2025 Market Update

If you are looking for financial stability,
then 2025 seems to be a good year to buy real estate.

Where is the market right now?

One of the biggest features of real estate, especially residential, is that its price generally paces with inflation, meaning your net worth is likely to generally keep pace with the changings of the world over the long term. (More on the power of housing as a financial tool in this video.)

Home Price Appreciation YoY vs Inflation

Home prices continue to outpace inflation.

This Year Brings More of The Same

Forecast Averages ~3% appreciation for single-family residence (SFR)

Appreciation across America is projected to hover around 3 percent. However, it is possible Arizona sees more muted appreciation based on what I have been seeing. One reason for this is because Arizona jumped up in price far faster and higher than the rest of the country, so it appears the rest of the country is slowly catching up. However it seems Arizona should likely industrialize heavily over the next few years, bringing a lot of good paying jobs for blue and white collar workers.

There is Not Much Out There

Inventory – National housing inventory remains low.

See the black line? That’s 2024 active listings on realtor.com for single and multifamily listings. America has been in an inventory shortage for many years now and demand, overall, has remained steady, meaning we remain firmly in a sellers market.

Not Much More is Coming

Arizona Single-Family Building Permits

Our homebuilding rate remains relatively flat and unlikely to significantly impact supply, though short-term completions are expected to see a slight uptick.

However, with Trump’s executive order on securing the border, the consutrction sector will inevitably lose more of its workforce. A sector that is well short on labor as it is. The only way to solve this, as I see it, is through decententralized, small scale, and transportable factories for large SFR communities to become the norm along with something similar for midrise multifamily. That’s a complicated way of saying developers essentially set up bubble tents with all the tools and infastructue they need to construct a property in one spot. It is somewhat like making a modular home at a factory, but it moves from plot to plot.

The only other way to create more housing is to speed up the zoning process, simplify it so smaller developers can enter the space, and allow a more efficient change of R-1 zoning plots (single family detached homes) into denser designations like plexes or townhomes. (More on this in the opportunities section)

But I see neither of these major solutions coming online in 2025, meaning construction finishes will slow.

People Have Jobs Other than Building

Low Unemployment – Unemployment Remains at 4.1%

There is not a line out the door looking for a job, especially blue collar jobs. As a general consensus, anything under 5% is one indicator of a strong labor market. If the rate went much lower many argue that is actually unhealthy for the market given the employment rate accounts for churn between jobs. It also creates a healthier pool of candidates for employers to choose from. I personally remember having to hire in 2022-2023 and it was nearly impossible, though we got it done!

That said, the employment rate has been consistently manipulated over time, so I like to also include these graphs below:

Total Employment – Continues its clear and steady trajectory

You can cross-reference this with the working age population to get a rough idea of the “real” employment rate.

Working Age Population 15-64 – Flattening

Now for a basic equation. I take the Total U.S. Jobs (159,536,000) / (209,326,300) Total Working Age Population Total = 76% Employment Rate by the end of 2024.

Then I Compare that to December 2019:

Total Jobs (151,792,000) / (206,270,200) Total Working Age Population = 73.5%

Employment rate conclusion: The unemployment rate is lower than in 2019, which overall was a good year in the markets and shows that the employment rate is better post covid.

(This does not include people within these age brackets that are not capable of being employed, making this a general measuring stick. However, it is likely that when comparing between two different years, that this imperfection would be relatively the same between them.)

Home Buyers Have Good Credit

Home buyers average a 738 FICO score, which according to FICO is a “good” score.

Since the average buyer is only two points away from “Very Good” I am taking that to mean that the average home buyer is stable enough to pay the mortgage.

What Should One Do in the Real Estate Market of 2025?

If you are looking to buy a home for yourself or for an investment, you can afford it, and it makes a decent rate of return (5%-6% cap rate), then I would buy that property with a good management plan in place.

Just be sure to read my opportunities below to potentially push thouse returns a bit higher. Also, be especially aware of the multi-family suggestion. It is possible that buying multi-family incorreclty right now may be the relatively biggest risk at the moment, but it may also be the most lucrative if the stars align.

The Average Rent for Multifamily

Rent in the multifamily space lowered slightly by 1.8% in Arizona.

This has mostly happened in areas where multiple large multifamily projects have completed in roughly the same time period. This makes a lot of sense given the steep increase of supply in a local area. While not overnight, it is likely these properties will fill given the greater housing shortage, but will likely carry lower rents for a couple of years.

The Average Rent for Single Family - 3 bedroom

Phoenix, Arizona $2,014 0.9%
Tucson, Arizona $2,354 -1.2%

Single family is mixed overall and essentially flat across the state. Phoenix is having more negative impacts than Tucson for a couple reasons. The first is Tucson nearly always chugs along with less change as Phoenix. So when Phoenix goes up, Tucson goes up but less so, and vice versa. Second is Phoenix has far more construction being completed, lowering the price. But overall, single family remains a strong rental market. Only real change at the property level is rental leasing periods are increasing as the market slowly equalizes from its housing shortage.

The Biggest Real Estate Investment Opportunities of 2025

Single-Family - Accessory Dwelling Units

Arizona has just approved the additions of “ADU’s” or what is coloqiually named, “The Mother In-Law” House. This is a small, usually modular, home that you plop in the backyard and rent as it’s own self-contained unit.

There is clearly upside potential with this for properties with yards and utility capacity. My guess is most people are not wise to this new approval, yet. Meaning this option is not priced into the market currently. So if you’re open to adding an ADU to a single-family detached home, this may be a great move to get some extra rent! If you are interested in this creative solution and want to know more, then you can reply to this email for more information.

Phoenix & Tucson: They’re Finally Connecting

I have made many pitstops between Phoenix and Tucson and have sold dozens of plots of land out there for years now. It appears that a lot of large and medium-sized builders are soon to break ground around Casa Grande on the east side of the 10. There also seems to be more building just south of Casa Grande. For the more adventurous, this could be a once-in-a-lifetime opportunity as the “Sun Corridor” begins to truly link together.

Multi-Family + Commercial

From what I am seeing right now, many multi-family rentals in dense residential areas are dropping in rental rates. This is the most felt in downtown areas with highrises where many newly constructed highrises are coming online, like downtown Phoenix. This means rents will likely meaningfully drop in the surrounding areas proportionally to how close they are to these centralized new builds.

However, with a net immigration factor of 50.4% per U-haul, it seems likely that these new builds will eventually get absorbed. So if you buy and reposition a property in the interim within one of these zones, you may be able to get a deal and enter into a strong rental market nonetheless.

The Most Likely Seller - Multi-Family

The target opportunity is for owners who purchased at or near the 2022 peak with an adjustable-rate mortgage, are highly leveraged, and failed to effectively reposition or raise rents as needed. If they are close to areas like I mentioned they are likely about to fall if they can’t adapt or refinance.

However – Don’t Low Ball Them!

(This graph isn’t perfect since it applies to single-family homes. I am using it because getting data on commerical deals is spongey at best. That said I find it still applies and echoes what I am seeing. Given there are so many firms buying homes nowadays I believe single family graphs can still shine some light as to the nature of commerical deals, especially multfamily.)

Currently 24% of homes sold are above their list price. So clearly there is a lot of demand and money out there. In order to lock in a deal you need to give a reasonable deal and move quickly before you get beat out or put into a bidding war.

What is the Best Way to Get a Real Estate Deal Done in 2025?

Given the competitive market, if you are looking to acquire an investment property then having a shorter inspection period with a team that can put together an effective reposition and management plan is essential. Given our company handles all of the fundamentals of rental properties including renovation, leasing, management and maintenance, we are well equipped to ensure you actually get that property you are looking for.

Reach out anytime for when you wan to get it done!