more media attention due to its earlier mid-month release, the PCE offers a nuanced perspective, reflecting different spending patterns based on a separate basket of goods and services.

While both indices typically trend in similar directions, the key distinction lies in weighting. The CPI places greater emphasis on housing costs compared to the PCE, which partly explains recent discrepancies between the two measures. In the latest readings, the PCE came in at 2.1%, close to the Fed’s target, while the CPI was higher at 2.6%, up from 2.4% in previous months. This widening gap stems from the CPI’s greater sensitivity to shelter inflation, which is up 4.9% compared to its pre-pandemic average of 3.3%.

Shelter inflation plays a significant role in driving overall inflation, currently accounting for half of the CPI’s increase. The measure estimates the homeowner’s equivalent of rent, calculating how much a homeowner could theoretically charge to rent their property. This approach ensures consistency over time, regardless of the proportion of homeowners versus renters. However, it doesn’t fully reflect people’s reality and varied experiences. For example, homeowners with fixed-rate mortgages are largely insulated from rising shelter costs, while renters face more direct impacts, as lease renewals typically reflect current market rates.

The CPI and PCE are useful tools for policymakers and provide insight into the inflation consumers face. There are nuances to these measures, however, as individuals experience inflation differently based on their personal circumstances.

How Economic Signals Shape Borrowing Costs

The Fed’s rate, or the Federal Reserve’s interest rate, is the rate at which banks lend money to each other overnight. This rate plays a significant role in influencing the overall cost of borrowing and lending money throughout the economy. It directly affects the prime rate, which serves as a benchmark for various types of loans, such as credit cards and home equity lines of credit. As a result, changes in the Fed’s rate are transmitted across the economy, impacting everything from consumer loans to business financing. Additionally, this rate influences the yield curve, which reflects the relationship between short-term and long-term interest rates.

Consumers are primarily focused on mortgage rates, with the majority opting for 30-year fixed-rate rates. These tend to move in tandem with the 10-year Treasury yield, which is considered a risk-free rate. These mortgage rates respond to shifts at the short end of the yield curve, but also take into account expectations for the long-term economic outlook over the loan term.

Although mortgages are typically structured as 30-year loans, most borrowers do not hold them for that entire period. The average holding time is closer to 10 years, making it important to consider not just current economic conditions and the Fed’s current rate but also what the broader economic landscape might look like over the next decade. Mortgage rates often reflect anticipated changes in economic conditions and potential returns on alternative investments during this period. For instance, even when the Fed has cut rates, mortgage rates may not always follow suit immediately. A clear example is when mortgage rates bottomed out the week after a rate cut and began to climb thereafter, as those rate reductions had already been anticipated and priced into the market.

There are several reasons why mortgage rates may be climbing. Positive economic data, particularly from the labor market and inflation, has exceeded expectations. Even the most recent inflation figures came in slightly higher than anticipated, raising questions about how much additional rate easing the Fed will be able to implement. This has led to speculation that the long-term rate needed to maintain economic balance might be higher than previously thought.

Additionally, the market is adjusting its expectations to account for the potential impact of the new administration’s policies post-election. As a result, mortgage rates have risen significantly, returning to levels last seen in July.

Tracking Housing Supply with Insights on Inventory, New Listings, and Market Recovery

Realtor.com’s monthly report provides insights into housing market inventory trends. In October, housing inventory reached its highest level since December 2019, surpassing January 2020 levels by a small margin. Low inventory has been a significant issue even before the pandemic, but the pandemic amplified this challenge. What has changed now is the underlying reasons and the degree of difficulty.

In 2019, there were discussions about rate lock, as mortgage rates had risen by 1.5% compared to 2016, which seemed unfavorable at the time. However, when compared to recent rate fluctuations, those earlier increases barely register on charts. The pandemic led to a significant drop in inventory, with some months showing inventory levels 50% below normal market conditions. Although current inventory remains about 20% below pre-pandemic levels, this represents substantial improvement. Overall, this gradual improvement is expected to continue.

Low inventory has been a persistent challenge for homebuyers, with many wanting to move but feeling unable to do so due to limited options. Beyond feeling “locked in” by their current situations, buyers often struggle to find properties that meet their needs. However, progress is emerging, as active listings and, more importantly, new listings are increasing.

Active listings can be thought of as a snapshot of what is currently available in the market, like items on a store shelf ready for purchase. Newly listed homes, on the other hand, represent freshly stocked inventory. The typical difference between new and existing listings varies seasonally. Newly listed homes are currently just under 400,000 per month. This metric is closely linked to pending sales, which makes sense as the most desirable properties often come from newly listed batches and sell quickly. Tracking newly listed homes is a key indicator for predicting home sales trends. For repeat buyers, who make up a significant portion of sellers, the sale of their home can generate additional buyer demand.

While the current numbers are marginally better than those seen in 2022 and 2023, they are still well below pre-pandemic levels, which were closer to 450,000 at this time of year. This makes it an essential metric to monitor moving forward.

➡️ Impact of Presidential Elections on the Economy

In the real estate industry, it is often said that buyers tend to be indecisive before an election, hesitant to move forward with purchases. However, the evidence for this claim is somewhat mixed. While some years do show a slowdown in the pre-election period, other years may even see an uptick in activity. This makes it difficult to definitively state that buyers consistently pause before elections. That being said, anecdotal feedback collected from consumers by Realtor.com suggests that the election did contribute to some buyer hesitation this time.

Overall, there was a sense of cautious optimism. Once the election concludes, the outcome provides a clearer path forward, allowing buyers and sellers to adjust their plans with the removal of that initial uncertainty. Although questions remain about specific policy details and potential changes, knowing who will be making those decisions provides a framework. This means that while full certainty is not yet achieved, there is a clearer outline that can be gradually filled in as more information emerges and policies take shape.

The Impact of Tax Policies on the Housing Market

Different political parties have varying tax policies that influence their agendas. While tax policies are commonly associated with personal finances, their impact on large businesses and the housing market is less frequently discussed.

This issue will likely become more significant in 2025, partly because it will shape legislative priorities. The tax rates established under the 2017 Tax Cuts and Jobs Act are set to expire at the end of 2025, making a new tax deal a key focus for the incoming Administration and Congress.

During the campaign trail, there was a lot of talk about housing, with various ideas proposed to boost building and construction. The acknowledgment of the lack of housing supply and the need for new developments was encouraging. However, whether housing will remain a priority is uncertain, as tax policy could take precedence. If a tax deal is reached swiftly, it would be a positive signal for the housing market.

The 2017 Tax Cuts and Jobs Act marked the first significant tax reform since the 1980s. Though it was challenging to enact, the reform was accomplished, bringing significant adjustments. While the cuts largely favored higher income brackets, they provided lower taxes for all income levels. The act also raised the standard deduction and lowered tax rates, resulting in fewer individuals needing to deduct mortgage interest. These lower rates are set to expire at the end of 2025.

Could a tax deal impact housing inventory? Indirectly, yes. Changes in tax policy could influence after-tax income for potential homebuyers; more after-tax income generally supports housing market growth.

Will Declining Mortgage Rates Diminish Buyer Urgency?

In 2024, the expectation was for mortgage rates to decrease, which ultimately did happen, though with more volatility than anticipated. The question then became whether buyers would continue to act with urgency each time rates dropped. In recent years, every dip in mortgage rates was met with a rush of buyers eager to lock in lower rates. 

However, if the overall trend now points downward and a record number of consumers anticipate lower rates in the future, does that reduce the sense of urgency? People might believe that waiting longer will result in better mortgage rates.

Economic Optimism, Deficits, and the Fed’s Role in Driving Interest Rates

The Fed’s control is limited to the very short-term, and they do not dictate the entire yield curve. The Fed sets short-term rates, but investors shape the rest of the yield curve by allocating their money and capital. We sometimes observe interest rates shifting higher, as seen in 2016 and more recently. This movement often stems from economic optimism. When expectations for an improved economic outlook rise, interest rates tend to increase. While higher rates can be challenging for home buyers, they are often a sign of a more positive outlook for the economy.

Other factors influencing rates are deficits and increased US borrowing. Higher rates may be necessary to entice investors to buy US bonds, which can further push rates upward. Although rates have risen significantly, there are both positive and negative reasons behind these movements. If the increase is due to a stronger economic outlook, that’s beneficial for employment, job growth, and income, which are essential drivers of the economy.

Ultimately, regardless of political affiliation, policies passed can have a trickle-down effect on the average consumer, for better or worse.

➡️ Seasonal Trends and Key Metrics

How Seasonal Trends Influence Housing Market Opportunities

Seasonality in the housing market plays a significant role in shaping buyer and seller behavior, but it’s not well undersood. Realtor.com has been instrumental in raising consumer awareness about these seasonal trends. Buyers with more flexibility — such as those without school-age children or those willing to move in the Fall — can benefit from tangible savings. Realtor.com’s annual analysis also identifies the best times to buy, often pinpointing a specific week in late September or early October when buyers can secure better deals.

This analysis considers multiple factors to maximize opportunities for buyers, such as the availability of new listings and pricing trends. Generally, purchasing a home later in the year, closer to December, can yield advantages similar to buying a car at the end of the year. During this time, buyers face less competition, and sellers are often more motivated due to calendar-year deadlines or other constraints. However, the trade-off is a reduced inventory of homes, as many sellers prefer to delay listing until early in the new year when buyer activity typically increases.

For investors or buyers with less specific requirements — such as those purchasing a property to rent or first-time buyers looking to enter the market — late-year shopping can offer favorable terms. By leveraging these data-driven insights, real estate agents can demonstrate their expertise and provide clients with actionable strategies for navigating the market.

Nesting in Place and Housing Inventory

Many aging homeowners are choosing to “nest in place,” opting to stay in their homes rather than downsizing. The trend of older individuals moving to single-story homes has significantly declined, with many delaying the decision to move until physical challenges, such as difficulty climbing stairs, make it unavoidable. This shift in behavior has a notable impact on housing inventory, as the expected turnover of these properties slows.

There are practical and emotional reasons behind this decision. For many, staying in their current home makes sense — it accommodates their belongings, and the effort to downsize or relocate can feel overwhelming. Moving from a single-family home to a smaller space, such as a condo, often involves the difficult task of letting go of possessions, which not everyone is ready to face. While downsizing can offer freedom, reduced maintenance burdens, and the appeal of a more walkable, amenity-rich location, it’s not always feasible or desirable for everyone. Some older homeowners prioritize staying in their current home, hoping it will continue to serve as a gathering place for children and grandchildren.

Additionally, financial factors play a critical role. Many homeowners have locked in historically low mortgage rates, making the cost of downsizing potentially higher than the cost of staying put. This economic consideration, combined with the emotional ties to their home, often tips the scale in favor of staying, further contributing to constrained inventory in the housing market.

➡️ What’s Coming in 2025

According to Realtor.com’s analysis of FHFA data, 84% of homeowners had a mortgage rate under 6% as of Q2 2024, the most recent data available. Refinancing activity remains low, as very few homeowners are eligible to benefit from lower rates. Only 20% of homeowners have rates above 6%, and for many, the difference between their current rate and today’s market rate may not justify refinancing.

The good news is that these homeowners have locked in low rates, which helps them maintain lower monthly housing expenses. Despite lower refinancing activity, the market is expected to see a substantial increase in sales next year, driven by a combination of declining mortgage rates and natural life events, like job relocations or family changes, that will prompt some homeowners to sell despite the lock-in effect. Realtor’s full forecast, expected the week after Thanksgiving, will provide more detailed insights.

However, the lock-in effect will continue to be a challenge, particularly for those reluctant to move due to their favorable mortgage terms, which could continue to limit inventory and constrain market activity. As mortgage rates slowly come down, the market may see more movement, but unlocking this potential will require both patience and structural changes in the market dynamics.

The Return to the Office and Shifting Housing Market Dynamics

Another factor influencing the housing market is the shift back to the office. Many companies are now requiring employees, especially new hires, to live within a certain distance of the office. While this may unlock some movement in the housing market, its impact may not align with initial expectations.

For some homeowners, relocating closer to an office might require them to sell their current home. However, whether these individuals can afford to purchase another home near their workplace remains uncertain, particularly in expensive housing markets. This raises broader questions about affordability and accessibility in regions with high housing costs.

In more affordable markets, where home prices are relatively moderate, the return to office has had limited impact on homebuying trends. Buyers in these areas tend to shop locally rather than seek opportunities in other regions.

In contrast, expensive markets have shown a different pattern. In areas with a high prevalence of remote work, such as Silicon Valley, homeowners were more likely to look for homes outside their immediate area, often in regions with lower housing costs. This dynamic highlights how affordability continues to play a pivotal role in shaping housing market behavior, particularly as workplace policies evolve.

As companies increasingly enforce in-office requirements, the housing market may experience localized shifts. However, the extent to which this movement alleviates inventory challenges remains to be seen.

Renting or Buying? How Affordability Trends Are Redefining Housing Decisions

Realtor.com tracks rental data using rental listings from both MLSs and major community partners, compiling this information into a monthly report. Their data shows that asking rents have been relatively flat over the past year, even decreased slightly. However, it’s important to note that these figures reflect advertised rents for vacant units and not the rent paid by tenants who choose to renew their leases, as those properties don’t require advertising.

This distinction helps explain the difference between reported market rents and shelter inflation in the CPI. Shelter inflation continues to rise because it reflects rents that surged during the pandemic and have since stabilized at high levels. Meanwhile, rents for renewing tenants, who make up a significant portion of the rental market, are slowly catching up to those elevated pandemic-era rates. This lag contributes to the persistence of high shelter inflation, even as asking rents remain steady.

Looking ahead to next year, Realtor.com’s rental analysis highlights a critical structural change: renting is now significantly cheaper than buying in almost every market. This affordability gap makes renting an attractive option, particularly for potential first-time homebuyers. According to the National Association of Realtors’ (NAR) profile of home buyers and sellers, the share of first-time home purchases has fallen to a record low. With buying costs remaining high and requiring a long-term commitment to make financial sense, many would-be buyers are opting to rent instead.

These dynamics suggest that the market will remain challenging for first-time homebuyers in the coming year. Renting will continue to appeal to many due to its relative affordability, while the high cost of homeownership is likely to deter new entrants.