RealEstateNews 2.24.25

Weekly News Roundup

• Home Shadow Inventory Growing
• Apartment Rents to Rise
• Fires Remake L.A. Real Estate

Home Shadow Inventory Growing

An uptick in December delistings is the latest sign of dysfunction in America’s housing market. Nearly 73,000 homes were pulled from sale after they failed to find a buyer in the final month of last year, data from real-estate analytics firm CoreLogic show. Delistings tend to spike in winter when fewer people are actively looking for a home. But the trend last December was unusually strong, representing almost one in 10 properties on the market, and a 64% increase from the same month of 2023.

The rise in delistings means there could be a shadow inventory of homes waiting to come onto the market as soon as volumes pick up. That may put prices under pressure, even if buyers come out this spring. 

The story of the U.S. housing market over the past few years has been that homeowners with cheap mortgages have stayed put as they don’t want to give up their ultralow rates: Around two-thirds of borrowers are paying a mortgage rate less than 4%. This has strangled supply and pushed U.S. home values to record highs. But the lock-in effect is slowly fading as more people need to move for a job, to accommodate a growing family or some other life event that can’t be delayed indefinitely. In December, 1.15 million homes were for sale in the U.S., a 16% increase from the same month of 2023, data from the National Association of Realtors show. 

Despite more properties being available, buyers were thin on the ground. Home sales in 2024 were at their lowest level in nearly 30 years. Home values have held up despite this weak demand, at least so far. Homeowners don’t like to sell for less than their neighbors received and aren’t ready to adjust their expectations yet. Delistings are probably acting as a safety valve, allowing sellers to delay rather than accept a lower offer. But prices for new homes have slipped. This is partly because units are being built smaller to keep them as affordable as possible for first-time buyers. But builders are struggling to sell homes, even though they are offering to buy down mortgage rates. The number of completed and ready-to-occupy new homes rose 46% from a year earlier in December to 118,000, based on data from the National Association of Home Builders. Source: Wall Street Journal

Apartment Rents to Rise

The era of falling apartment rents looks to be nearly over. A spike in rents during the early years of the pandemic sparked a historic apartment construction boom in 2023 and 2024. That crush of new inventory, especially in hot Sunbelt markets like Austin and Phoenix, led to oversupply and caused rents to fall in much of the country. But more people now are renting longer, as mortgage rates stay high and the costs of homeownership remain unaffordable for many Americans. Landlords say that the new construction pipeline should be mostly drained by year-end, setting the stage for rents to rise nationwide later this year.

Shelter costs increased 4.4% in January from last year. That was the smallest annual uptick since January 2022, and well below the peak period of 2023, according to the Bureau of Labor Statistics. Now, the looming prospect of higher rents could reverse that progress. Rents have already been on a steady climb in certain parts of the country where new supply has been more muted, such as the Midwest, Northeast and parts of the West Coast. By the end of this year, every major metropolitan market is expected to see positive rent growth, said Jay Lybik, national director of multifamily analytics at CoStar. 

New apartment construction is already starting to taper off. The number of multifamily building permits issued in the South over the past year is 4 percentage points below its prepandemic 2019 average, according to Bank of America’s analysis of Census Bureau data. And demand for rentals is rising steadily. The multifamily vacancy rate is now below its long-term average for the first time in about two years. Last year, an average of nine prospective renters were competing for every open apartment unit on the market, according to RentCafe. Apartment absorption, a metric of rental demand that measures the change in how many units are leased, was higher last quarter than any other fourth quarter since at least 1985, according to real-estate firm CBRE. Source: Wall Street Journal

Fires Remake L.A. Real Estate

The Los Angeles fires had a significant impact on the region’s housing market, displacing residents and, based on a new report from the Realtor.com economic research team, putting more than $40 billion of real estate value at risk. The loss of residential real estate will undoubtedly affect the LA housing market. Since the region was already experiencing a housing shortage, the impact is even greater. Between 2013 and 2023, Realtor.com noted that the area added roughly 290,000 new households and 107,000 single-family building permits, leaving a gap of nearly 200,000 homes. According to the California Association of Realtors, the loss of thousands of homes will tighten the housing supply in affected areas and surrounding neighborhoods, eventually putting upward pressure on home prices in surrounding neighborhoods as housing demand begins to recover.

Selma Hepp, chief economist and executive of research and insights at CoreLogic, and her team noted that home prices may see two opposing effects, which will take longer to observe and depend on the size of the destruction. Hepp says the market could see relatively faster home price growth in surrounding markets as households who lost homes contribute to homebuying demand, or it could see slower price growth as damaged homes or remaining lots are sold. Homes that are rebuilt on damaged lots are typically larger and more expensive, which could add to price pressures but also decrease affordability for existing residents, she explains. Home price growth and homebuying demand may be slower in the long term in areas with persistent and intense natural disasters.

The LA region could see a 1% increase in prices in some areas. In the longer term – about a year to a year and a half – the area could see as much as a 5% increase in prices on newer homes. One of the biggest challenges for displaced residents is finding an affordable place to live. According to Redfin, the search term “Los Angeles homes for rent” jumped 186% as of Jan. 15, since the first week of the year. There are also claims that property owners are increasing rents due to higher demand for housing. The median asking rent in the Los Angeles metro area was $2,780 as of December 2024, Redfin reported, but a Washington Post analysis of listings data from RentCast found that LA County rents jumped 20% two weeks after the wildfires broke out, compared to two weeks before. Rents in some parts of LA increased by more than 200%, which is illegal. According to the California Governor’s Office of Emergency Services, price gouging, when businesses raise their prices more than 10% during and after an emergency, is illegal in California. Source: US News