{"id":180570,"date":"2025-01-21T13:05:39","date_gmt":"2025-01-21T20:05:39","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=180570"},"modified":"2025-01-21T13:48:56","modified_gmt":"2025-01-21T20:48:56","slug":"is-the-lock-in-effect-finally-breaking","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/is-the-lock-in-effect-finally-breaking","title":{"rendered":"Sellers Are Coming Back\u2014Is the Lock-In Effect Finally Breaking?"},"content":{"rendered":"\n

According to data from Realtor.com, Q4 saw a promising stat: Sellers were coming off the sidelines and listing their homes. Listings were up<\/span> 6.1% in December<\/span><\/a> from the previous year, the <\/span>largest<\/span> year-over-year gain since June 2021. Should this continue, it could mark a loosening of the market, specifically the so-called “lock-in effect.” In short, it means more investments to buy and sell and a return to normal conditions we haven’t seen since before the pandemic. <\/span><\/p>\n\n\n\n

Bolstering this is news<\/span> that active listings were up more than 23% in mid-December from the prior year, and new listings growth remained robust.<\/span><\/p>\n\n\n\n

Dana Bull, a real estate consultant and agent with Compass, told <\/span>CBS News<\/span><\/a>:<\/span><\/p>\n\n\n\n

“I have somewhere between 15 and 18 sellers who are thinking about listing this spring, which is the most <\/span>that I’ve<\/span> ever had going into the new year. What’s been going on is most of these people have been considering selling for the past 18 months, but they’ve been in this holding pattern and wanting to wait and see what is going on with interest rates. <\/span>At this point, they’re not deciding that they cannot wait for external factors to be optimized<\/span>, <\/span>and <\/span>they<\/span> need to make their move.<\/span> I think we<\/span> will see a decent-sized uptick in inventory\u2014nothing too crazy, but people are getting off the fence.”<\/span><\/em><\/p>\n\n\n\n

It’s a welcome relief from the ongoing fight to lower interest rates, which are incredibly still hovering <\/span>just<\/span> below 7%<\/span><\/a>\u2014even after the Federal Reserve’s recent rate cuts. <\/span><\/p>\n\n\n\n

Buyers and Sellers Are Tired of Waiting<\/span><\/h2>\n\n\n\n

“It’s certainly not good news for homebuyers when mortgage rates get bumped up,” Lawrence Yun, the National Association of Realtors chief economist, told the <\/span>Wall Street Journa<\/span><\/em>l. <\/span>Sales have started to gain momentum in the past few months as buyers and sellers run out of patience waiting for lower rates and come to the market regardless<\/span>, he added<\/span>.<\/span><\/p>\n\n\n\n

Also concerning for buyers is the steady uptick in home prices. However, after a stagnant real estate market since 2022, when the Fed began a series of 11 rake hikes, the increase in volume leaves investors with an interesting conundrum: Accept that rates will not go down, buy now, and lock in for future equity <\/span>appreciation<\/span><\/a> and rent increases despite neutral or even negative <\/span>cash flow<\/span><\/a> in the short term, or wait and pray for a rate reduction.<\/span><\/p>\n\n\n\n

Home Prices Will Fall in 2025, Rise in 2026<\/span><\/h2>\n\n\n\n

Investment giant Morgan Stanley predicts that nationally aggregated home prices are likely to fall 2% in 2025.<\/span><\/p>\n\n\n\n

“We believe the housing market, and home prices in particular, are on a healthy foundation,” Jim Egan, Morgan Stanley’s head of housing market research, told ResiClub, as reported in <\/span>Fast Company<\/span><\/a><\/em>. “We by no means view this as a correction in [national] home prices\u2014just the dynamic introduced by increasing inventories, allowing home price appreciation to dip below 0%.\u201d<\/span><\/p>\n\n\n\n

Morgan Stanley predicts that after a year of zero appreciation, home prices will start appreciating by 3% nationally in 2026.<\/span><\/p>\n\n\n\n

More Homes for Sale Could Help Lower Prices<\/span><\/h2>\n\n\n\n

If increased homes on the market, in conjunction with stubbornly high rates, <\/span>results<\/span> in a softening of home prices, as Morgan Stanley predicts, 2025 could be an opportune time for investors to buy. <\/span>Flippers<\/span><\/a> could start a rehab project and sell in <\/span>2026,<\/span> when prices increase.<\/span><\/p>\n\n\n\n

In addition, even with a <\/span>projected 11.7% increase<\/span><\/a> this year, the number of homes for sale will still lag pre-pandemic levels by 23%, according to Realtor.com. <\/span><\/p>\n\n\n\n

How to Make the Most of the 2025 Market <\/span><\/h2>\n\n\n\n

Buying now, during a relatively quiet market in anticipation for things to heat up in 2026, could be a good strategy, but only if you <\/span>are prepared<\/span>. Here are some things to bear in mind.<\/span><\/p>\n\n\n\n

Analyze your financial <\/span>position<\/span><\/h3>\n\n\n\n

Buying an investment for <\/span>tax benefits<\/span><\/a> and long-term appreciation makes sense if you have a well-paying, stable job and can absorb low cash flow. Just make sure you are not losing money every month.<\/span><\/p>\n\n\n\n

What are your investment goals?<\/span><\/h3>\n\n\n\n

If you intend to do the <\/span>BRRRR method<\/span><\/a> with low cash-flowing properties and have sketchy personal finances, you are setting yourself up for a <\/span>big<\/span> fall. Slow and steady wins the race in this <\/span>current<\/span> market with so many unknowns\u2014unless you are sitting on a pile of cash.<\/span><\/p>\n\n\n\n

What is your risk tolerance?<\/span><\/h3>\n\n\n\n

If the thought of coming out of pocket to pay a mortgage on an empty building or covering an unforeseen expense keeps you up at night, the stress of owning a rental isn’t worth it. You would be better off <\/span>house-hacking a property<\/span><\/a> you are already paying a mortgage on or looking for a <\/span>cheaper property in a decent area<\/span><\/a> that you can<\/span> buy for cash and forgo the sleepless nights. <\/span><\/p>\n\n\n\n

Flip homes you can afford to hold on to<\/span><\/h3>\n\n\n\n

Expecting a quick sale of your remodeled McMansion in 2025 might be risky. If you are in the flipping business, stay low to the ground. With high interest rates, the market for more affordable homes will be more plentiful than <\/span>that for<\/span> larger homes. <\/span><\/p>\n\n\n\n

Unless you can afford to absorb the carrying costs, think small. Look to buy at a discount and sell in 2026, when house prices <\/span>are expected<\/span> to rise. <\/span><\/p>\n\n\n\n

“We have been witnessing the death of the starter home for the better part of a decade,\u201d <\/span>Brittany Webb<\/span><\/a>, director of research at the National Housing Conference, told <\/span>CNET<\/span><\/a>. “That’s made it particularly difficult for first-time homebuyers to find affordable homes in areas where they want to live.” <\/span>This<\/span> is a promising sector for flippers to explore. <\/span><\/p>\n\n\n\n

Pay attention to the effect of the LA <\/span>wildfires<\/span><\/h3>\n\n\n\n

The LA wildfires are bound to have a sizable impact on real estate in 2025. With 100,000 people displaced and many working class, the demand for rental housing will be huge. This latest tragedy will only exacerbate the state’s housing crisis. <\/span>Look at markets to serve the affected LA community\u2014those who have to stay in the area<\/span>, as well as<\/span> those looking to leave.<\/span> <\/span><\/p>\n\n\n\n

Final Thoughts<\/span><\/h2>\n\n\n\n

2025 appears to be a year for consolidating and preparing for 2026, so don’t expect a frenzied buying and selling market. As more properties come on the market, picking and choosing the best deals to carry you over into 2026, where you can sell or refinance, is a savvy strategy.<\/span><\/p>\n\n\n\n

There are too many unknowns to make <\/span>wider<\/span> predictions\u2014how the incoming presidency will affect the economy and interest rates, what will happen to inventory, whether there will be a labor shortage for construction, and how geopolitics will affect the supply chain and construction costs. <\/span>Therefore<\/span>, with so much up in the air<\/span>, playing it safe is the best policy.<\/span><\/p>\n\n\n\n

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According to data from Realtor.com, Q4 saw a promising stat: Sellers were coming off the sidelines and listing their homes. Listings were up 6.1% in December from the previous year, […]<\/p>\n","protected":false},"author":613725,"featured_media":176309,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-180570","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/180570","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613725"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=180570"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/180570\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/176309"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=180570"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=180570"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=180570"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}