This week on the RealTrending podcast, Tracey sits down with Mike Simonsen, founder of Altos, to discuss his 2025 housing forecast, including home prices, mortgage rates, and affordability.
He also talks about what changes he anticipates with the Trump administration, covers the role of immigration and labor in construction, and talks about how tariffs could affect market dynamics.
Here’s a glimpse of what you’ll learn:
Home sales are forecasted to increase slightly to 4.2 million, and home prices to increase by 3.5%.
Affordability remains a critical challenge in the housing market.
The construction industry heavily relies on immigrant labor.
Tariffs could significantly increase building costs.
There is a potential for rates to dip under 6% if conditions align.
Related to this episode:
Altos
https://www.altosresearch.com/
Mike Simonsen | LinkedIn
https://www.linkedin.com/in/simonsen
Altos | YouTube
https://www.youtube.com/channel/UCpnmXW1p8NmKVWLBrhEY61A
Enjoy the episode!
The RealTrending podcast features conversations with the brightest minds in real estate. Every Monday, brokerage leaders, top agents, team leaders, and industry experts join us to share their secrets to success, trends, and the lessons they’ve learned. Hosted by Tracey Velt and produced by the HousingWire Content Studio.
He also talks about what changes he anticipates with the Trump administration, covers the role of immigration and labor in construction, and talks about how tariffs could affect market dynamics.
Here’s a glimpse of what you’ll learn:
Home sales are forecasted to increase slightly to 4.2 million, and home prices to increase by 3.5%.
Affordability remains a critical challenge in the housing market.
The construction industry heavily relies on immigrant labor.
Tariffs could significantly increase building costs.
There is a potential for rates to dip under 6% if conditions align.
Related to this episode:
Altos
https://www.altosresearch.com/
Mike Simonsen | LinkedIn
https://www.linkedin.com/in/simonsen
Altos | YouTube
https://www.youtube.com/channel/UCpnmXW1p8NmKVWLBrhEY61A
Enjoy the episode!
The RealTrending podcast features conversations with the brightest minds in real estate. Every Monday, brokerage leaders, top agents, team leaders, and industry experts join us to share their secrets to success, trends, and the lessons they’ve learned. Hosted by Tracey Velt and produced by the HousingWire Content Studio.
Category
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NewsTranscript
00:00There's so many changes happening with new executive orders, the housing market, and
00:06it remains to be seen what is actually going to happen.
00:09But Mike Simonson, the founder of Altos Research, spoke with me today about the forecast for
00:14the 2025 housing market, how immigration and some of the tariffs could potentially impact
00:22the market, and much more in this enlightening podcast.
00:26So enjoy.
00:27Mike, welcome to The Real Trending Podcast.
00:30Thanks for coming on.
00:31Great to be here, Tracy.
00:32I think this is my first time on The Real Trending Podcast.
00:34Yeah.
00:35Well, I think you did one, it's been years.
00:38So I think when Altos first became part of HousingWire, but so yeah, so we did, we've
00:45been working a lot together on research reports for HousingWire, and one of the most recent
00:51one was a housing market forecast that you and Logan Matashame put together.
00:57And so I kind of wanted to go over that because even though we released it less than a month
01:01ago, I feel like so much has kind of happened since then.
01:06And so I wanted to talk to you a little bit about some of those predictions and where
01:10they sit right now.
01:12So we can first start with like home prices and home sales, you'd said that they would
01:17grow in 2025 by about 5%.
01:22Do you really still feel like that's a realistic goal?
01:26What are you thinking as far as home sales go?
01:29Yeah.
01:30And it's important to make the distinction.
01:32There are two vectors, two forecasts.
01:36There's home prices and there's home sales.
01:40Consumers care about the prices.
01:42The industry, we care about the number of transactions, home sales.
01:46And so let's start with a sales number.
01:48So that was the 5% gain.
01:50We've had in the now three years post-pandemic market where rates started rising three years
01:59ago, we went from a ton of home sales, like 6 million a year, all the way down to like
02:054 million.
02:06They fell down to 4 million in 2023.
02:10They stayed at 4 million in 2024.
02:13We saw like very little gains except until the fourth quarter where we could start to
02:19see year over year sales gains in terms of total number of transactions, maybe 5, 6,
02:277, 8% in a given week over the year prior.
02:32So that was 24 over 23 in the fourth quarter.
02:36About that time when we did our forecast paper, it makes sense to me that we would see some
02:45continued sales growth for 2025.
02:48We could see things like there didn't seem to be any catalyst for mortgage rates to drop
02:53super low, which would make a boom market like during the pandemic.
02:58But we can see that slightly more sales were used to being rates in the sixes.
03:05We were forecasting you go from 4 million to 4.2 million for 2025.
03:11So not a lot of growth, but a little bit of growth.
03:15In fact, when you look over many years, it's pretty rare for home sales to grow more than
03:23like an 8% increase in the number of sales in a given year.
03:28That's a big year.
03:30And there wasn't really any catalyst for it, except it's just been really low for a long time.
03:37So we were expecting some home sales to grow.
03:40So 4.2 million is the forecast for sales for 2025.
03:44So then in the now two months, I guess it was December and January since we've released
03:51that, mortgage rates jumped over 7%.
03:55And as they did, then suddenly we can actually see that the home sales gains we saw in the
04:04fourth quarter have kind of evaporated.
04:07And so this week, we're recording this Friday, January 24th, the week, last week's data,
04:14we recorded 10% fewer home sales pending, new sales pending.
04:19So contracts started 10% fewer than the same week a year ago.
04:25So suddenly those sales gains have, they've kind of evaporated.
04:32And it's really, we've had now almost two months of mortgage rates over 7%.
04:38And so you can see it in that.
04:40Our forecast remains plus 5% for the year.
04:45And during a year, you're going to get some months when sales are better and some months
04:51where they're down.
04:52We're starting in a little bit of a hole.
04:55And I'm still hopeful and anticipate that we will still get some growth during the year.
05:04So some of the months will get a little better than expected.
05:07Some months are worth, we're starting in a hole.
05:09But now if we move to March or February and then into March, and let's say mortgage rates
05:18haven't eased back down again.
05:20I expect that in that time, we will probably have to revisit that forecast and say maybe
05:30the sales volume isn't going to materialize.
05:34It's not there yet, but we're starting, we took a step backwards to start the year.
05:39Yeah, well, let's hope that we can continue on with at least a 5% growth in home sales.
05:47So let's talk about home prices.
05:50What was your forecast and how are you feeling about that forecast today?
05:54So the forecast is that we would get about 3.5% price gains nationally for 2025 over
06:04the year.
06:05And 3.5%, we get there because if you look over the long-term history of the country,
06:1250 years or more, it's actually pretty normal to have about a 5% gain in a given year.
06:21For home prices, and that's typically because we have generally growing economies, we have
06:28generally growing population, we generally under-build, all these things kind of conspire
06:34to make home prices go up 5% or so in a given year.
06:39There's only a handful of years when home prices fell in a year.
06:44So most years home prices gain, they gain by about 5%.
06:49So then we're looking at 2025 at 3.5%.
06:52So what that really means is we're underperforming on home prices this year.
06:57And we're underperforming that long-term trend because we have an affordability challenge.
07:04Home prices are very high after the pandemic.
07:07We have an affordability challenge with mortgage rates.
07:10There's no signal in mortgage rates that they're going to come down.
07:15We don't have anything in the data that shows home prices tanking or dropping nationally
07:20by a lot, but they're pretty close to flat, and flat year over year.
07:26So in a normal year, home prices go up, and right now they're pretty close to flat.
07:31So it's a weaker than normal market.
07:35And so like the home sales numbers, the prices are coming in a little weaker than you might
07:44expect for January, which would mean it's sort of underperforming on that price forecast
07:54as well for the year.
07:57Right now, in the middle of January, home prices, depending on how you measure them,
08:01but let's look at, for example, those new pendings each week.
08:04So you look at the homes that go into contract each week.
08:08Those are the homes that are selling.
08:09By watching the median price of those year over year, we can get a trend.
08:14And right now, it's only like half a percent higher than a year ago.
08:17So home price is barely above, and that means there are plenty of markets that are below
08:21a year ago, their price below a year ago.
08:24Some markets are above a year ago.
08:26And so nationally, though, we're just about flat from a year ago, and we'll probably see
08:33some gains during the year, unless, of course, rates, mortgage rates stay in the sevens,
08:37and that would put downward pressure on prices.
08:40So the forecast for the year is 3.5% gains, and there are some folks who forecast bigger
08:49gains than that.
08:51Those are people who expect mortgage rates to fall during the year.
08:54And if whatever the things conspire that mortgage rates fall during the year, that could indeed
09:00spur a lot of buyers who've been sitting on the sidelines and drive prices higher.
09:06We don't expect rates to fall like into the fives, but if it were to happen, then that's
09:12how that scenario would get.
09:13And there are some housing market forecasters who are expecting that.
09:18On the other hand, there are some housing market forecasters who expect home prices
09:22to fall this year by 5% or 6% nationally.
09:27And that would be, the hypothesis behind those forecasts are affordability forecasts.
09:33So home prices are really far out of whack from the historical norm in terms of affordability.
09:41And in order to get back to the historical norm, one of the things that could happen
09:46would be home prices fall and incomes climb, and so now you get a little bit better affordability.
09:55So the folks who are leaning into forecasts that say home prices are going to drop, those
10:02are the ones that say affordability matters most and it's got to correct.
10:08Ours is in the middle.
10:09We think that the market can stay unaffordable for longer, but I don't see any catalyst handy
10:19and certainly nothing in the data that's driving things substantially higher nationally.
10:25Yeah, I've been seeing more stories of a potential price bubble out there from people, so it's interesting.
10:35And when you talk about affordability, you'll be speaking at our Housing Wire Economic Summit,
10:42and I know that you just put out an email with three trends to watch, and one of those
10:46was affordability.
10:48So talk to me a little bit about that and what you see, especially with a new incoming
10:53administration.
10:55Yeah, so affordability is the overriding factor in the housing market right now.
11:05And the good news on affordability is that we seem to have reached a place where at the
11:14national level, we understand that affordability is critical and it is a supply side challenge.
11:24It's not about just giving a tax incentive.
11:28We have to build more homes so that the cost of homes comes down.
11:33So then in the executive orders that were signed the day one, one of them was homes
11:42are too expensive.
11:44We need to bring homes down.
11:45There wasn't any policy there, but the good news is that it's recognized.
11:52And so one of the challenges with affordability in the U.S. is that the crisis happens at
12:01a national level, but the control happens at a very local level.
12:05And so if we start to get more national recognition, maybe some of the control changes and therefore
12:13like allows some progress to be made.
12:18So we have yet to see any action there, but it's the good news is that it is.
12:25Affordability is now really known at a national level.
12:30And I think we are starting to coincide on all like the real causes and the way to get
12:38out of it.
12:39Yeah.
12:40Yeah.
12:41It should be interesting.
12:43If you think about it, there are a lot of things all coming together and you take them
12:46separately like tariffs, immigration, then it's not necessarily the full picture of things
12:53because then you've also got energy.
12:55So it's hard to tell what's actually going to happen.
13:00Is energy, is the drilling going to balance, you know, being energy independent, is that
13:04going to balance out the inflation that tariffs might cost?
13:07I don't know.
13:08I have no idea.
13:09Nobody knows because we haven't implemented anything yet.
13:14But you know, when you think about affordability as we know affordability, but then some of
13:21the policies that we are also expecting are like immigration restriction and deportation.
13:29And in the housing industry specifically, a huge number of construction workers are
13:38immigrants.
13:39It's like 60% in California and nationally.
13:43It's a huge number are immigrants and many of them are undocumented.
13:49So one of my immediate term fears is that even though we're talking about affordability,
13:56the fear is that we deport a bunch of the people that can build our way out of it.
14:04And I expect that then like this hasn't happened yet, but I expect the implication that we
14:10will run into is that it will be harder to build, we'll have less people that can build
14:15and it'll be more expensive to build as a result of like a mass deportation policy.
14:25Like that is the, you know, there may be other reasons for changing immigration policy, but
14:35it is likely to be negative for housing.
14:38And aren't there, I mean, I know in like farming that there are programs to bring in people
14:45from other countries to work temporarily.
14:48Is that the same in housing and is that something that could possibly be balanced out so that,
14:55the program is expanded even though they're deporting?
15:00I don't know.
15:01Yeah.
15:01And, you know, nobody knows, like there's no policy yet.
15:06There is high level, like there is messaging.
15:10And so like, I would, like, I'd absolutely be in favor of, you know, seasonal worker,
15:18like visas for home builders, like whatever the things to do are,
15:23you know, that we have undocumented workers because we don't have the right visa,
15:28the ways for them to come in legally and do the work.
15:30So, you know, I think that there is smart policy that could happen there.
15:36We don't know what policies are going to happen.
15:40What we know, like the talk is, let's get rid of them.
15:45And so that seems likely to be like loom large for, you know, the construction.
15:54Yeah.
15:54It'll be interesting because right now, obviously, they're rounding up criminals,
16:00mostly.
16:01And so it'll be interesting how that policy or that executive order continues to evolve as,
16:09you know, as they make more arrests or deport more of the.
16:12Yeah.
16:13And we don't know.
16:13So, yeah, it's hard to know.
16:15We do know that there are plenty of undocumented workers who are skilled in the construction
16:21trades and they get hired because we need workers to build houses.
16:26So, you know, it seems like, you know, I don't have a I don't have data on how many are
16:32undocumented.
16:33Yeah.
16:34But but there, you know, in many of the states, places like Texas and California, like the
16:39places where we need to build houses, there are a lot of immigrants, workers in those.
16:45Yeah.
16:46You know, and it's the similar thing is on the on the tariff side.
16:50Right.
16:50So, you know, we know that and we know that affordability is a challenge.
16:55But, you know, the talk is 25 percent tariffs and and, you know, that's like everything
17:03from Canadian lumber to appliances from Asia.
17:07So so, you know, the.
17:11The like the it seems like the immediate impact of those policies would be to make it
17:18significantly more expensive to build and buy homes, whether that's like long term inflation,
17:25whether that's trade wars, like how any of that things are accepted.
17:29Like we don't know.
17:30We don't know any of the policy.
17:31But if they are broad based, super high taxes, then then it it will like everything we do
17:40when we build homes is will cost more.
17:44Yeah.
17:44I'm not saying there won't be tariffs, but I have finally figured Trump out and I feel
17:52like he it's all the art of the deal.
17:55Right.
17:55He throws out these crazy numbers or we're going to take over Greenland.
17:59We're going to do this.
18:00We're going to do that.
18:01And then that just starts the negotiation for something different.
18:04Ultimately, that ends up different.
18:06And it could be the same with tariffs.
18:08Maybe not.
18:09I don't know.
18:10And then you've got, you know, with with the tariffs, then you've also got his idea of
18:18kind of regulations and reducing regulations on on home building.
18:23So it's really hard to know what the actual effect of any of this will be until we have
18:28more concrete information and things have actually started happening.
18:34So it's hard to be optimistic.
18:36It's hard to be pessimistic because there's you just don't know.
18:40Yeah, you don't know.
18:41And we don't know.
18:42And, you know, it's like it's it's talk about deregulation in air quotes.
18:50But then, you know, tariffs are big regulations, like big restrictions and immigration is big
18:57regulation.
18:57And so like these are you don't you don't know what gets implemented, you know, how
19:02it gets implemented.
19:03And but so these are the trends that we need to watch.
19:06Right.
19:07If we suddenly make building supplies and everything we put into a home and the labor
19:13for homes significantly more expensive, like what's that going to happen?
19:17On the other hand, you know, in the housing market, sometimes people say to me, like,
19:23if we remove all these people out of the country, isn't that demand for housing?
19:27Isn't that an affordability thing?
19:28And one of the places I'm watching is a place is our towns like San Antonio, where San
19:35Antonio already has significantly more available inventory, significantly weaker home prices.
19:41And if we take, you know, population out of a place like San Antonio, the economy falls.
19:48We have less productivity.
19:49We have fewer people like do we exacerbate, you know, the housing market downturn in and
19:57therefore, you know, affordability improves.
19:59Maybe we maybe we get a lot more inventory in a place like San Antonio.
20:04So so I'm watching San Antonio as an example market to say what happens next.
20:10Yeah, yeah, absolutely.
20:12And so as far as market bright spots, where are you seeing in your data the markets that
20:21are still continuing to do really well around the country?
20:27Well, you know, really well, we can you can measure by transaction volume or prices and
20:37inventory so that the big the big trend in the local markets this year is that the inventory
20:43build the increase.
20:45So we have 25 percent more homes on the market now than we did in January of last year.
20:51And most of that build has been in the Sunbelt states across the South.
20:57The inventory is much tighter in like the Rust Belt and the Northeast.
21:04So places like Chicago or upstate New York have or or even Connecticut.
21:11Connecticut has 70 percent fewer homes on the market now than they did in 2019.
21:17Seventy percent fewer.
21:18Seventy percent fewer.
21:19On the other hand, Tampa has significantly more or, you know, Austin has significantly
21:26more than than than before the pandemic.
21:31And so what's happened is over the the recent over the past years, decade or more, we've
21:38been moving from the north to the south.
21:39We've been moving sell a house in Chicago.
21:41We buy in Denver.
21:43We buy in Phoenix or we buy in Texas.
21:45We sell in Buffalo and we buy in Tampa.
21:48And in the last three years, as rates have climbed, not just mortgage rates, but interest
21:55rates in general, we have what we call the great stay economy.
22:01We've been staying in place, not just in our houses.
22:03So we're selling fewer houses.
22:05We're buying fewer houses.
22:06We're also staying in our jobs longer.
22:09So unemployment is very low, but but companies are not hiring very quickly.
22:17They're hiring very slowly.
22:18And the people who have jobs know it.
22:20So they're not quitting their jobs.
22:21So, you know, you're not you're much less confident to quit your job in Buffalo to to
22:27move to Tampa or to Phoenix than you were in previous times.
22:31So you're holding on to your house in Buffalo.
22:34And, you know, now, since you're not selling in Buffalo now, if you graduate college for
22:40Buffalo, it's time to buy a house in Buffalo.
22:41There are fewer there's inventories tight.
22:44So home prices in New York and New York state are up over 10 percent this year.
22:51The home prices have climbed like is a big price increase here in in New York home prices
22:58in like the Chicago area are up year over year, where in much of the Sunbelt, they're
23:04like flat or, you know, ticking down place like Austin is down year over year.
23:08Home prices are down a little bit.
23:10Tampa prices are down a little bit.
23:12Miami, though.
23:14So the those markets have where we used to move to since we've slowed that down.
23:22Inventory is much higher there.
23:24Demand is weaker.
23:25And so the bright spots, you know, the strongest markets in the country are the northeast markets,
23:30the the, you know, like like I think Zillow called Buffalo their their their top market
23:36two years in a row.
23:38And and it like makes sense.
23:41It makes it clear in our data as well.
23:43Like those are the markets where, you know, there's inventory is barely above the pandemic
23:49lows and, you know, there's natural levels of demand for people buying it.
23:54So that's driving prices higher.
23:56Well, I am originally from Buffalo.
23:59So that is that is nice to hear.
24:01And they've also got the Buffalo Bills doing really well right now.
24:05So Buffalo is just a bright spot all the way around.
24:08That's right.
24:08You did the you did the Buffalo to Florida move.
24:11Yes.
24:12Did the Buffalo right now?
24:14Fewer people are making that move.
24:16Yeah.
24:17And so inventory in Florida is up and down in Buffalo.
24:20In fact, I talked to a friend recently in in California who grew up in Buffalo and he
24:25was he's getting ready to go back to Buffalo to get the house that his mom had ready to
24:31sell, you know, because it's like the first time in decades that he's got a good market
24:37to sell into.
24:38He's a good time.
24:39So I think that actually this year that some of that that market imbalance will even out
24:45a little bit from people like my friend who are like, wow, it's time to sell in Buffalo
24:49because I can finally do so.
24:50I had another actually another for the colleague that I was talking to who has an investment
24:56property outside of Chicago.
24:58And and he said, you know, that house has not gone up in value in 15 years.
25:03And suddenly we had a good year.
25:05And so like suddenly we had home price appreciation.
25:08And it's and so it was a real a real shift from the last decade or so.
25:14Yeah, absolutely.
25:16So, Mike, any last thoughts on opportunities or, you know, the market moving forward?
25:24Well, for the year, you know, we have when in our forecast document, we talked about
25:32mortgage rates and we expected that mortgage rates would mostly stay in the sixes, but
25:36could get over seven to seven and a quarter.
25:39And they did already.
25:41Most people who are forecasting rates for the year were expecting to stay under seven
25:45and in the sixes for the year.
25:48We thought it was very possible that rates would get over seven and they did quickly.
25:53We also included a scenario in our forecast, which allows for if we get a couple of months
26:01of like the right economic news, the bond market eases rates down and we get compression
26:09on the mortgage rate spreads between the 10 year bond and the 30 year that maybe we
26:14get a little window where rates dip under six percent in the year.
26:19Last year in September, rates got close to six.
26:22And at that point, we could see a boost in sales.
26:25We could see a boost in prices.
26:28That scenario is still on the table for this year.
26:31We don't know if it'll happen, but it is it is there is a you know, if we get a lucky
26:37coincidence of those factors, there could be a little window or rates are back down
26:41around six, maybe dip under six this year.
26:45There's no scenario where rates get close to five, five and a half seems really far
26:51away.
26:51It would be like big recession.
26:54We've got to cut rates everywhere, like all the things have to cut down.
26:57And and as of right now, because employment is good and and cash is good, like it doesn't
27:02though recession doesn't seem to be in the cards.
27:04I'm not a recession forecaster per se, but but based on what we can see there, it seems
27:10like rates will stay, you know, hopefully we, you know, ease back down under seven into
27:16the mid sixes, six and a half percent is better than seven and a quarter.
27:21But last year, we really didn't see it move the needle on home sales very much.
27:25But when it started, when rates started coming six to six, one, then suddenly we could see
27:31people who had been on the sidelines start to take action.
27:33And I think that's in the cards for this year, too.
27:36Yeah.
27:36And I should note that you can download the 2025 housing market forecast on housingwire.com
27:44forward slash research.
27:46And it is there to be downloaded and we'll be updating that quarterly as well.
27:52And also Mike does an article every week that is published on housingwire.com that is a
27:58housing market tracking where we track how home sales, home prices, inventory, price
28:03reductions, a whole lot of data that is really interesting.
28:07So check for that.
28:09Yeah.
28:09So thanks, Mike.
28:10I really appreciate you joining Real Trending.
28:13You bet, Tracy.