The housing market keeps surprising us — perhaps as much as the election surprised us, resulting in a decisive victory for Republicans. I definitely thought the election was going to be closer and nearly every swing state went in the Republican direction. More will come for us to discuss housing and politics as the newly elected President sets his agenda.
Despite the challenges of high interest rates and affordability concerns, the market is holding steady and even showing strength in some areas. In this post, I want to show what we're seeing in the market and share my thoughts on what this all means.
The Return to Cities
Remember when everyone was saying cities were done for? Well, that story has completely flipped. According the National Association of Realtors (NAR)’s latest buyer profile report, urban areas are back in demand, now making up 16% of home purchases — even higher than before the pandemic. The suburbs are still king at 45% of purchases, but the mad rush to rural areas we saw during COVID-19 has largely reversed course. (Andrews, HousingWire, November 5, 2024)
What’s driving this renewed interest in city living? The return-to-office trend plays a big role. As more companies call employees back to the office, people are looking to move closer to urban centers again, balancing their commutes with the desire for space. Here’s an interesting twist: People aren’t moving as far as they did during the pandemic. The typical moving distance has dropped from 50 miles in 2022 to just 20 miles now, as reported in NAR’s annual profile of home buyers and sellers.
It seems that buyers have found a “sweet spot” — close enough to enjoy city amenities and shorter commutes with enough space to keep some of the lifestyle changes they embraced during the pandemic.
What's Happening with Home Prices?
The latest numbers from the NAR tell an interesting story. Home prices are going up in 87% of major metropolitan areas. But here's the key: The pace of these increases is slowing down. While prices are still climbing, we're seeing fewer areas with dramatic double-digit jumps — just 7% of metros saw double-digit growth in Q3, down from 13% in Q2. (Andrews, HousingWire, November 7, 2024) Think of it as the market catching its breath after a sprint.
Looking across different regions, we're seeing quite a mix. The Northeast is leading the pack with prices up 7.8%, while the Midwest isn't far behind at 4.3%. The West has slowed considerably with just 1.8% growth, and the South is taking it easy with a modest 0.8% increase. (Andrews, HousingWire, November 7, 2024) What's particularly interesting is that four cities in Illinois have made it into the top ten for price growth — a reminder that opportunities don't always come from the usual suspects on the coasts.
Interest Rates: The Market's Mood Maker
Mortgage rates are sitting around 6.93% as of early November. Yes, that's higher than the rock-bottom rates we saw during the pandemic, but the market has found its footing at these levels. As noted by Logan Mohtashami in HousingWire, when rates were bouncing between 6.75% and 7.50% earlier this year, potential buyers were largely sitting on the sidelines. But when rates started moving toward 6%, we saw people jump back into the market, with purchase applications showing twelve positive prints against only five negative ones.
The Federal Reserve's recent decision to cut rates by 0.25% might be a sign of more good news to come. While Fed rates don't directly control mortgage rates, they certainly influence them, and any downward movement tends to bring more buyers into the market.
Recent 10-year treasury yield increases may be tied to investors positioning bets ahead of the election and controlling for either party's somewhat inflationary policy promises. I am concerned about yields: As we all should be, who are clenching our collective fists for lower 30-year mortgages to offset affordability constraints for first home buyers? When analysts warn of election uncertainty causing market movements this is the kind of thing they are talking about. I, for one, am ready to move on from election uncertainty and deal with facts at hand.
Supply and Construction: A Complex Picture
Let's talk about housing supply. Right now, there are about 735,718 homes for sale across the country, with roughly 60,000 new listings coming on the market each week. (Mohtashami, HousingWire, November 2, 2024)
While that might sound like a lot, it's actually quite modest compared to what we've seen in past market corrections. For perspective, back in 2009–2011, we were seeing over 280,000 new listings per week.
Here's an interesting shift in new construction: homes are getting bigger. According to Stringer, Escue, & Keller's analysis, the typical new home has grown from 1,900 square feet in 1990 to 2,400 square feet today. That's like adding an extra master suite and then some. This trend affects both construction costs and affordability, especially for first-time buyers.
Adding to the construction complexity, recent analysis from Sarah Wolak shows that framing lumber prices are up 2.9% for the week ending November 1 and 17.2% higher than a year ago. These material cost fluctuations continue to impact new construction and renovation projects across the market.
What Does All This Mean for Investors?
Before we dive into the implications, let's look at how key market metrics have changed over the past year:
As we can see from the data above, the market is showing several important shifts. The current market presents some solid opportunities if you know where to look. The fact that we're seeing very few distressed properties and almost no defaults tells us the market's foundation is strong, even with higher interest rates. The return of buyers to cities might open up opportunities in areas that saw prices dip during the pandemic.
What's particularly encouraging is how different regions are performing. Some Midwest markets are showing surprising strength, while traditionally hot coastal markets are cooling off a bit. This kind of variation creates opportunities for savvy investors who do their homework.
Looking Ahead
As we look toward 2025, several factors will shape the market. The Fed's recent rate cut could be the first of several moves that might make mortgages more affordable. We're also watching how cities continue to evolve as more companies settle into their long-term work policies.
For Groundfloor investors, the key to success remains straightforward: Do your research including listening to ours, don't put all your eggs in one basket, and continue to pay attention to local market conditions. Speaking of diversification, I'm particularly excited about how our Flywheel Portfolio is helping investors navigate the current market environment. This investment product combines 200–400 short-term real estate loans into a single portfolio, offering both instant diversification and consistent monthly cash flow.
With projected returns between 10.5% to 11% (inclusive of management fees), the Flywheel Portfolio has been designed to provide stability through broad diversification - a particularly valuable feature in today's varying regional markets. The portfolio's structure ensures faster repayments, with 95% of loans expected to repay within 24 months, and provides monthly disbursements that can be automatically reinvested for compound growth.
What's especially relevant in the current market is how this approach allows investors to gain exposure to multiple regions and property types with a minimum investment of just $100, effectively spreading risk while maintaining attractive yields in the 9.50% to 14.50% range.
We're keeping a close eye on these trends and will continue to share our insights. The current market might be challenging in some ways, but it's also creating plenty of opportunities for investors who stay informed and maintain a disciplined approach.
Sources
This analysis draws from several recent market reports and articles:
- Andrews, Jeff. "Home prices are rising in 87% of metro areas, but growth is slowing." HousingWire, November 7, 2024.
- Mohtashami, Logan. "Why home prices are holding steady despite higher rates." HousingWire, November 2, 2024.
- Andrews, Jeff. "Two years after fleeing to the suburbs, homebuyers have flocked back to cities." HousingWire, November 5, 2024.
- Stringer, Gary, Kim Escue, & Chad Keller. "The U.S. Housing Market: Challenges and Solutions." Stringer Asset Management, November 7, 2024.
- Wolak, Sarah. "Trump tariffs would result in homebuilder price increases." HousingWire, November 8, 2024.