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Real estate expert predicts one more brutal year ahead

This week, I spoke with mortgage experts Dustin Rosenberg and Jonathan Yoo, CEO and COO of Convoy Home Loans, about how they are navigating a low mortgage transaction market—and what they expect to happen in 2025 and 2026.

Since the election, dozens of real estate investors have told me that their market has picked up, with more listings pending and vacant units dropping. But do I think that this is a long-term trend? 

No, I do think it’s evidence that folks were sitting on their hands for the past month or so, resulting in some missing transactions from the last several weeks that we will see pop up in the weeks to come. 

In other words, this uptick is more indicative of delayed demand rather than a new trend.  

As far what I do think the enduring trends will be in 2025, I’ve outlined my thoughts below 👇️ 

1. I think we will have higher rates than expected, with a 7% average for 2025 and the lows coming at the end of the year. 

2. There's a general opinion among Fed presidents that the neutral rate is higher—they used to think it had a three-handle; now it may have a four-handle. Why is that important? That means fewer rate cuts in 2025.

3. There’s a general feeling that tariffs will be unleashed in the first half of 2025 to create fairer trade, and that could impact the stock market and earnings.

All of this sets up 2025 to be the last hard year for real estate agents and mortgage brokers—I would tell those folks that the name of the game now is to survive the next year.

There is a light at the end of the tunnel though. The folks in the mortgage business that do survive the next year are likely to have a very fruitful 2026. Why? Because 60% of their competition will be gone. 

Not only that but while I don’t think we will see a huge drop in rates, we will probably see a slow downward trend in 2026. If we get used to the 7% handle in 2025, we’ll see market demand pick up at 6.5%, whereas today rates have to go to 6% for that same reaction.

Reflecting on historical precedent, when real estate mortgage transactions popped 30% after crashing from 1978 to 1982, I could see a 30% pop in business in 2026 as well for companies like Convoy that have successfully navigated the last few years.

Keep in mind that for real estate investors, there are still opportunities for good deals in 2025.

Jonathan says he still is seeing success from clients that are factoring in the current cost of capital as a part of their business, rather than not relying on what their costs could be if rates were lower. 

He says these clients often cost-average down as needed and return for more and better deals. Jonathan also pointed out that for loans under $250K, the difference in payment from rate changes is minimal, so decisions should focus on whether a deal makes sense now rather than comparing to past or future market conditions.

ResiClub chart of the week: 

This week, ResiClub’s Lance Lambert analyzed October active listing data to get a temperature check of inventory levels across the largest 200 metros by population in the country. 

In October 2023, just 17 of the nation’s 200 largest housing markets had active inventory that exceeded October 2019 levels.

As of October 2024, 54 of the nation’s 200 largest housing markets had active inventory that exceeded October 2019 levels.

Why does this matter? Lance explains:

“Generally speaking, housing markets where inventory (i.e., active listings) has returned to pre-pandemic levels have experienced weaker home price growth (or outright declines) over the past 24 months. Conversely, housing markets where inventory remains far below pre-pandemic levels have, generally speaking, experienced stronger home price growth over the past 24 months.”

Number of the week:  3.96 million

Existing home sales last month were down 0.4% and were expected to fall again. However, I actually predicted home sales to show some growth.

Why? Well, rates matter. As we’ve talked about, called out, and highlighted many times, when rates are low—near 6%, as they were about 30 days ago—sales pick up. This is a known fact. 

Marginal demand gets unlocked close to 6%, and I think we’ll see even stronger activity below 6%.

Remember how the mortgage industry works. A lot of people who closed recently locked in rates that are substantially below where we are today. 

So, what actually happened? The forecast was up slightly, and it looks like the number came in at 3.96 million, up from 3.84 million last month. Existing home sales were up 3.4%.

Existing home sales came in higher than expected—but not higher than what we expected, because we know rates matter.

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