5. The real estate market will not come roaring back (yet)
In almost every significant market shift, it takes about 3-5 years for the trend line to reverse noticeably. 2025 will be the 3rd, in some areas 4th year of an adjusted market. For that reason and because I see nothing on the horizon to meaningfully and consistently lower interest rates and no real movement to change local zoning laws (to increase supply), 2025 will not feel much different than 2024. I expect home sales will be above 2024 levels, but it will be modest. Prices will continue to decline in already challenged markets, mostly in the southern part of the US, and prices elsewhere will rise but very slowly. 2026 may be the breakout year in real estate, but it's not likely 2025.
4. We'll see big broker consolidation
Brokers are under enormous pressure. The margins have been shrinking for years. Some brokerages also carry a lot of unsustainable debt. That, plus the reality of legal settlements, the loss of revenue from other joint ventures, and no end in sight, will cause big moves in 2025. We will see an eye-popping merger happen at the big brokerage level in 2025. I have no insider information on this; it's just my gut.
3. A new model will emerge
Cap model. Split model. Profit Share. Revenue Share. Joint ventures. You name it; the brokerage industry has tried it. But if you look carefully, there hasn't been any real innovation in the real estate business model for quite some time. Most models that appear new are just different shades of the same color.
I predict 2025 will show us a new model to win at scale, and my hunch is it will be a media-based business model. Some agents are today essentially running media companies disguised as real estate sales organizations, and some are already trying to figure out how to leverage the star power of the principal in the firm into a larger media strategy. This isn't easy because often, what makes the principal successful with media, which is a unique personality or perspective, is not easily scalable. Someone, though, will figure this out and codify a model for high-impact media as a direct value proposition in real estate sales at scale.
2. Insurance rates will be the driver of affordability
From fires in California to hurricane impacts in the mountains of North Carolina to the too-many-to-count disasters along our coastlines, the writing is on the wall that we are facing an insurance crisis. I predict the insurance rate increases we have seen in the last 24 months will look minor compared to what we are facing in 2025. Insurance will become the #1 driver of affordability in this country and will force difficult decisions for homeowners and homebuyers. This will have far-reaching impacts and, in some of the most high-risk regions, will put real estate values in great jeopardy. If the cost of insurance is 10X what it was a few years ago, the value of that real estate will not hold. An equilibrium will need to be re-established, and it will be a difficult problem we will wrestle with for years. 2025, though, is the year this really comes to a head.
1. The real estate agent will continue to win the day
If you think about it, 2024 was a great year to be a productive real estate agent. Why? Many agent businesses dropped below the level of actually being in the business, so there is less real competition. While many seem to hold licenses still, they are, for all intents and purposes, out of the business, and they are not coming back.
The brokerages and NAR took almost all the pain from the legal challenges. Few agents had to pay anything to settle billions of dollars of claims. And did the brokerage change your split as a result? In most cases, nope. You still have the same deal!
And the market is tough for home sellers and home buyers alike, and when that happens, who becomes more in demand? The real estate agent! Despite the now 30-year threat that market conditions or technology would somehow eliminate the real estate agent, you're still standing, looking better than ever. Congratulations. I predict 2025 will do more to boost your reputation and business as more and more people see and remember you're irreplaceable at critical moments in people's lives. (Just make sure as we enter this period of growth that you continue to build team and systems around you so you can thrive and leverage this year for all it's worth! If you need support on the tax or bookkeeping front, Alchemy is in your corner ready to assist.)
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