Anne Hartnett
Hi, I’m Anne Hartnett, and I’m the co-founder and managing partner of Agent Publishing, and it’s my pleasure to welcome Matthew Gardner for our 2025 Q1 check in. Matthew Gardner is a prominent real estate economist. His housing forecasts are relied upon by Reuters for the U.S. Housing Market Forecast, and by Fannie Mae for their Home Price Expectations survey. He also sits on the Washington State Governor’s Council of Economic Advisors, and is an advisory board member of the Runstad Department of Real Estate Studies at the University of Washington.

Thanks for joining me today, Matthew.

Matthew Gardner
You always welcome, Anne. How are you?

Hartnett
I’m well.

Gardner
Glad to hear it.

Hartnett
I’m going to jump right in. NAR recently stated that 2023 and 2024 were the were the two most difficult years for home sales in decades. Do you expect 2025 to bring any meaningful relief, or are we in for another tough year?

Gardner
Well, that’s a great question to start with, and you’re absolutely right — 2024 was ugly. We had a bit less than 4.1 million transactions in the resale market. So for perspective, that’s the lowest number since, what, 1994? And actually it was fewer that year than we saw following the bursting of the housing bubble. So it’s been a — suddenly a rough couple of years for real estate agents.

However, the glass half full part of me suggests that these sales are happening, right? We’ve seen about half a million closings in the first two months of the year. So that’s not great, but it’s better than nothing. However, it’s all about inventory levels. And the good thing is that — inventory’s actually in February, when we start to see the inklings of Spring Market, what, 1.24 million units on the market in February. That’s unadjusted for seasonality. I run it through my own seasonal adjustment model. So in reality it’s about 1.3 million units. So that’s good. And sales will follow listings. So with more inventory, I do expect sales to rise. In my forecast, it’s almost funny to see sales up by nationally, in the resale market, just shy of 6%.

Now, my friends over at National Association of Realtors, they actually say 6%. So from my perspective, that’s probably going to be about 240,000 more sales than we saw last year. That’s good. Pricing, again, very impressive last year given where mortgage rates were. And I know we’ll talk about that a bit later on. Prices were flat, or growth was flat, in 2023, up by 4.7%, I believe, in 2024. And I think prices will rise again this year. A bit more modest, probably just shy of 4%. My call is for about 3.8. So the bottom line here, Anne, is I think that, as far as agents go, it will be a better year this year than they’ve seen in the last couple. So, glass half full.

Hartnett
Policies around tariffs, immigration and other economic levers under the current administration are being framed as protective of U.S. industries. But from a housing perspective, it feels policies actually may be doing more harm than good.

Gardner
Yeah Anne, you’re absolutely right. There are a couple of things we need to look at here, one of which is — well, so what tariffs? I mean, tariffs are certainly a big issue. And the trouble is that statements made by the president, well, they appear to have a half life of about 30 seconds. So he can say something and then an hour later, he’s saying something different. And that leads to uncertainty. Now, here’s the problem. Uncertainty. What do we do when we as individuals, or companies, when we’re not sure? We do Nothing. We freeze in place. And that’s not a good thing for the U.S. economy. So that’s one part of tariffs. But, the bigger part, in my opinion, is tariffs are inflationary. And if we start to see inflation going up, well, that’s going to impact the decision-making by the Federal Reserve.

And, specifically to our world in real estate, well, the impacts on the housing sector really can’t be ignored. It’s very, very big. Now, builders estimated recently that just tariffs, which we believe are going to happen come April 2nd, that’s going to add an average of $9,200 to the price of a new home. Now, put it this way: We imported about a bit more than $11 billion worth of materials in the residential construction industry last year. That’s about 32% of what it takes to build a home. Here’s the kicker: 23% of that came out of China, about 13.5% from Mexico and about a bit shy of 9% from Canada — these are the countries we’re clearly focusing on tariffing.

So with 100 million households today in America priced out of homeownership, for every thousand dollars the price of a new home goes up, well, that prices out about 115,000 people. So it is a big concern, and I think what we will end up seeing is that point of uncertainty. And here’s the trouble with uncertainty, as I mentioned earlier. It means we freeze in place. And so when you’re thinking about making likely one of the biggest decisions we make in our lives —buying a home — that’s not gonna be a good thing. So I’m hopeful, that we’ll get some clarity during the course of the spring that’s going to make it hopefully a little bit easier on people, and on companies, to start making these remarkably important decisions.

Hartnett
We’ve seen some major moves recently, Compass acquiring @properties Christie’s, Rocket Purchasing Redfin and more rumors are swirling. Do you anticipate more brokerage consolidation ahead, and what does that mean for brokers?

Gardner
Well, I would say yes, we will. Why? Well, consolidation’s not a new thing. It’s been going on for years, if not decades. But there are a couple of reasons we need to think about it a bit differently.

First, consolidation as a strategy that companies are thinking to consolidate their financial strength, take advantage of market opportunities through mergers and acquisitions — to grow. Now, that’s been done before. We certainly saw it for a number of years with Compass. There’s another reason, as well, and that’a the potential for an economic slowdown. Now some — not all, and certainly not me — economists are predicting an economic slowdown, a possibility of a recession. So I think that we could see some brokerages look to consolidate, to become more efficient. But the big thing, I think the number one thing, is actually revenue, and revenue concerns.

So bear with me on this. Look at the math very briefly. There’s about 1.6 million real estate agents in the country. About 125,000 brokerages. Do the math. About 13 agents per firm. So, again, not big, but if you take out the biggest 500, brokerage or companies, they’ve got about 600,000 brokers. That’s about eight agents per brokerage. There’s a big disparity. The balance sheet is remarkably small. Lots of small shops, now possible acquisition targets. But here’s the thing: In 2023 — dodgy numbers on 2024 I’m afraid, from NAR — there are about 1.55 million brokers. So 4.1 million transactions. That’s 2.6 sales per agent or 5.2 sides. Of course, there’s two sides for every transaction. The latest data, which I could find that dated back in October, 12 months leading up to that — about the same, about 2.6 or again, 5.2. So market share has been declining per broker or per agent, because there’s more of them out there. The market actually peaked in 1999 at about seven transactions per agent. So we’ve never seen the twos, quite frankly, ever.

So more agents, fewer transactions with where the market is today. That means lower revenue for brokerages. So throw in, the issues with higher mortgage rates, lower inventory levels. That means it’ll be interesting to see how this plays out. So I do see some businesses or some entities saying, you know, consolidation, merging, does make sense. So, do I expect we’ll see more of it? Yeah. As to who? I’m not going to guess on that one. But the bottom line is that we’re going to start seeing some companies try and take advantage of the market by acquisitions, but also you’re going to have people thinking more about the influence of AI, of technology and automation on the real estate industry. And that’s going to be significant.

Hartnett
NAR’s projecting two rate cuts in 2025. What’s your take on the direction of mortgage rates, and how much of a difference will it actually make for buyers and sellers?

Gardner
Well, let’s just start out with the fact that the Fed do not set mortgage rates. Mortgage rates are based on the yield on ten-year treasuries. And yet the FED controls one rate, the overnight lending rate between banks, called the Fed Funds rate. So two — yeah, actually I’ve been saying two for a number of months now — but here’s the thing. I expect to see them probably not until sometime in the summer, maybe even in the fall. Why is that? Well they’re watching what’s going on via the administration as well, and they’re certainly thinking about tariffs and the inflationary impact of them. So if you saw inflation going up, then obviously they need to address it. But they’re going to be patient. They’re going to be very data driven. And that certainly is going to be appreciated, I think. But the biggest thing when it comes to mortgage rates is that I do expect them to come down a bit. I expect we’ll probably get into a bit below 6.5% by the fourth quarter of this year. So based on where we are, not where we want, but this is mainly going to be because of the administration and deficit spending, the tax cuts and spending more money then they bring in, that influences Treasury yields, that influences, directly, mortgage rates. So it’s going to get a bit better as you move through the year. But I’m afraid, anyone that’s thinking about the sub-threes or fours or quite frankly, even 5% mortgage rates this year — not going to happen. We could hit the high fives next year, but certainly not in 2025.

Hartnett
All right. It’s time to talk about the R-word. Do you see signs of a looming recession, or is the market more resilient than the headlines suggest?

Gardner
Well, there’s lots of talk about the R-word, which I love by the way. There’s also talk — but that’s kind of it. Think about it this way: Are we not feeling happy? Well, we talked a bit about that earlier on and, no, we’re not. So therefore sure, consumer confidence, that’s down 15% since the inauguration. Consumer sentiment? That’s down 22% since the inauguration. But there’s a bit of a disconnect between what people are feeling and what they’re actually doing. So we don’t feel good — gain sentiment, confidence down — but we’re still going shopping! Not just for food — don’t blame eggs — but retail sales were actually up two-tenths of 1% last month. Now, that did follow about a 1.2% drop in January, and that’s really what drove most of the recession calls.

But for me, I want to see three negative months — consecutive, negative months — of retail spending — we’re seeing it drop each month for three months — before I can start saying or even thinking that we might see a recession. Not seeing it yet in the numbers, but as I said there is a disconnect between what we think and what we do. But here’s the kicker: We have a happy knack of talking ourselves into a recession. I think, quite frankly, one should never happen. So if we don’t get too pessimistic, because it actually could become a self-fulfilling prophecy.

But the last thing I think we all should remember is that what happens to housing prices during recessionary periods? Well, other than, the 2008, because housing caused the recession. Here’s what happens. Home prices are either stable or they go up. So, overly pessimistic views on recession and its impact on housing? Now, I wouldn’t go there. So, I think we just need to be a little bit more thoughtful before we start throwing out the R-word and actually start starting to believe what we say.

Hartnett
Lastly, is there a market trend or economic factor that you think is being overlooked right now that could have major implications this year?

Gardner
I would say, and I think that we’ve talked about this before, and that is the fact that both at the federal, state and indeed local level, I’ve heard politicians talking more about housing and how to fix housing than I’ve heard in the 25-plus years that I’ve been analyzing real estate in the United States. So they’re talking about it, that’s great. However, as we all know, political wheels spin remarkably slowly. So, I do expect we could see some more interest in, by governments, in trying to look at changing the zoning, in order to try and encourage more development of housing, which would be a good thing. However, at the same time, tariffs are not a good thing.

But I think that the thing we’re probably — we haven’t thought about too much but could come to light this year — is that urban markets got nailed through Covid, massive contraction prices. I expect to see them make a bit of a renaissance this year. We all know they were sorely beaten up through that about a couple-of-year period, but returned to work. We’re starting to see of that now. That is something which I think you could probably get in in a lot of markets and look at the urban, especially condos, as being oversold. I’m not saying you can make a bunch of money in one year, but hold on to it long enough I think that’s going to come back. But I would also say watch the exurban and close-in suburban markets. I think those are markets which have done pretty well, in terms of recovery. They’re going to likely continue to outperform, the overall market. And that’s going to be applicable across the country.

Hartnett
Well, thank you so much, Matthew, for your Q1 insights. I look forward to chatting with you rehashing Q2.

Gardner
I look forward to it. Thanks for having me on again, Anne. Always a lot of fun.

Hartnett
Thanks, Matthew.