The real estate market in the past year has been a dynamic landscape shaped by interest rates, supply-demand imbalances, and shifting real estate investment strategies. In a recent episode of the Bigger Pockets Podcast Industry experts Ben Miller and Dave recently shared their insights on these key trends, offering a roadmap for investors navigating today’s complex market. Learn what these real estate market trends mean for investors going into 2025.
1. Interest Rates: The Silent Driver of Housing Supply
One of the defining factors of the current housing market is the 6-8% mortgage interest rate. While these rates have dampened demand for new mortgages, the more significant impact has been on supply. Many homeowners are reluctant to sell and lose their low-interest-rate mortgages, leaving fewer homes on the market.
Despite higher rates, housing prices remain elevated due to persistent demand and limited supply. This supply-demand imbalance—not the rates themselves—is the main driver of today’s prices.
2. Learning from History: A Return to Normalcy
Historically, housing has been considered one of America’s safest assets. During the 2010s, the market saw explosive growth, leading some to believe that these high returns were the new standard. Ben Miller reminds us that the 2010s were an anomaly, and today’s more modest returns signal a return to historical norms.
“The 2010s were an anomaly. People got used to exceptional returns, but what we’re seeing now is closer to the historical norm.” - Ben Miller
3. Shifting Supply Dynamics: From Oversupply to Undersupply
The past few years have seen dramatic changes in housing supply. During the 2021-2022 boom, many developers began new construction projects. As these properties came online in 2024, an oversupply—particularly in multifamily units—led to downward pressure on rents.
However, the tide is turning. With high interest rates curbing new construction starts, the market is heading toward an undersupply by 2026. This impending shortage is expected to push rents and property valuations higher, creating opportunities for real estate owners and investors.
4. Rising Costs and Inflation’s Role
Labor shortages, material price hikes, and high tariffs are driving up construction costs, making it more expensive to build new properties. While this presents challenges, it also increases the value of existing real estate, offering a hedge against inflation.
Inflation itself has been a double-edged sword. Rent-driven inflation contributed to high interest rates, but experts believe the worst of pandemic-related inflation is behind us. Once inflation stabilizes, the Federal Reserve is likely to lower interest rates, further boosting the market.
Why Real Estate Remains a Strong Investment
Despite ongoing challenges, the future of real estate remains promising:
Falling Supply: With fewer construction starts, the market will face a housing shortage in the coming years.
Rising Rents: Reduced supply will drive up rental prices, benefiting property owners.
Higher Valuations: Rising construction costs make existing properties more valuable, creating opportunities for investors.
While timing a recovery is difficult, the general trajectory for real estate is positive.
Key Takeaways for Investors
Ben Miller and Dave emphasize that real estate is a long-term game. The market may face short-term headwinds, but falling supply, inflation stabilization, and rising rents set the stage for future growth. For investors, this is a time to stay informed and prepare for opportunities as the market evolves.
Whether you're a seasoned investor or exploring real estate for the first time, understanding these trends will help you navigate the shifting market dynamics of 2025 and beyond.
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