What’s Going on In the Real Estate Market?

What’s happening to the supply and demand equilibrium in the market?  

Big Picture Story with Housing Market:

Historically speaking demand is much more elastic – it can go up and down much more than the actual stock/supply of homes in the housing market.

Pandemic Housing Boom Recap: Lessons for Today’s Buyers and Sellers: 

There was a huge increase in housing demand – work from home – people moving to be remote, people wanting more space – at home more needing more space or combining household/roommates, remote allowed more to work from home – relocating bigger space to add office, etc. All the stimulus money received increased the demand more, and the extremely low mortgage rates which make so much of properties cash flow for investors making the demand even higher.

With all the increase in demand, there was not enough supply to absorb it. The Federal Reserve Estimates that the actual housing starts (new construction) would have needed to increase 300% to absorb that increase in housing demand. That can’t happen. Right? You can’t come from 1.4 - 2.8 million housing starts to 4 - 6 million. That’s just not possible. Only so many people know how to do the things to build a home in any given amount of time. There’s only so many supply chains that produce the materials – and those supply chains take years to build (lumber, drywall etc.).

What we had was a huge, over-heating for home prices. The price – not everyone got to transact but those willing to pay the most got to transact. Prices overheated and went up 40-50% nationally. Then, once the inflationary shock was followed by a rate shock, the reality of that deterioration and affordability from the over-heated prices was felt.

Incomes did not keep up with all of that. For incomes to have matched the increase in the monthly payments (given what happened to prices and what happened to rates), income would have needed to increase 80%. Incomes only went up 25%.  

Today's Market

This is how and what type of market we are in today. The market today – prices haven’t given up that much nationally. As sellers struggle to find buyers who can afford this affordability environment we have gotten to. There is slowly becoming “more slack” that’s building up in the market, and as that occurs, it shifts that supply/demand equilibrium – that power in the market from the sellers to the buyers.

What we’ve seen more on in the past 6 to 12 months (as well as within the last few years), we’ve seen more of these seller markets become balanced markets, more balanced markets become buyer’s markets. If you have reached that point, you will see prices come down a bit in the market.

Value of an Agent

This is where the value of the agent is – being able to discern what is happening in my market and how to communicate this to the customer/client base. The interplay of supply and demand drives real estate outcomes, affecting everything from home prices to the speed of transactions. While demand can shift rapidly, supply is slower to adjust—a reality Tennessee Properties Real Estate understands intimately.  

Things to Pay Attention to:

Inventory – Its rising across the country which is causing prices to come down. We are seeing price reduction and expired listings – a market similar to 2018 before the rise of the pandemic market described earlier.

Affordability is the issue – there are plenty of people wanting to buy and home. What the market wants to see is certainty. If we see certainty, that will lead to relief in rates, more sellers in the market, and more activity.  

Affordability remains a critical concern as incomes haven’t kept pace with rising home costs. Tennessee Properties Real Estate has the expertise to untangle the complexities of financing, help buyers find homes within their budgets, and guide sellers in competitively pricing their properties. Their local agents watch affordability metrics closely, ensuring you never miss an opportunity or overextend in the current market.

Market Shifts in 2025: From Seller’s Market to Balanced and Buyer’s Market:

The market has transitioned from a strong seller’s advantage to a more balanced or even buyer-friendly climate. Tennessee Properties Real Estate’s team is uniquely equipped to help you thrive in this environment, whether that means negotiating the best possible deal as a buyer or maximizing value as a seller. Their hyper-local focus means you’ll benefit from their in-depth neighborhood knowledge and a keen understanding of broader market shifts.

MARKET RATES

When are we going to see more reasonable interest rates? Is that going to be when we suddenly have hundreds of thousands of buyers come into the marketplace?

With mortgage rates and long-term rates, it is always good to emphasize a bit that they’re not directly set by monetary policy and the FED. The FED can set the short-term rate and immediately have the exact same rate impact on the long-term. Last year we saw the FED cut by around 100 basis points. And mortgage rates ended up in the same place. Late last summer they started to come down a bit, but that was mostly driven by market pricing and recession risk due to the unemployment rate at that time started to move up a bit (From 3.4% in April ‘23 up to 4.2% in Summer of 24’).The number of people that were unemployed  was up a million in the first 6 months of last year (2024).

Right around when the FED started to cut (the FED was sighting some of this weakness in the labor market), the labor market started to tighten back up. The unemployment rate now 12 months later is the same as it was 12 months ago. The number of unemployed even though it jumped up 1 million in the first 6 months of ‘24 is only up 100,00 from the summer of ‘24 to now (end of summer ‘25).

Keep an eye on the labor market – the unemployed – if that were to soften, we would see the FED attack it and the long-term expectations in the financial markets would shift. Remember, the bond market (what moves and yields in the average 30-year fixed mortgage rate) is demand for the treasuries, demand for the mortgage-backed securities and the price of those bonds and yield (the rates) moving inwards. If there is more demand for the mortgage-backed securities in the 10-year treasure yield, the yield in the mortgage rates fall. When the FED out there are buying up mortgage-backed securities, there is a lot of demand for those, and so the yields in mortgage rates fall.

If it is the opposite, and there is not a lot of demand for the mortgage-backed securities in a 10-yr treasury yield (kind of like what we've seen in the last few years since the FEDS stopped buying up MBS - mortgage-backed securities), then you see additional upward pressure on yields and mortgage rates. If you do have a recession and there’s that flight to safety where the conservative mood that sets in and people want these treasuries and want these mortgage-backed securities for the yields (rates) that are guaranteed or less risk to them, then you will see a more demand for them and downward pressure on yields (rates) of mortgage rates.

Navigating the Fall 2025 Real Estate Market with Tennessee Properties Real Estate

The 2025 real estate landscape offers distinct challenges and opportunities for both buyers and sellers. Whether you’re ready to purchase your first home, sell your property, or simply monitor the latest trends, having the right guidance is essential for making confident decisions. Tennessee Properties Real Estate stands out as your trusted partner, combining deep insight into both the national real estate market and your local community. With their expertise, you can navigate the complexities of today’s market with clarity and assurance.