Just Before 2025...

Published by Leonard Steinberg,
Chief Evangelist at Compass, New York, NY
December 15, 2024

Just Before 2025...
Today - about 2 weeks before 2025 arrives - might be a good time to evaluate what questions we'll be asking in 2025 that could impact everything about real estate. Here are 5 of my questions (and my predicted outcomes):

1. Will taxes remain the same, go up or go down?
I think they will stay about the same with some cuts. I see the SALT deduction limit rising, possibly even doubling to $20,000, although the rich may not benefit by this. Corporate tax rates may be lowered to keep those profits rising: that serves the equity markets well, not to mention the politicians who have promised robust growth. Expect real estate taxes to keep rising.

2. Will inflation rise?
I see many indicators that could fuel inflation: lower taxes - and rising profits and disposable income - usually fuel spending and growth. And rising prices due to rising demand. Throw in higher tariffs, where most of that cost is passed on to the retail price/consumer, and potential lower-cost-labor disruptions....and add in trillions of generational wealth transfer/stimulus..... and I see inflation staying around 3% and potentially rising.

3. Will interest rates come down further?
The US was seeing an encouraging trajectory of rates being lowered in 2024. Then the election happened and the 10-year treasury reversed course, now back over 4.4% (still down from its October 2023 high over 4.9%). It had dipped below 3.65% in September....the bond markets tend to ignore political ideologies and the yield on the 10-year Treasury is a key indicator of investor sentiment about the economy's future health. I predict rates will come down further to a more 'normal' level (PS: 3% mortgage rates were abnormal!), one that indicates healthy growth and employment, but lower from their high's to reflect that the worst of the Covid-era inflation surge is behind us.

4. Will we finally see more affordable (and less affordable) homes built?
Reduced regulation will help in areas, but not all. Lots of the obstacles around more construction are not going away: local neighborhood opposition, lack of skilled labor, rising materials costs. Hopefully some tax incentives encourage developers to be less focused on higher-profit, more expensive homes. Developers - and all publicly traded companies - will never drive massive oversupply to bring prices down. Why would they? Most over-building happens due to speculation and/or greed or bad timing.

5. Will GDP and wage growth overcome higher home prices?
Yes, but only if inflation is tamed to around 2-3%. Anything higher will erode gains. The inflation question of the past few years may linger.... But the wealthier amongst us won't be as reliant on wages/incomes as many will be beneficiaries of the great generational wealth transfer. Think $3-4 trillion PER YEAR! (PS: The Walton family members combined are as wealthy (if not wealthier) as the world's richest man, Elon Musk)

Of course, all the above depends on multiple issues, not to mention innovation, geopolitical - and local - divisions and surprises, etc. In the real estate sphere we need to shift our focus away from national averages (they are mostly useless) and concentrate locally on the suburb, town, city and/or state levels for hyper-focused data and insights that have real value to our clients.....and our businesses.

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Linda Nelson, SRES-Seniors Real Estate Specialist
Managing Broker
Compass
11901 NE Village Plaza, Ste 271
Kirkland, WA 98034
m: 425.785.3724
lindanelsonbroker.com

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