As we enter 2025, the residential real estate market continues to evolve, shaped by economic shifts, regulatory changes, and demographic trends. Home prices remain high, rental demand is steady, and new construction is on the rise. However, challenges like ongoing inventory shortages and political uncertainty, present both risks and opportunities for investors.
In this article, we’ll analyze the state of the residential real estate market as of early 2025 and explore the pros and cons of this year’s market for real estate investors. Then we’ll show you how to capitalize on this year’s housing market conditions for strong return potential.
Overview of the Residential Real Estate Market in 2025
Here is a snapshot of the American housing market as we enter 2025.
Sustainable value growth. Following the pandemic-era inflation that correlated with fast-growing home values, we have settled into a much more sustainable rate of growth. As we explained in our article about real estate market bubbles, the growth of that era was driven by a legitimate imbalance in demand and supply, so there was no implosion following the gains. However, it’s in everyone’s best interest to keep growth sustainable, which is what we’re seeing now. Since December 2022, the median home price has grown by 3.9% per year on average. Not bad given the interest rate increases during that period. Which brings us to the next benefit…
Stable interest rates. Many would-be buyers put home purchase decisions on hold, waiting for interest rates to “come back down.” Now that we have established rates in the 5.5-7% range as the new normal, it’s easier to make long-term investment decisions. Plus, these stabilizing rates incentivize buyers to get off the sidelines and back in the game.
Increasing supply. Builders have been ramping up new construction, to meet growing demand. In November 2024, the inventory of new homes jumped to 494,000 units, the highest level since December 2007. This means more properties available for investors to purchase.
Changing regulatory requirements and zoning. While individual states and counties revise zoning laws and streamline permit requirements to facilitate more building, the current presidential administration has also promised to reduce regulatory burdens faced by homebuilders. This could make it easier to add more inventory to the housing market in 2025, creating more opportunities for developers and investors.
Potential Downsides of Investing in the 2025 Housing Market
Naturally, there are a few potential disadvantages to be aware of before investing in residential real estate. Here are some possible risks of investing in the 2025 housing market, as well as ways to mitigate them.
High prices and upfront expenses. Higher home prices and closing costs create a steep barrier to entry, particularly in high-value markets like Los Angeles. This problem is exacerbated by the recent NAR settlement that requires buyers to shoulder the financial burden of paying their real estate agent directly (as opposed to the long-standing system of having sellers pay real estate commissions). This single expense can potentially add 2-3% of the purchase price to the buyer’s upfront expenses. One way investors are overcoming this challenge is with real estate crowdfunding, in which multiple investors share the expense of purchasing a property.
Ongoing inventory concerns. Despite the much-needed increase in new construction, the US is still around 4.5 million units short of meeting demand. This perpetual low inventory can make it hard for investors to find suitable properties. Building strong industry connections can give you access to off-market deals before they hit the market. Prioritize networking with local real estate agents, asset managers, and real estate investment companies.
Political uncertainty. With the current administration planning to deport undocumented immigrants and place tariffs on incoming goods, the availability of labor and materials for new construction could quickly decline. This could lead to increased costs and construction delays, despite the easing regulations for builders. Developers and investors can look to diversify their labor sources and lock in long-term supply contracts to help mitigate this risk.
Strategies for Capitalizing on the 2025 Housing Market
Looking for smart investment strategies in 2025? Here are the top three real estate investments for this year:
1. Attainable Housing
Attainable housing is any dwelling that is affordable enough to be purchased by households earning between 70% and 100% of the local median household income. Demand for attainable housing is consistently high while supply is consistently low, leaving a market gap for investors to leverage.
One interesting way to invest in attainable housing is with value-add TICs (Tenants in Common). TIC is a form of ownership in which multiple households share undivided ownership in a building. Unlike condos, which grant divided ownership rights for each household to own its individual unit, TICs grant undivided ownership rights, in which all owners share ownership over the whole property, but agree to limit access to their own units and common areas.
Investors can purchase an existing multi-family property, renovate it, and sell it to a group of TIC buyers for more than it could command as a rental property.
2. Multi-Family Development
In areas with high renter demand, multi-family developments are expected to perform well in 2025. Smaller multi-family buildings, perhaps 6-10 units, are faster and easier to permit and build, allowing investors to get in and out of the deal more quickly. Plus, these smaller buildings are in higher demand by investor-buyers since they are more affordable than large apartment complexes.
You could even build-to-rent (BTR), which allows you to maintain possession of the property after construction and lease units to renters for long-term passive income.
3. Real Estate Syndication
If you don’t have the time, experience, or funds to manage an attainable housing project or multi-family development yourself, consider investing in real estate syndication. Syndication pools funds from multiple investors to finance a specific real estate project (including the TICs and multi-family developments just discussed). The syndication project is professionally managed by a real estate sponsor who secures the property, handles the financing, oversees construction, and disburses proceeds to investors.
Invest in Residential Real Estate in 2025 Gatsby Investment
Gatsby Investment is a CA-based real estate syndication company that prioritizes high return potential. Since 2017, our average annualized net return to investors has been 22%. And, because we handle every detail for you, your returns are completely passive.
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