HBB 20th Anniversary And New Year Predictions

This month marks the 20th year for us at this blog. What are your housing bubble predictions for the new year? Six months ago: “‘I predict lots of victim sob stories among rate daters who didn’t anticipate rates would stay higher-for-longer.’ ‘Rate daters, I wonder if that term will ever be recorded by historians, the way ‘shoe shine boy moment’ has been immortalized.'”

One year ago: “Is this a redo of the 1970s, but we just don’t realize it yet?”

Florida Times Union. “As the housing market for 2024 comes to a close, predictions for what 2025 will bring are underway. Realtors have forecasted home sale prices in the U.S. will grow by 3.7%, and mortgage rates will stay above 6%. ‘Homebuyers frustrated by higher interest rates will have some buyer-friendly conditions in 2025,’ the report said. This includes the ‘highest for-sale inventory since December 2019’ and ‘nearly 20% of listings coming with price cuts.’ A key market balance indicator is how many months worth of supply is in the market. In 2022 and 2023, Jacksonville saw as low as just four weeks’ supply whereas 2024 had a marked improvement of a 3.7-month average. This is expected to increase to about 4.1 months in 2025, the Realtors report said, putting it in the 4-to-6-month supply range that is typically considered a ‘balanced market’ for buyers and sellers.”

The Express News in Texas. “San Antonio homebuyers who have been waiting to purchase their dream property could have a better chance in the New Year. After a year of ‘erratic and dramatic mortgage rate movements,’ Zillow’s latest market report forecasts there will be only about 100,000 more home sales across the U.S. next year than in 2024. The online real estate marketplace’s report predicts that mortgage rates will slowly decline. That means San Antonio buyers hoping to secure their new humble abode during the winter will ‘have an opportunity to snag a deal in a market that’s becoming increasingly buyer-friendly,’ according to the report. Locally, Zillow data show San Antonio saw a 2.4 percent drop in annual average home values from 2023 to 2024.”

“‘There’s a strong sense of déjà vu on tap for 2025. We are once again expecting mortgage rates to get better gradually, and opportunities for buyers should follow, but be prepared for plenty of bumps on that path,’ said Zillow Chief Economist Skylar Olsen. ‘Those shopping this winter have plenty of time to choose and a relatively strong position in negotiations.'”

Silicon Valley in California. “Widening loan defaults and foreclosures haunted Bay Area properties in 2024, but a late-year flurry of significant tech industry leases offered hope for the battered South Bay office sector. Throughout the year, sky-high vacancy levels jolted Bay Area buildings, a dearth of business travelers posed problems for hotels and expensive financing afflicted the suddenly shaky apartment market. However, as the year closed, impactful office deals by high-profile tech companies may have foreshadowed a rebound in the sputtering sector in 2025. ‘More and more companies in Silicon Valley will have people working in offices in 2025,’ said Chad Leiker, a first vice president with Kidder Mathews, a commercial real estate firm. ‘If that happens, it will bring us closer to where we were in the old days’ before the COVID-19 outbreak.”

“Despite some successes, dozens of office buildings, apartment complexes and hotels throughout the Bay Area toppled into various stages of loan delinquencies or seizures. Those that escaped foreclosure were bought at prices that were a fraction of their prior worth, unleashing a dramatic reset in property values. The Courtyard Oakland Downtown, a prominent hotel in the urban heart of the East Bay’s largest city, was bought in October for $10.6 million, 76% less than the $43.8 million that the seller paid in 2016.”

“In downtown San Jose, the historic Hotel De Anza was purchased for $11.6 million, or roughly half of its prior value. The owner of the 686-room, 36-story Hyatt Regency San Francisco Downtown SoMa hotel walked away and gave back the keys to the lender. The hotel had been bought in 2018 for $315 million, but the foreclosure showed it was worth no more than $290 million. A plunge in values also created plenty of opportunities to capitalize on countless bargain basement properties.”

“George Mersho, top boss at Shoe Palace, is one such bargain hunter. Mersho-led groups purchased two office complexes in downtown San Jose at a fraction of their prior value. In February, a Mersho-led group paid $34.2 million for a downtown complex that was 77% below the $141.4 million the sellers shelled out in 2019. The state of the Bay Area property market also may have helped to unravel the increasingly shaky real estate empire that China-based Z&L Properties had fashioned in San Jose. Z&L has neglected its properties, creating blighted conditions at three of the downtown sites it owns. After it had proposed several housing towers, it eventually presided over failed development efforts. The only project Z&L has completed, a 600-unit double-tower residential complex, is in default on its loan and could be seized by its lender.”

WKRN in Tennessee. “As we finish out the year, News 2 spoke with a local real estate expert about how the Music City market fared in 2024 and what to watch out for in 2025. Jeff Checko, the relocation director with The Ashton Real Estate Group of RE/MAX Advantage, said he thinks the Nashville real estate market in 2025 is headed on a path toward normalcy. Checko pointed to a red hot seller’s market during the COVID and post-COVID era, followed by interest rates spiking in 2022 and a more balanced market in 2024. ‘We saw signs of things returning to a typical seasonal market this year, with interest rates getting back into the sixes and the mid-sixes, and then it was kind of one step forward, one step back, one step forward, one step back again,’ Checko said. ‘We’re hoping that in the coming year we get something kind of normal for the first time in about half a decade.'”

“This year, Nashville also saw some of its most aggressive rent concessions ever, according to Apartment Insiders, with some apartment complexes shelling out up to four months of free rent. Checko predicts rent prices are going to stay steady as incentives continue until we reach an ‘absorption phase’ where there’s less inventory.”

Food & Wine. “If higher food costs presented economic challenges for home cooks in 2024, restaurants felt the pinch even more. This past year was marked with a number of major bankruptcies in the food industry, across a range of restaurant types. And it looks like 2025 may bring continued challenges, especially for large chains. The most notable bankruptcy filing in 2024 was easily Red Lobster, which rocked the restaurant industry when it broke news of its decision to file for Chapter 11 bankruptcy in late spring. Meanwhile, consumers in Chicago, Illinois; Austin, Texas; and Washington D.C. were shocked when upscale convenience store chain Foxtrot, known for gourmet grab-and-go meals, coffee, and groceries, abruptly closed its 33 stores and folded the company, without giving employees or patrons any notice. Employees reportedly had to ask customers to leave stores so they could close.”

“Trends unfortunately indicate that 2025 will bring continued restructuring and financial hardships for the restaurant industry. ‘I think you will see some more,’ says R.J. Hottovy, head of analytical research at Placer.ai, a software platform that provides insight into customer foot traffic, location data, and demographics. While it might not mean they’ll file for bankruptcy, other large chains including Applebee’s, Denny’s, Wendy’s, Rubio’s Coastal Grill, Outback Steakhouse, and Hooters have all closed locations this year or plan to do so in 2025.”

“Since 2020, food costs for the average restaurant have risen 29%, according to the National Restaurant Association (NRA). Much of that increase has been passed along to consumers, who’ve seen menu prices go up by 27.2%. ‘The power has shifted back to the food-at-home retailers,’ Hottovy notes. ‘People can no longer afford the same food they purchased before the pandemic, unless they cut back on other goods and services,’ says Donald Grimes, an economist with the University of Michigan. ‘Since over time, people tend to upgrade the food they purchase, for example, buying organic products, they must cut back even more on other purchases to be able to afford to buy the food they want.’ Even if grocery prices remain higher than previous years, consumers still save money by eating at home, and promotions from accessible stores make that even more attractive.”

The Financial Post. “I aggressively predicted last year that the Bank of Canada would lower interest rates by two per cent and this would be the key theme of 2024. As it turns out, I was mostly correct since rates fell 1.75 per cent. In 2025, the central bank has a little more room to lower rates, but the heavy lifting has been done. This leads to the big theme of 2025: the powerful return of residential real estate. In particular, single-family detached residential real estate (not including condominiums). There was a belief that when mortgage rates started falling, housing demand would quickly follow suit. Instead, the demand side has been waiting patiently, adding more to the queue. That lineup is very long at the moment and lays the foundation for growth in 2025.”

“House price declines have stopped. This is the main plot line. Why buy a house today if it will be priced lower tomorrow? That strategy has worked for more than two years. In December 2019, the national average home price was $535,000, according to Canadian Real Estate Association data. After the first couple of months of COVID-19, the average price skyrocketed up to $604,000 in December 2020, a 12.9 per cent increase. In 2021, it jumped 28.5 per cent.”

“Prices peaked in February 2022 at $835,000 and then collapsed back down to $719,000 by December 2022, a 13.9 per cent fall. Today, almost two years later, prices have not moved much, sitting at $723,000 in November 2024, although this has inched up from $716,000 in May 2024. I believe the bottom has already happened. Waiting for a better price is likely a poor strategy today. Things can heat up very fast when prices start to rise and there is pent-up demand. I believe this is where we are right now.”

“I specifically did not mention condominiums here, although this may be more of a Toronto issue than some other markets. Because of the level of real estate investment in condominiums (as opposed to being owner-occupied), there has always been a greater risk of owners desperate to sell if the economics stopped working. Well, that happened and there still appears to be a real backlog of sellers in the condominium space. This will lead to a longer period of flat to declining prices until the excess of investors leaves the market.”

“What does all this mean? If you are considering buying, it is time to get busy. Today is an opportunity that will look cheap a year from now. If you are considering selling, you may want to hold off a little in listing your house if you can afford to wait. Just like buyers have a life cycle, so do sellers. You don’t want to wait forever, but even if you have to list now, don’t be afraid to hold out for your price. In 2025, Canadian homeowners can resume their obsession with the value of their homes and take pleasure in watching it head back up.”

From Domain News. “The Australian property market sometimes appears to defy gravity, but 2024 was a year when gravity caught up. Prolonged high interest rates slowed buyer enthusiasm as the year wore on, and by the spring values in both Sydney and Melbourne were falling, while growth was slowing in the smaller capital cities. By the spring, the total number of homes listed for sale hit their highest levels since 2018, said CoreLogic head of Australian research Eliza Owen, giving buyers more choice. Properties were taking longer to sell and the auction clearance rate had weakened. It was a contrast to the beginning of the year when hopes were high of an interest rate cut as soon as June that emboldened some buyers to bid harder.”

“But the buyer’s market has meant some are waiting to see if better properties are listed for sale rather than making fast decisions, she said, adding that it has also shifted demand towards units as prices rise. ‘A lot of people are waiting for a cash rate cut.’ Westpac senior economist Matthew Hassan said all the major housing markets had slowed, and Sydney and Melbourne had flattened out as buyers baulked at high asking prices for properties.”

“‘The markets clearly in Sydney and Melbourne again ran into affordability constraints,’ he said, adding population growth has slowed too. ‘There may have been some expectations that the RBA might be starting to ease rates this year, and it’s been pushed back, and that might have provided a bit more support that hasn’t been there.’ He said there has been a build-up of homes for sale into the end of the year as buyers fall away. Home owners are unlikely to be selling in distress – unable to meet mortgage repayments – but there are high levels of stress among borrowers trying to pay their mortgages, he said. ‘We’re surviving, not thriving,’ he said.”

South China Morning Post. “Hong Kong’s office property market is likely to see more distressed sales in the medium term, as banks will need to call on loans amid a soft demand for office space, according to analysts. From their peak in October 2018, prices of prime office space in the city’s main business zones of Sheung Wan/Central, Wan Chai/Causeway Bay and Tsim Sha Tsui declined by more than 46 per cent as of November, according to the latest data from the Rating and Valuation Department.”

“Overall rents, meanwhile, across the city’s premium office space segment are estimated to have fallen 8.6 per cent this year, according to real estate firm JLL. The property consultancy forecasts office rents to drop by as much as 10 per cent in 2025. ‘A few years ago, rental transactions would go for 50,000 sq ft, but now leasing transactions are just for 18,000 sq ft, so rents could not fund the loans,’ said Oscar Chan, head of capital markets at JLL in Hong Kong. ‘For the banks, if a borrower has defaulted for one or two years already, they have to take action no matter what. Definitely, in two to five years, there will be more cases of banks taking action.'”

“The weak sentiment in the city’s office property market could see fire sales of more distressed commercial real estate next year. ‘More distressed sales are anticipated as market conditions persist,’ said Tom Ko, executive director and head of capital markets in Hong Kong at real estate brokers Cushman & Wakefield. Ko pointed out that the ‘pure investment market remains challenged due to high interest rates, leading to sluggish overall investment activity.’ This environment ‘has prompted landlords to offer price discounts on property disposals, contributing to further corrections in property prices,’ he added.”