Thinking about buying or selling this spring in 2025? Here are the real estate market red flags you need to watch out for as you navigate the ever changing real estate market!
🎢 THE ROLLER COASTER OF REAL ESTATE🎢
🚩The world of real estate almost always feels like a roller coaster, so let’s look at big drivers in the market this spring and how they might be red flags!
LAGGING CONSUMER CONFIDANCE AND TARIFFS
• Consumer confidence dropped more than expected in February, with the sharpest drop in three and a half years, which erased the burst of consumer optimism seen in November directly after the election. While overall economic data remains strong, there is a lot of uncertainty, especially when it comes to Trump’s tariffs, which just went into effect. The cost of lumber, drywall and appliances will now go up, but the greatest impact to homebuilders will be from lumber cost increases. Roughly 30% of all softwood lumber used in the US comes from Canada, and domestic suppliers of lumber are expected to raise their prices to match the imported supply. While Trump did just sign an executive order to ramp up domestic lumber production through a streamlining of regulatory and permitting processes, domestic lumber suppliers cannot meet the current demand, said Ken Gear, CEO of Leading Builders of America. It is estimated that it could take up to three years to build multiple new lumber mills here in the US and hire the skilled labor force to operate them in order to meet the US demand for lumber.
But it’s not just about the lumber used to build houses. About 70% of all gypsum used to make drywall comes from Mexico, another tariff that’s going to hit the home building industry hard. From the walls in, think about what goes into making a home functional, and think about the one of the most expensive rooms in a house. The kitchen. Most appliances are imported from China…so the prices of those items? Going up.
What’s going to happen? Perhaps builders may respond by trying to build smaller homes that use less lumber and drywall as a way to try to keep prices steady, but will smaller houses be well received by buyers? I do think there is a market for smaller homes, although I think buyers are mostly interested in smaller homes for smaller prices…not prices that hold steady. In the short term, rising costs due to tariffs will push builders to pass those costs along to consumers, which ultimately affects the entirety of the housing market, both new builds and pre-existing homes. “We may see buyers’ willingness to pay rise for existing homes as newly built homes get more expensive, which would mean rising prices of existing homes, too. We may also see a lower appetite for major remodeling projects that rely on these tariff-affected inputs, hamstringing the ability of consumers to remake their homes to fit their current needs,” said Danielle Hale, chief economist at Realtor.com in a recent CNBC article.
MORTGAGE RATES TREND DOWNWARD (ever so slightly)
• Mortgage rates have been trending downward, ever so slightly, for the last month and half, and while this is an encouraging sign for home buyers in the market hoping to buy a new home soon, the downward trend may not last. If tariffs cause inflation to rise, mortgage rates could reverse course and head back up. Mortgage rates are so volatile it’s almost feels foolish to make any kind of prediction about them, and the expert’s predictions about what’s going to happen are all over the place as you can see here.
INVENTORY GRADUALLY RISING
With mortgage rates slowly inching downward, at least for right now, and inventory up on a national level almost 20% since last year, it finally feels like the recipe is here for buyers to start to emerging from their deep hibernation. This is good news UNLESS you’re a buyer finding yourself in the situation of having to compete against other buyers for a home you’ve fallen in love with. Multiple offers are back for SOME properties.
Speaking from my own recent experience, the last three buyers that I’ve worked with have both found themselves in competing situations. In one case my buyers were up against four other buyers and they won with a cash offer, as-is, and a HUGE escalation clause for a very unique, one of a kind home.
In the other case my buyers discovered they were going to up against two other buyers on a well-built home in a desirable neighborhood and they were faced with only an hour to make their decision, which was a lot of pressure they weren’t expecting. I has the basics of an offer drafted up for them in order for us to be able to move quickly, but they ultimately decided they were not going to throw their hat in the ring at that time. So close…but no cigar.
In the case of the the third buyer clients, they offered on a new construction home that had been on the market for almost two years. Apparently there had been other buyers sniffing around for a while, and news that there was an offer spurned them into action. My buyers won the deal, but had to offer slightly over list price, which was frustrating considering how long this home had been sitting!
I’m also noticing the return of a certain kind of language in listing descriptions in the agent’s notes, which reads, “Seller’s request 24 hours response time on all offers but reserve the right to accept an offer at any time,” which means the seller is setting themselves up for the potential of multiple offers and will not be pressured into responding to an offer with a very short time frame. Now, if you’re a buyer who is frustrated by that, you should know there are work arounds, and by work arounds I mean money games, but if you want to know how…well, guess you should be working with an agent who has a full playbook of various tactics to deploy for differing situations.
BUYER METRICS ARE WEIRD
While interest rates are stabilizing and trending a little lower, and inventory is rising, the number of buyers active in the market is not necessarily what one might expect. Pending home sales dropped 4.6% in January 2025 from the month before, with losses seen in the Midwest, West, and the largest loss in the south. Only the northeast saw a small gain in pending home sales. Now keep in mind, real estate data like this is always behind, so take all of this with a sprinkle of salt. Lawrence Yun, chief economist at the National Association of Realtors said, “It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months. However, it is evident that elevated home priced and higher mortgage rates strained affordability.”
Umm… yeah, that is not a news flash. It’s the same story we’ve been hearing for years now. At a local level here in Iowa City, I can confirm that buyer activity was slow in January and February. I communicate frequently with agents in other parts of the country, and I have heard from them, especially those that work in larger metros, that buyer demand picked up where they are sharply in February. I often find that real estate market trends happen here in the Iowa City area a few weeks later than bigger markets like Minneapolis and Saint Louis. So, we’ll see…I do have a lot of upcoming listings poised to drop onto the MLS in the next month or two, and I’m going to need some buyers for those…so, I hope those buyers emerge.
HOME PRICES THAT JUST WON’T QUIT
Ok, and lastly let’s talk about the elephant in the room. Home prices. Nationally home prices increased 4.5% in 2024, according to CoreLogic. Here in the greater Iowa City area, home prices across all types of homes, single families, condos, and zero lots, increased 6.5% in 2024. I guess it’s a good thing homes are more affordable in Iowa! Looking back further than a year, home values have jumped 45.3% nationally since 2020…which is more than a decade’s worth of growth in just five years. Homeowner’s other related expenses are increasing too…I’m talking property taxes and homeowner’s insurance. The market, at least in terms of prices, just seems like a beast that just can’t be beat back no matter what is thrown at it—high interest rates, political instability, industry changes, decreased buyer demand…
It leaves me really worried, especially for first time homebuyers and their ability to get a foot in the door of owning real estate. I know what you’re all saying out there. “It’s gonna crash, it’s gonna crash,” but I just don’t see a market crash happening, at least here in the Iowa City metro, because our market is so insulated thanks to the University of Iowa and the hospital.
