Monday Morning Quarterback
Los Angeles County Real Estate Investors Association, LLC
Your investing starts here...
(Happy New Year)
Across Southern California, and for that matter much of the country, housing is unaffordable for many, whether someone is trying to buy a house or rent an apartment. In fact, voter concern over the nation's cost of living, including housing, appears to have played a major role in returning Donald Trump to the White House. Supply chain problems coming out of the pandemic, coupled with pandemic economic stimulus under both presidents Trump and Biden, have been blamed for contributing to the inflation surge in recent years (though the rate of cost increases has since ebbed to more normal levels). Whether that slowing trend continues is unclear in 2025. In particular, economists say the former and soon-to-be-again president's stated plans for sweeping tariffs and tax cuts could reignite inflation and significantly raise the deficit, thus putting upward pressure on home loan costs. Another big component of housing is supply — the lack of which economists tend to single out as the main culprit driving rents and home prices higher. Trump has called for cutting regulations that make it more difficult to build, but many of those rules are the domain of local authorities, giving the federal government limited options to change course. The former and future president has also called for building new homes on federal lands, which economists say could improve affordability in Western states like Utah and Nevada where the federal government owns large tracts of land and people fleeing California have pushed up prices. Immigration is another wild card. Trump has pledged to carry out the largest deportation of people here illegally that the country has ever seen. As of 2022, there were an estimated 11 million undocumented immigrants in the U.S., and mass deportations would break up mixed-status families and could send shock waves through parts of our economy. Richard Green, director of the USC Lusk Center for Real Estate, said that if Trump succeeds in carrying out mass deportations, it could lower housing costs in places like Los Angeles as hundreds of thousands of people are forced out and homes left vacant. With all of this in mind, let’s predict some of the real estate variables for 2025.
The Biggest Challenge For the Real Estate Industry in 2025? The housing market has been exceptionally challenging for both buyers and sellers. Will it turn the corner in 2025? Many of the same pressures will continue to drag real estate. High mortgage rates, fewer homes for sale and record-breaking home prices are all limiting home sales. Against this backdrop, whether the housing market will recover this year is “hard to say,” Glenn Kelman, chief executive and president of Redfin, a real-estate brokerage, ponders. Even if home buyers are showing signs of returning (as evidenced by an uptick in traffic to the company’s site and a recent increase in mortgage applications) the path ahead is hazy. One looming question for the real-estate industry is how disruptive the second Trump presidency could be. “It’s a very volatile time,” said Kelman, who has run Redfin for nearly two decades. The biggest challenge the real-estate industry faces is that many people in the U.S. are not selling their homes (refusing to give up their low mortgage rates). The number of existing-home sales in 2024 is expected to be at the lowest level in nearly 30 years. As of October, only 20% of Americans believed it was a good time to buy a home, according to Fannie Mae’s Home Purchase Sentiment Index. As would-be buyers grow frustrated with an expensive market, they are renting for longer, Mark Palim, chief economist at Fannie Mae FNMA, said in a statement. The good news for renters is that rent price growth is expected to remain modest in 2025. “More consumers may be seeking — and finding — attractive deals in the rental market,” he said.
Commercial Real Estate Still On Thin Ice Heading Into 2025. Investors have been lifting the wobbly U.S. commercial property market back to its feet ahead of 2025, bolstered by the monster financing this fall of an iconic property in the heart of New York City. October saw a $3.5 billion, five-year refinancing of Rockefeller Center in Midtown Manhattan, led by lenders Bank of America and Wells Fargo and completed on behalf of co-owners Tishman Speyer and Henry Crown & Co., the largest office financing of its kind in history. Despite serious challenges for older office buildings, the new debt deal, which replaced a maturing 20-year loan on the “city within the city,” was a blowout with investors. “I think it was extremely important,” said Christopher Battistini, senior fixed-income analyst at Thornburg Investment Management, which oversees $47 billion in assets and was one of many firms that bought mortgage bonds tied to the refinancing of Rockefeller Center. “This is a large swath of land in New York City,” Battistini said. While categorized as an office financing, the 7.3 million–square–foot complex also includes Radio City Music Hall, retail, dining and the famed Rockefeller Center ice-skating rink. “In terms of size, scope and scale, there were a lot of eyes looking at it.” When the music stops in the $22.5 trillion commercial real estate market, it’s typically because funding has dried up. Opinions might vary as to whether property prices bottomed in 2024, but it’s clear that funding has returned five years after the pandemic upended commercial real estate almost overnight. Debt funds, in particular, have been looking to fill a greater lending role than in the past, said Diana Brummer, co-chair of the law firm Goodwin’s real-estate industry group. “There are more opportunities than there used to [be],” she said of financing outside of the traditional banking system. The failure of several regional banks in 2023 has kept a spotlight on risks for lenders related to commercial real estate, a significant area of concern for Congress and banking regulators. Still, loan volumes are poised to increase 26% in 2025 from a year before to $539 billion, according to the Mortgage Bankers Association. Yet the bigger picture has been one of price declines, especially for hard-hit offices in central business districts, which had tumbled 50.7% in October from three years before, according to MSCI’s RCA commercial-property price index.
Will Mortgage Rates Drop Below 6% In 2025? Mortgage rates are expected to stay over 6% well into next year. The 30-year rate is expected to average 6.5% in early 2025, and finish the year at 6.3%, according to Fannie Mae’s newly-released monthly forecast. Fannie Mae is a government-sponsored enterprise which backs 1 in 4 residential mortgages in the U.S. That’s an improvement from where rates are today. The average rate on a 30-year fixed mortgage was over 7% as of December, pressured upward by financial markets’ uncertainty about the future of the U.S. economy. Once the markets feel more certain as the Trump administration settles in, expect the 30-year rate to fall to the 6% range, Vishal Garg, founder of Better Home & Finance an online mortgage lender, says. And as rates fall, “you’re going to see a very strong home-buying season in the summer of 2025,” Garg adds. Beyond 2025, expect mortgage rates to stay around 6%, Lawrence Yun, chief economist at the National Association of Realtors, said during a recent conference in Boston. “Are we going to go back to 4%? Per my forecast, unfortunately, we will not,” Yun said. “It’s more likely that we’ll go back to 6%. That will be the new normal, bouncing around 5.5%-6.5%.” To be sure, Trump’s proposed tariffs could fuel inflation in the U.S. economy, which could prompt mortgage rates to stay elevated, experts say. When inflation is high, the Federal Reserve keeps interest rates high so it can maintain the rise in prices at a level it finds reasonable. Mortgage rates don’t directly follow the direction of the federal funds rate; they tend to rise and fall in tandem with the yield on the 10-year Treasury note. But if the government borrows more money, it must pay higher interest rates to attract buyers of its debt. A bigger federal deficit would then lead to higher mortgage rates for buyers.
Will Home Prices Crash in 2025? Frustrated home shoppers might be wishing for the housing market to crash so they can get a foot in the door. But a housing crash in 2025 is highly unlikely, and home prices are only expected to go up further from the record highs they hit last year. The silver lining for buyers is that their incomes will grow faster than home prices as compared to prior years, Ralph McLaughlin, a senior economist at Realtor.com, said at a press conference. “We really haven’t had periods like that for several years, since pre-pandemic,” he added, where wage growth outpaced home-price growth. “So that’s actually good news for consumers.” In October, the median price of a resale home rose 4% from last year to $407,200, the 16th straight month of year-over-year increases, according to the National Association of Realtors. Prices were at the highest level ever for the month of October. Here’s what experts are forecasting for home prices in 2025:
Will Rents Go Up In 2025? Rent prices are expected to stay stable in 2025. Though wage growth has yet to catch up to the increase in rent prices, affordability for renters should improve in the coming months, Orphe Divounguy, a senior economist at real-estate platform Zillow. “Absent a recession, wage growth should continue to outpace rent growth,” he explained, particularly as a record number of housing units are under construction, which should increase the supply of rentals available. Renters in the Sun Belt might see more deals on rentals. In October Zillow found that rents fell year-over-year in Austin and San Antonio, Texas, and barely increased in Dallas; Raleigh, N.C.; and Phoenix. On the other hand, rents rose the most in October in Hartford, Conn.; Cleveland; and Louisville — all more than 6% from a year ago. High interest rates are causing people to delay buying a home, according to Divounguy. In 2021, the median age of a renter in the U.S. was 33. In 2024, that renter is typically 42, he said. Renters on the hunt for a new lease are also more likely to see good deals on apartment leases than with single-family units. “Rent growth was just 2.3% higher than a year ago for multi-family units,” Divounguy said, “and that slowdown is continuing.” Rent growth for single-family units, on the other hand, was 4.3% in October. “People are waiting in the wings for housing affordability to improve,” Divounguy said, by renting a single-family unit. But there aren’t enough single-family rentals to meet demand, which could push rents on those homes up, David Howard, chief executive of the National Rental Home Council, predicts. Investors want to build more single-family rentals and more housing generally, but high rates are keeping a lid on activity, he added, which could increase prices.
Will Property Insurance Costs Keep Rising In 2025? Unfortunately, homeowners’ insurance premiums are expected to continue rising this year. Over the last few years, insurance premiums have skyrocketed, as the insurance industry and homeowners grappled with natural disasters from hurricanes to wildfires and the growing costs to repair and rebuild homes. This year, annual insurance rates are expected to rise 6% to the $2,522 mark, according to Insurify, an insurance comparison-shopping site. “We’ve endured hard markets due to a combination of extreme weather events and inflationary conditions before and, unfortunately, will again,” Rick McCathron, president and chief executive of Hippo, a home-insurance company, predicts. A hard market is where premiums become more expensive, but insurance is harder to obtain. With several insurers pulling out of states like California and Florida, homeowners in those states are finding it harder to obtain affordable homeowners insurance. But insurance price hikes in 2025 may not be as dramatic as they were in prior years, as the industry adjusts. “Consumers may still see rate increases in 2025, but not to the extent they saw over the last two years,” McCathron said, “as we all benefit from falling interest rates and a growing economy.”
Pantone Names Its Color Of The Year For 2025. Pantone has named an “evocative soft brown” its color of the year for 2025, continuing a tradition that has now run for more than a quarter of a century. In a statement published Thursday, the global color specialist said Mocha Mousse was “a mellow brown infused with a sensorial and comforting warmth.” A warming rich brown hue, PANTONE 17-1230 Mocha Mousse nurtures with its suggestion of the delectable quality of cacao, chocolate and coffee, appealing to our desire for comfort.” Leatrice Eiseman, executive director of the Pantone Color Institute, says it evokes “thoughtful indulgence.” “Sophisticated and lush, yet at the same time an unpretentious classic, PANTONE 17-1230 Mocha Mousse extends our perceptions of the browns from being humble and grounded to embrace the aspirational and luxe,” she says in the statement. Laurie Pressman, vice president of the Pantone Color Institute, added that Mocha Mousse feeds into a desire for harmony. “With that in mind, for Pantone Color of the Year 2025, we look to a color that reaches into our desire for comfort and wellness, and the indulgence of simple pleasures that we can gift and share with others,” she said. Each December, Pantone names a color of the year for the following year, and this is the 26th time that it has done so. To make their pick, experts at the Pantone Color Institute trawl through high-fashion runways, interior design trends, pop culture moments and human psychology. The first Color of the Year was Sky Blue in 1999, while more recent choices include Peach Fuzz — “a light, fruity tone that conjures peace and serenity” — in 2024. and Viva Magenta — “an unconventional shade for an unconventional time” — in 2023.
Merriam-Webster's Word of the Year for 2025. Merriam-Webster Announces “Polarization” as the Word of the Year. Merriam-Webster Inc. Lookup volume of polarization on Merriam-Webster.com last year reflected the desire of Americans to better understand the complex state of affairs in our country and around the world. Polarization is defined as “division into two sharply distinct opposites; especially a state in which the opinions, beliefs, or interests of a group or society no longer range along a continuum but become concentrated at opposing extremes.” "Polarization was widely used to describe America in 2024,” says Merriam-Webster President Greg Barlow. “Ironically, it’s a concept that is shared by both sides of the political divide.” “Even in this age of polarization,” adds Barlow, “the dictionary remains a neutral, trusted resource that millions of people turn to in order to better understand the words that define our times.”
Vendors Expo Returns! Our world-famous "Vendors Expo" returns in 2025, on Thursday night, January 9, 2025. The Vendor Expo opens starting at 6:30 pm. We'll have 30+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. Our Vendor Expo will be held at the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Culver City CA. FREE Admission. Please RSVP at our website, LARealEstateInvestors.com.
“Wholesaling” When it comes to wholesaling, there is only one guy you need to learn from. His name is Daniel Tromello. Daniel has not only wholesaled hundreds of properties throughout Southern California, he has traveled the country preaching the virtues of wholesaling. Daniel will be our special guest speaker at our first general meeting of 2025. The title of Daniels’s presentation is “How to Wholesale Like a Pro.” Don’t miss Daniel’s presentation. Thursday night, January 9, 2025, 6:30 to 9:30 pm. And be sure to come early (6:30 pm) and enjoy our Vendors Expo. Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034 (Culver City adjacent). FREE Admission. Metered and free street parking. RSVP at our website, LARealEstateInvestors.com.
Basic Training Investing Boot Camp. Saturday, January 25, 2025, 9:00 am to 6:00 pm, will be our semi-annual Basic Training Boot Camp. Everything you ever wanted to know about real estate investing but were afraid to ask. Iman Cultural Center, South Hall, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034.The cost of the Boot Camp is $149.00 per person if paid before January 18. After January 18, the prices jumps to $249.00 per person. So don’t wait to register. (Gold Members and former Boot Campers can attend for FREE, but still need to register.) Plus free parking. Please register at our website, LaRealEstateInvestors.com.
This Week. Investors will continue to look for additional guidance from Fed officials on their plans regarding future monetary policy. For economic reports, the ISM national services sector index will be released on Monday. The detailed minutes from the December 18 Fed meeting will come out on Wednesday. The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation are always closely watched.
Weekly Changes:
10-Year Treasuries: Fell 050 bps
Dow Jones Average: Fell 500 points
NASDAQ: Fell 300 points
Calendar:
Monday (1/6): ISM Services
Wednesday (1/8): Fed Minutes
Friday (1/10): Employment
For further information, comments, and questions:
Lloyd Segal
President
Los Angeles County Real Estate Investors Association, LLC
310-792-6404