Episode Transcript
[00:00:06] Speaker A: The Michael Hatfield ReMax team presents real estate and More. Bay Area real estate is different than in all of America and why? What's up with home buyers? What's on sellers minds? How is the market? And much, much more. Now here's your host, Michael Hatfield. Welcome back to the Real Estate and More show and thank you for tuning in. Today we're diving into what I like to call the 2025 Red Ants, Black ants housing report where red ants represent sellers and black ants represent buyers. We take a look and ask ourselves, why has no one shaken the jar? So far, they're getting along just fine in an equilibrium so far in 2024. First, we're going to review the 2024 housing market and then we're going to go into the Michael Hatfield Re Max teams. Our view, our crystal ball for 2025. I have Nancy here to help me. So let's go. Nancy, what do you think?
[00:01:09] Speaker B: Sounds like a plan. So let's first Talk about the 2024 National Housing Market and look at that in review. The 2024 National Housing Market has been marked by significant challenges and transitions prior years. While home values have generally trended upward, driven by limited inventory and demand dynamics, the pace of transactions has slowed. Seasonal fluctuations aside, this year has highlighted contrasting behaviors between sellers, which we call red ants, and buyers, which we call black ants. And that's been influenced by economic and psychological factors.
[00:01:52] Speaker A: Interesting. I'm going to talk about sellers. You know, we said our sellers, the red ants have been reluctant, they've been reluctant to move. They've actually stayed in their home. Many of them have mortgage rates at 2.5%. It's inexpensive money or their home is paid off. Why move somewhere else to pay more of a mortgage to get into a house? And so they've been a little bit reluctant, I would say, especially if you have to pay 7.5% of a mortgage rate in order to get into that new property. You know, transactions in 2024 were largely limited to people that needed to relocate, trusts that had to sell as successor trustees, divorcees and relocations, things like that, and the reluctance of red ants to sell created quite a bottleneck in the housing supply. But it's actually in equilibrium. The buyers we'll call the black ants, they're the primary home buyer dynamic than they're aged between 27 and 42 years of age. And they face significant headwinds as the Federal Reserve kept raising the interest rates. Since 2022, it's just been hiking, hiking, hiking going up and most of the Buyers that are in the position to buy say I don't want to pay that much money for going ahead and buying a home and having to pay more in my mortgage. They're very sensitive to that mortgage rate. So despite their frustrations, these buyers were still navigating a market where property property values remain relatively steady, making it clear that waiting could lead to higher costs in the long run for a home due to continued appreciation.
[00:03:43] Speaker B: Interesting information there. Let's talk about the Federal Reserve's impact. So the Federal Reserve's aggressive rate hikes since April 2022 has significantly shaped market dynamics and the continual increases filtered into buyer sentiments by mid of 2024 this year, as many realized the implications of elevated mortgage costs, this dampened their enthusiasm for purchasing homes, especially in regions like the San Francisco Bay Area where transactions began to slow after a relatively good and vibrant first half of the year.
[00:04:25] Speaker A: So the first quarter was pretty good. But after say June or so through the end of 2024, there are some things that were factors and may have slowed down the number of transactions from there. Well, key trends in 2024 transaction volume. Nationwide, the number of home sales declined further in 2024, dropping 4.2% compared to 2023. So what we're saying is home sales, they declined between 2023, 2024. And this follows a broader trend of decreasing transactions year over year since 2022. Home prices despite reduced transactions volumes, the home values remain steady and in some markets they even increased modestly. This resilience can be attributed to limited inventory and somewhat steady demand, but not overwhelming demand. Election uncertainty played a part in 2024. People didn't know, had some anxiety about who was going to be in charge of our government after the election and what that would mean to buying a home at this point in time. So a lot of people just chose to say ah, the rates are too high or I feel uncertain, so I'm just going to sit and wait and not do anything. Inflationary pressures, inflation in our pocketbooks, we can feel it. We don't have to have anybody tell us that when you go to the grocery store you've got less in your bag and less in your pocket when you leave the store as well as at the gas pump and other places. Plus there's one other factor, probably wasn't that great of a factor, but there is some reluctance on behalf of buyers and that's regarding to some reluctance to have new buyers sign the buyer representation agreement, a five page agreement that is required now for a professional realtor to show on a buyer tour to clients. Basically, buyers don't want to sign that. They don't want to say, well, I don't want to be stuck on the hook to pay you for what, you know, what you do for us, even though we appreciate you, we don't want to pay because it's never been that way in the past. It's always been part of the seller transaction and included in the sales price.
[00:06:44] Speaker B: Right, right.
[00:06:47] Speaker A: So let's talk about California and Bay Area markets. They have a little bit of unique dynamics.
[00:06:52] Speaker B: They sure do. They sure do. So California experienced significant declines in sales over recent years with 2023 seeing a 22% drop from 2022. In 2024, sales declined further, reflecting a broader national trend. Factors such as rent control laws discouraged investors from entering the market, and high mortgage rates kept many potential buyers on the sidelines, which is understandable. The Bay Area market has a special resilience, though. The San Francisco Bay Area demonstrated relative strength compared to state and national markets, particularly in the first half of 2024, which we mentioned earlier. And trend transactions were steady until May, after which the impact of high mortgage rates began to settle in and slowed the activity. So despite this, the Bay Area home values have continued their long term trend of appreciation, underscoring the region's strong desirability and economic strength.
[00:08:00] Speaker A: Well, basically in 2024, Nance, what we've seen is an equilibrium. There's not been a whole lot of buyers the second half. There's been the uncertainties of the mortgage interest rates as well as the election uncertainty and what kind of government will be in charge after the election. It's been somewhat of an equilibrium. Not a lot of people are selling, not a lot of people have been buying. And it's just been kind of sitting there at this point in time. But now one thing that I've always liked to point out to people is that, you know, with people that are interested or buyers that are interested in getting the best absolute to the, to the micro percentage of a mortgage interest rate when they buy.
Really, when you look at the entire equation of buying, you find that there's other, other elements that are more really important. The first one is home ownership. That's a big rock. You know, a place to come home, have your tailgate party at home, you know, grill some steaks, have a garage to tinker on your old car and raise your children and have a place for your children to come through. That's pretty important. So find that dream home that you really like best. You can that's really pretty important. Now let's talk about the other element of home appreciation. There was one economist one time that I recall that she always says that's making money while you sleep. Well, home appreciation in the San Francisco Bay area has historically been enviable. Meaning that you've seen people that have bought a home, you know, five years ago and it was $500,000 and then the value goes up to $800,000 in five years. Well, this is not unheard of in the San Francisco Bay area. And what have you had to do? You had to buy the house. If you don't own the house, you've got a rental house, someone else is going to enjoy the home appreciation increase of equity that you have in your home. Investment tax benefits. There's the mortgage interest deduction.
If you're renting a home, you're not getting any deduction whatsoever. And I'm not an accountant, but I'm just trying to illustrate one of the concepts here. So talk to your accountant before you move ahead. But with the mortgage interest deduction, up to a percentage of what you pay on your mortgage is an offset to your taxable income. That's a big deal.
[00:10:31] Speaker B: That is a big deal.
[00:10:37] Speaker A: We're going to take a short break. We'll be right back.
Welcome to the Real Estate Minute with Re Max expert Michael Hatfield. Michael, what traits should we look for in selecting an agent? Look for a dealmaker with a positive attitude who will work tirelessly for you. An agent who is adept in multiple offer situations, drafting, contracts, marketing and advertising. A client's home is familiar with multiple cultures, experienced in mortgage financing. Inspections and escrow is a huge asset to his client. What can you do as a plus for clients? Your agent is your eyes and your ears. One who works behind the scenes on your behalf. A great attitude, working well with others and keeping clients priorities number one is a given for us. Call 925-3227 to schedule an appointment or complimentary home analysis. For excellence in real estate, call the Michael Hatfield ReMax team at 925-322-7775 or go to Michael hatfieldhomes.com well, we were.
[00:11:41] Speaker B: In the market to buy a house in Pleasanton for a very long time. So we saw this beautiful house. We walk in, we see Michael and Nancy. We just absolutely love this house. Michael brought in a wealth of knowledge and experience to the whole home buying process.
[00:11:59] Speaker A: To mention depreciation. What about depreciation? Well, what is it? It's a non cash reduction in your taxable income. On your tax return. And it's usually spread out the value of the building on your home property over a course of like, 27 and a half years. So every year, you're able to act as if you didn't make that amount of the 27 and a half years, you didn't make that amount, and it's offset against your taxable income. That's a big deal.
[00:12:31] Speaker B: That's awesome.
[00:12:32] Speaker A: Capital gains exclusion. Homeowners can Exclude up to $500,000 if you're married when you sell your home. So that means if you bought the home, and let's just say for simplicity, it was a million dollars, you bought the home for a million dollars, you sold it for a million five.
What we're saying here is that before you pay anything gains, then you would have a tax credit of $500,000, so you wouldn't owe any taxes. In that case, that's a big deal.
[00:13:02] Speaker B: It's always fabulous. That's what I say. Let's talk next about the perception of mortgage rates. So while mortgage rates remain a prominent concern to many, you know, they should not overshadow the broader benefits of home ownership, the enjoyment of that. And there's a lot of potential for the equity appreciation, the tax benefits of home ownership, which you were just mentioning, incidentally, historical mortgage rates, this is interesting, have averaged 7.72% over the last 50 years. And buyers can adopt the mindset of.
What is it, Michael?
[00:13:40] Speaker A: Oh, yeah, buy the home, date the rate. We have a. I'll just interject here for a second. We have a very good friend up in Reno. She's one of our colleagues. She's a really great agent. Her name is Erin Merritt. So if you happen to run into Erin, tell her that I'm bragging about her on the air. She likes to say, buy the home, date the rate. Meaning find the home of your dreams. Let all of these other factors come into play to help you financially as well as in the form of property enjoyment for you and your family. And then when the rates do come down, don't wait for them to come down, because the appreciation that you could have gained may have outstripped any benefits that you would have had by getting a little bit less of a mortgage interest rate. So when the mortgage rates go down, turn around and refinance.
[00:14:32] Speaker B: Jump in. Jump in. So anyways, for many buyers, that decision of home ownership does hinge on the interest rates. But delaying that purchase might lead to the higher competition that happens and rising home prices that may cost you more in the long run. And once those rates decrease, the herd mentality can kick in and drive a surge in demand, intensifying that competition for limited inventory and pushing the prices upward even further. So taking action during a period of equilibrium may prove a more advantageous thing to do than waiting for uncertain market conditions.
[00:15:15] Speaker A: Well, depending on where you are right now and what you're doing, it may be a great time to buy a home here in the San Francisco Bay Area. You know, things are kind of in equilibrium, and they're just kind of sitting there. And now I know in 2025 that the California association of Realtors come out and they said, well, you know, it's going to be okay. But they're forecasting a 10 point, 10 and a half percent increase in the number of home sales in California. So they're saying if we had so many transactions, it's going to be 10.5% greater in 2025. They're also projecting that all of the units that they had projected earlier at 200 units are now going to be at 304,400 units sold in 2025. That's their best estimate from their crystal ball. And they're saying medium home prices are projected to rise by 4.6% in the state, with the Bay Area likely experiencing above average appreciation. The Bay Area is a very special place.
Back in the days when I was flying, I would tell my flying buddies, you know, how special the San Francisco Bay Area is as far as home ownership. You've got all of the ball teams locally that you can go to. You've got culture that you can go to and see a play when you want to. Great schools and the big tech industry for jobs is here as well. And I used to just tell my co pilots about it, and, you know, they would say, oh, that's great. And then we would compare values and then they would say, wow, I think I'm going to move to the San Francisco Bay Area.
Yeah. By the way, California association of Realtors are saying that the mortgage rates are expected to settle right. At around 6%, just a little bit less than 6%. And housing supply is anticipated to improve by 10%. They didn't say where that 10% was going to come from, but it is definitely their view. And there's someone else has a different view, too, which you're going to talk about.
[00:17:38] Speaker B: Right. There's alternative views. So not all the experts share the California association of Realtors optimism. Some predict a potential 4.2 decline in Bay Area home prices by late 2020. 5 Citing broader economic uncertainties. So we shall see about that. However, others believe that the market may outperform conservative forecasts driven by economic improving economic conditions and increased buyer confidence.
[00:18:09] Speaker A: So I'm really positive, I feel that in the year 2025 that we're looking for a decent year. I'm thinking that we're going to see some home appreciation. I think also despite that normally when conditions are bad, they lower the interest rate. I know that, but I think the interest rates are going to be lowered anyway, translating to lower mortgage rates. And I think it's going to happen as part of the broad plan for the economy. I think we're going to take a short break. We'll be right back.
[00:18:41] Speaker B: ReMax and here's Michael Hatfield.
[00:18:44] Speaker A: Business owners, have you considered how important the appearance and impression your offices make to prospective customers? Appearance and impression are critical to clients, thus to your overall success if your company could use that warm, inviting and welcoming appearance. I have an amazing complex of offices just listed for lease in the quaint town of Danville. Freshly remodeled, meticulously built, the 3,700 square foot space enjoys increasing incredible street exposure, front and side entrances, abundant parking, reception, conference room, 11 individual offices, even a team member kitchen. This premium space is located in a blue ribbon building maintained by the renowned Sherman Properties group. Waste not one minute. Call us now. Get help with buying or selling by calling the Michael Hatfield REMAX support team at 1-800-857.
That's 1, 800, 857 63. And now back to our show.
We're going to have a good economy in 2025, 2026 and I think that it will top some of the CAR California Association Realtors projections and actually do better in my view. So I don't have a negative outlook on what we expect to see in 2025. So for sellers, 2025 may represent a prime opportunity to capitalize on strong home values. If the mortgage interest rates come down a little bit, well, they can sell their home that they owe very little on. Yes, it's only two and a half percent mortgage interest, but maybe they're going to be able to buy at 5%. Well, it takes a long time if the mortgage is not that large to make up the difference of 2.5% of a mortgage on a home that you know, you don't owe much on. So you know there's going to be more balance of that from the people that have entrenched themselves as home owners in California which are people of retirement age. So I think the current period of equilibrium is a great chance right now to secure a home with not too daunting of intense competition for buyers. So I think that if rates decrease that that's going to change though. Because what will happen, you think if rates decrease, Nance?
[00:21:03] Speaker B: I think there will be more activity.
[00:21:05] Speaker A: Yep. The herd mentality. What is the herd mentality?
[00:21:08] Speaker B: Yep. Everybody wants to do it now all at one time. Nobody wanted to do it before. Now everybody wants to do it. So we shall see.
[00:21:15] Speaker A: Absolutely. The housing market remains dynamic and it's shaped by economic and psychological and policy factors. By carefully weighing the key elements from homeownership's intrinsic value to financial benefits and market conditions, the participants can make informed decisions that align with their long term goals. I still keep thinking buy the home that you want, the dream home, date the rate. My best guess is that due to an improving economy again, mortgage rates may touch down to as low as the 5% level. Inflation I do believe will decrease. And why do I think that? I think that we'll also get some new home builders. I think they're going to have optimism. But I think what's going to happen is I think will be a transference of energy back to domestic sources. And if that happens, that's going to drive this economy and make nice conditions for people that work for a living, that have to live here in this wonderful country that we live in. So I'm thinking mortgage rates touch down to maybe as low as 5%. Inflation decreases. New home builders may get very excited about building new homes. And when you pair that with a new buyer enthusiasm, we might find ourselves enjoying an outstanding housing market in 2025. I believe one should not ignore the real considerations and elements of why you buy a house. Why do you buy a house, Nance? Because you want to live in it, right?
[00:22:49] Speaker B: You want a backyard so you can throw the ball for your dog.
[00:22:52] Speaker A: Throw the ball for your dog and the dog have a home as well as the kitties.
[00:22:55] Speaker B: That's right.
[00:22:56] Speaker A: Then also number two thing is make money while you sleep.
[00:22:59] Speaker B: Appreciation.
[00:23:00] Speaker A: Home appreciation in the San Francisco Bay Area?
[00:23:02] Speaker B: Yes.
[00:23:03] Speaker A: Number three is the tax benefits that you were paying to your landlord when you were renting are now going to the mortgage, which in turn is tax deductible. And it provide you with home ownership. They help you to buy home ownership and that is just amazing. So you should not ignore those tremendous wealth building potential elements in the San Francisco Bay Area and consider the various importance of each one of them before you say, oh, I don't like that 5.5%, I'm going to wait till it's 5.2% mortgage interest rate before I buy. I think that's nonsensical to a degree. And I know no one wants to pay more money for their mortgage loan than they have to. But at the same time, get in there, start letting that homeownership work for you and look at all of the elements. That's what Uncle Mike says.
[00:24:01] Speaker B: I agree.
So please know that we at the Michael Hatfield ReMax team would be honored to work with you in a home sell or a home buy.
Working with Michael and Nancy, I was a first time home buyer and I was very nervous about the process. I didn't really know what to expect. Michael and Nancy were able to take that fear away from me and answered all of my questions. They were right by my side the entire time and they really helped me find the perfect home for me and I'm so thankful.
Give us a call at 925-322-7775.
[00:24:40] Speaker A: Wow, what a great time today. So overall is that we're very optimistic about 2025 and everything it will bring to the housing industry. We're sure glad that we are involved in this industry. We are grateful for the opportunity to serve as buyer's agents and sellers agents. And we tend to make friends of the good people that we represent and we probably wouldn't have any friends if it weren't for the people that we work for that tends to like it, you know, but for me, you know, my friends are all over the United States from the airline business. And what are you going to do there? It's, they're all over the place, so you can't quite put them in there. So it's good that we come here, do the best job that we can do and make great friends with them. So you got any points that you would like to say, Nance, before we close up?
[00:25:33] Speaker B: I'd just say that we're grateful for all the people that we get to work with and it's our honor, truly it's our honor to do that.
[00:25:42] Speaker A: She really means it. Guys. Thank you for tuning in today for the 2025 Housing Insights, which are the red ants, which are our sellers, and the black ants, which are our buyers. This is our report for 2025 and I am Michael Hadfield. You seen my bride today, Nancy, you've been listening to the Real Estate and More show. We talk about interesting topics, great people, and of course real estate. Listen to archived real estate and more shows at my Real Talk show and on all major podcast directories as well. I hope you tune in next week, but until then, have a wonderful week. Please remember to go to our new YouTube handle, My Real Talk Show. That's myrealtalkshowoutube.com and touch that subscribe button. You can also find past air shows at our handle, myrealtalkshow on YouTube dot com.
