2025 Real Estate Market Outlook: What Investors Need to Know

The 2025 real estate market is on the minds of many investors, and we had the pleasure of discussing key insights with Dave Meyer, Head of Real Estate Investing at BiggerPockets.

In this episode of the TaxSmart REI Podcast, Dave shared his thoughts on where the market stands, future projections, and the best strategies for investors in both residential and commercial real estate.

Where Are We in the Current Market Cycle?

The real estate market has been in a prolonged downturn, with mortgage rates and transaction volume at historic lows.

While it appears that the market may have reached its bottom, Dave warns that recovery will be slow rather than a sharp rebound. The good news? Things are unlikely to get worse.

What to Expect in 2025

• Home Sales Recovery: A modest 5% increase in home sales is expected in 2025, with further gradual improvement in the following years.
• Mortgage Rates: Dave predicts rates to hover around 6.5% by the end of 2025, meaning affordability remains a key challenge.
• Affordability Will Drive the Market: With home prices staying flat and wages rising, investors should pay close attention to affordability metrics when making purchasing decisions.

Strategies for Residential Investors

Dave emphasized that real estate remains a long-term investment. The “Goldilocks Era” (2013-2022) of easy deals and high appreciation is over. Investors must now adjust expectations and focus on deals with long-term upside potential.

Key Takeaways for Investors:

• Patience is key – Look for deals that will generate value over 5-10 years.
• Focus on cash flow and market fundamentals – The days of quick appreciation gains are over.
• Short-term rentals are more competitive – Investors must be strategic in their approach, as the market has become saturated and management costs have risen.

Commercial & Multifamily Real Estate: Crash or Opportunity?

While residential markets are in slow recovery mode, commercial real estate is experiencing a significant downturn. Some subcategories, such as office spaces, have seen price declines of up to 50%.

Multifamily real estate has also dropped 15-20% in value in certain markets. Many commercial operators are facing loan maturities in 2025, leading to potential forced sales and increased buying opportunities.

What to Watch for in Multifamily Investing:

• Transaction volume increases – A rise in sales activity could indicate better buying conditions.
• Mortgage delinquency data – Higher delinquencies may present distressed asset opportunities.
• Sellers becoming more flexible – A narrowing price gap between buyers and sellers could create strong investment opportunities.

The Potential Impact of Bonus Depreciation

One of the biggest tax incentives real estate investors have enjoyed in recent years is bonus depreciation, which allows significant tax write-offs. In 2024, a bill to restore 100% bonus depreciation was blocked by the Senate, but there is ongoing speculation about future tax legislation.

If 100% bonus depreciation returns, it could motivate investors to increase transaction activity, particularly in short-term rental markets. However, investors should be careful, as short-term rentals have become increasingly competitive and expensive to manage.

Long-Term Market Trends (5-10 Years)

Looking beyond 2025, Dave is bullish on real estate due to strong demographic trends and continued housing shortages.

• Millennials & Gen Z are driving demand – Younger generations are still entering the home-buying age.
• Underbuilding remains a problem – The U.S. is short 3-7 million homes, keeping supply tight.
• Rental demand will stay strong – Affordability issues may keep more people renting longer.

Migration Trends & Climate Considerations

One factor that could shift real estate trends is climate change. Many investors have flocked to the Southeast (Florida, Texas, etc.), but increasing risks from hurricanes, floods, and high insurance costs may make these areas less desirable.

In contrast, Dave believes the Midwest could see a resurgence due to its affordability and climate resilience. Areas like Michigan and Wisconsin may become prime locations for investment over the next decade.

What’s Next for Investors?

According to a BiggerPockets survey, 75% of investors still plan to buy real estate in 2025, while only 3% intend to sell. This shows continued confidence in the market despite its challenges.

Dave’s final advice? Stay patient, focus on fundamentals, and take a long-term approach. The real estate market has always been cyclical, and those who adapt to the new era of investing will find opportunities to thrive.

Final Thoughts

The 2025 real estate market presents both challenges and opportunities. With patience, due diligence, and strategic investing, real estate remains one of the best asset classes for long-term wealth building.

Stay informed, watch for key market indicators, and position yourself for success in the coming years.

Want personalized advice? Schedule a consultation with our team.

Transcript

Introduction (00:00.573)

Thomas Castelli, CPA: Hey, thanks for tuning into this week’s episode of the TaxSmart REI podcast. Today we’re joined by Dave Meyer from BiggerPockets to discuss the 2025 market outlook. We’ll be talking about residential, commercial, bonus depreciation, and all the hot topics in real estate investing. Let’s dive right in.

Guest Introduction (00:36.622)

Dave Meyer: Sure, yeah. My name is Dave Meyer. I am the head of real estate investing at BiggerPockets, a community of more than three million real estate investors in the U.S. Our goal is to help ordinary Americans achieve financial freedom through real estate investing. I’ve been an investor for about 15 years and have been with BiggerPockets for about nine years.

Current Market Cycle (01:26.764)

Thomas Castelli, CPA: Before we dive into the future, where do you think we are in the current market cycle?

Dave Meyer: We’re in a very weird, drawn-out market cycle. I think we’re slowly reaching the bottom. Mortgage rates and transaction volume have hit historical lows, but I don’t see it getting much worse. The good news is that things should improve, but slowly.

Market Outlook and Recovery (02:27.862)

Thomas Castelli, CPA: Can we dive deeper into how you think things will play out from here?

Dave Meyer: Sure. During COVID, we saw a massive run-up in home sales prices and volume. Since then, we’ve seen a 50% decline in transaction volume, but prices have stayed resilient. The key issue is affordability. High prices and mortgage rates have reduced both supply and demand. However, people can only delay home sales for so long, so I expect a gradual increase in sales volume.

Projected Growth in Home Sales (04:53.07)

Dave Meyer: I predict around a 5% increase in home sales this year, with a slow but steady recovery in the years to come.

Potential Catalysts for Market Growth (05:14.557)

Ryan Carriere, CPA: Is there anything that could speed up the recovery?

Dave Meyer: Affordability is key. It depends on home prices, interest rates, and real wages. Wages are rising, which helps, but home prices are likely to stay flat. Mortgage rates are the biggest factor. If rates drop to around 6.25%, we might see some acceleration. However, I don’t think we’ll see rates in the 5s anytime soon.

Interest Rate Projections (07:47.956)

Dave Meyer: My forecast for the end of 2025 is around 6.5%. If rates unexpectedly drop into the 5s, that could be a major catalyst for growth.

Strategies for Residential Investors (08:29.87)

Thomas Castelli, CPA: What strategies are investors using to stay ahead in today’s market?

Dave Meyer: We’re entering a new era of residential investing. From 2013-2022, it was the Goldilocks era with strong demand and great rent-to-price ratios. Now, expectations need to shift. Real estate is still a great long-term investment, but the days of quick profits are likely over. Investors should focus on strong markets and long-term gains.

Short-Term vs. Long-Term Rentals (11:01.727)

Ryan Carriere, CPA: Are you referring to long-term rentals specifically?

Dave Meyer: Yes, I focus on long-term rentals. I have one short-term rental, but they require too much management. Short-term and mid-term rentals are becoming more competitive, and deals aren’t as easy as they used to be.

Commercial and Multifamily Market Trends (13:30.638)

Thomas Castelli, CPA: Switching gears to commercial real estate, what’s happening in that space?

Dave Meyer: Commercial real estate is in a downturn, with office spaces down 40-50% in some areas. Multifamily is also struggling, with prices dropping 15-20%. Many operators have deferred their debt restructuring, but we may see more distress sales in 2025.

Indicators of Buying Opportunities in Multifamily (15:44.958)

Ryan Carriere, CPA: What signals should investors look for to identify good buying opportunities?

Dave Meyer: Transaction volume. Right now, there’s a gap between what sellers want and what buyers will pay. Once sellers start to concede, transaction volume will increase, signaling better deals.

The Impact of Bonus Depreciation (18:48.541)

Thomas Castelli, CPA: If 100% bonus depreciation returns, how much impact would it have on the market?

Dave Meyer: I think it’s significant, particularly for professional investors. Bonus depreciation can drive more transactions, especially in short-term rentals, though that market is already overcrowded.

Long-Term Real Estate Outlook (27:01.024)

Thomas Castelli, CPA: What do you see happening over the next five to ten years?

Dave Meyer: I’m optimistic. There are strong demographic trends with millennials in peak home-buying age and Gen Z coming up. The U.S. is still underbuilt by 3-7 million housing units, which will support demand. Rental demand will also stay strong as affordability challenges keep people renting longer.

Migration and Climate Change Considerations (30:21.59)

Ryan Carriere, CPA: How do migration trends and climate change impact real estate investing?

Dave Meyer: The Sun Belt is still attracting people, but climate risks and rising insurance costs could shift trends. I predict long-term migration towards the Midwest due to affordability and climate resilience.

The BiggerPockets Community’s Sentiment (41:49.14)

Ryan Carriere, CPA: What’s the overall sentiment among BiggerPockets investors?

Dave Meyer: We surveyed our community, and 75% of respondents plan to buy real estate in 2025. Only 3% plan to sell. Enthusiasm remains strong among serious investors.

Final Thoughts and Where to Find Dave Meyer (44:16.028)

Thomas Castelli, CPA: Dave, where can our listeners find you, and is there anything you’re working on?

Dave Meyer: You can find me at BiggerPockets, where I host the BiggerPockets podcast. I’m also on Instagram at @TheDataDeli. Check out my State of Real Estate Investing Report at biggerpockets.com/resources.

Thomas Castelli, CPA: Awesome, we’ll drop that in the show notes. Thanks again, Dave, for sharing your insights!

Disclaimer: This podcast summary and transcript were partly generated and may contain some errors or miss key points from the audio recording.