Daily Dose of Real Estate: January 14, 2025

Key Takeaways

• Home price appreciation moderated to 4.1% year-over-year in December 2024, with the national median existing home sales price reaching $408,0001
• Charlotte, NC tops Zillow’s list of hottest housing markets for 2025, followed by Cleveland, OH and Pittsburgh, PA2
• Los Angeles wildfires are likely to slow down mortgage trades, potentially impacting the broader mortgage market3
• 30-year fixed mortgage rates have risen to 7.002% as of January 10, 2025, according to FRED data4
• Multifamily housing sector shows resilience with strong rental demand, while office vacancy rates hit record highs in 20245
• REITs gained 4.9% in 2024 despite challenges, with specialty REITs and data centers performing particularly well6

Residential Real Estate Markets

Moderating Price Growth and Shifting Market Dynamics

As we delve into the residential real estate landscape of 2025, recent data from the AEI Housing Center provides valuable insights into the market’s trajectory. According to their December 2024 Housing Market Indicators report, the national median existing home sales price reached $408,000, representing a 4.1% year-over-year increase1. This moderate price appreciation suggests a stabilizing market, offering a more balanced environment for both buyers and sellers compared to the rapid price escalations seen in previous years.

Supply and Demand Dynamics

The AEI report highlights interesting trends in housing supply and demand:

• Months’ supply stood at 4.1 months in December 2024, indicating a market that’s moving towards equilibrium but still favoring sellers slightly1
• The share of homes selling above list price decreased to 30% in December 2024, down from higher levels seen in previous months1

These figures suggest a gradual shift towards a more balanced market, potentially offering better opportunities for buyers in 2025.

Regional Market Performance

The AEI report also provides insights into regional market performance:

• The West region saw the highest year-over-year price appreciation at 5.2%
• The Midwest followed closely with a 4.9% increase
• The South and Northeast experienced more modest gains of 3.7% and 2.8% respectively1

These regional variations highlight the importance of local market knowledge and the potential opportunities that exist in specific areas of the country.

Zillow’s 2025 Hottest Markets

Looking ahead, Zillow’s research team has identified the hottest housing markets for 2025, providing valuable insights for investors and homebuyers alike. Their analysis considers factors such as home value growth, job market health, and housing market velocity.

The top 5 hottest markets for 2025, according to Zillow, are:

1. Charlotte, NC
2. Cleveland, OH
3. Pittsburgh, PA
4. Sacramento, CA
5. Columbus, OH2

Notably, this list represents a shift from previous years, with several Midwest markets gaining prominence. Skylar Olsen, Zillow’s chief economist, explains, “The Midwest is having a moment. The region’s affordability and stability is attracting new residents and keeping long-timers in place, which is raising its profile as a top spot for housing”2.

Factors Driving Market Heat

Zillow’s analysis identifies several key factors contributing to these markets’ strong performance:

1. Job Market Strength: Markets like Charlotte and Columbus benefit from robust job growth and low unemployment rates.
2. Affordability: Midwest cities offer relatively affordable housing options compared to coastal markets.
3. Population Growth: Many of the top markets are experiencing steady population increases, driving housing demand.
4. Limited New Construction: Some markets, particularly in the Midwest, have seen constrained new home construction, supporting price growth2.

Mortgage Markets

Wildfires Impact Mortgage Trades

The mortgage market is facing an unexpected challenge as wildfires in Los Angeles are likely to slow down mortgage trades. The recent outbreak of wildfires in the Los Angeles area is causing disruptions in the mortgage industry, particularly affecting the speed and efficiency of mortgage trades3.

This situation highlights the vulnerability of the mortgage market to natural disasters and emphasizes the need for contingency plans in the industry. The slowdown in mortgage trades could potentially lead to:

1. Delayed closings on home purchases
2. Increased processing times for mortgage applications
3. Temporary volatility in mortgage-backed securities markets

Industry professionals are advised to stay informed about the situation and prepare for potential delays in transactions involving properties in the affected areas.

Current Mortgage Rates and Refinancing Landscape

As of January 14, 2025, the mortgage refinance market presents a mixed picture for homeowners considering refinancing their properties:

• 30-year fixed refinance rates stand at 7.25%
• 15-year fixed refinance rates are at 6.50%
• 10-year fixed refinance rates are slightly lower at 6.38%7

These rates indicate a slight increase from the previous week, potentially dampening refinancing enthusiasm among homeowners. However, for those with significantly higher existing rates, refinancing may still offer opportunities for savings.

30-Year Fixed Mortgage Rate Trends

Recent data from the Federal Reserve Economic Data (FRED) provides insights into the trends of 30-year fixed mortgage rates:

• As of January 10, 2025, the 30-year fixed mortgage rate reached 7.002%
• This represents an increase from 6.876% on January 2, 2025
• The rate has shown a gradual upward trend over the first ten days of January 20254

Here’s a brief overview of the rate changes:

Date30-Year Fixed Mortgage Rate2025-01-026.876%2025-01-066.875%2025-01-086.960%2025-01-107.002%

This upward trend in mortgage rates could have several implications for the housing market:

1. Reduced Affordability: Higher rates may make homeownership more challenging for some buyers, potentially cooling demand in certain markets.
2. Slower Home Price Growth: As borrowing becomes more expensive, it could lead to a moderation in home price appreciation.
3. Shift in Buyer Behavior: Some potential homebuyers may opt for adjustable-rate mortgages or consider less expensive properties to offset higher borrowing costs.

Commercial Real Estate Markets (including Multifamily)

Multifamily Sector Resilience

The multifamily housing sector has emerged as a bright spot in the commercial real estate landscape for 2025. Despite challenges in other sectors, multifamily properties continue to show resilience, bolstered by strong demand for rental properties8.

Chuck Bryant, Jr., COO of Roial Group, notes that “As the financial hurdles of buying a home persist and interest rates plateau, multifamily housing is emerging as the clear choice for many”8. This trend is supported by data from the National Multifamily Housing Council, which indicates that the U.S. needs to build 4.3 million new apartments by 2035 to meet demand8.

Office Sector Challenges

In stark contrast to the multifamily sector, the office market continues to face significant headwinds in 2025. Trepp reports that office vacancy rates reached record highs in 2024, a trend that is expected to persist into 20255. The ongoing shift towards remote and hybrid work models continues to impact demand for traditional office spaces.

Retail and Industrial Sectors

The retail and industrial sectors present a mixed picture for 2025:

• Retail rents are drifting higher due to tight supply, indicating some recovery in this sector5.
• The industrial real estate market is maintaining its stability, continuing its strong performance from previous years5.

Emerging Trends

Several emerging trends are shaping the commercial real estate landscape in 2025:

1. Flexible Spaces: There’s increasing demand for flexible spaces that can accommodate hybrid work models8.
2. Sustainability Focus: More investors and tenants are prioritizing eco-friendly, durable properties8.
3. AI-Driven Analysis: Artificial intelligence is playing a larger role in property analysis and investment decisions8.
4. Mixed-Use Developments: There’s rising interest in mixed-use developments, particularly in secondary and tertiary markets8.

CMBS/REIT Markets

REIT Performance

The Real Estate Investment Trust (REIT) market demonstrated resilience in 2024, setting the stage for potential growth in 2025. REITs gained 4.9% in 2024, despite facing considerable headwinds, particularly in December6.

Breaking down the performance by sector:

• Specialty REITs led with a total return of 35.9%
• Data centers followed with 25.2%
• Health care REITs returned 24.2%

On the other hand, some sectors faced challenges:

• Industrial REITs lagged with a total return of -17.8%
• Timberland REITs saw returns of -16.3%
• Telecommunications REITs returned -14.2%

CMBS Market Dynamics

The Commercial Mortgage-Backed Securities (CMBS) market faced challenges in 2024, but there are signs of potential improvement for 2025. While CMBS loan delinquencies increased in 2024, experts expect a gradual rise in overall delinquencies through 2025, tempered by improved commercial real estate (CRE) loan refinancing, strong new issuance volume, and increased loan modifications9.

Refinancing and Capital Flows

Capital flows and refinancing momentum are helping to temper rising CMBS loan delinquencies10. This trend is expected to continue into 2025, providing some stability to the CMBS market.

However, challenges remain, particularly in certain sectors:

• Regional malls, especially lower-tier properties, show a below-average retail refinance rate
• The refinance rate for these properties is expected to drop to 8%-37% for 2025 maturities, down from 52% in 202410

Outlook for 2025

Looking ahead to 2025, Moody’s Investors Service provides an optimistic outlook, stating that commercial real estate conditions will improve, even for the office sector11. This improvement is expected to have a positive impact on both the CMBS and REIT markets.

However, investors should remain cautious and vigilant. The CMBS market, in particular, continues to face challenges related to property valuations and potential distress in certain sectors, especially office and retail.

The Last Word: Navigating Complexity in 2025’s Real Estate Landscape

As we digest the latest developments in the real estate market, it’s clear that 2025 is shaping up to be a year of complex dynamics and regional variations. From the impact of natural disasters on mortgage trades to the shifting landscape of hot housing markets, industry participants face a multifaceted environment that demands careful analysis and strategic decision-making.

The residential market continues to evolve, with moderating price growth nationally but emerging hotspots in unexpected areas like the Midwest. Meanwhile, the mortgage market grapples with rising rates and external disruptions, highlighting the need for adaptability and comprehensive risk assessment.

In the commercial sector, the stark contrast between the resilient multifamily market and the struggling office sector underscores the importance of sector-specific analysis. The emergence of new trends, such as the focus on flexible spaces and sustainability, signals a shifting landscape that savvy investors and developers must navigate.