SHOCKING TRUTH About the 2025 Housing Market [They’re Lying to You]

Can Trump actually make housing more affordable? In today's video, we're diving into two of Trump's core housing promises and exploring whether economists think his plans are realistic. Then I'll share some data that nobody else is talking about that might just prove them all wrong. Something doesn't sit right. Historic period of inflation followed by a presidential election. The story that we are hearing on the news doesn't match the graphs that I'm seeing. And knowing what that is can help us understand what's going to happen next. Two days ago, the National Association of Realtors released their predictions We're going to look at three areas Trump has said he'll make changes in his attempts to lower housing prices. I'll share all three of them and then I'll share NAR's commentary on why they do or don't think it'll go as he intends. And then I'll share a few thoughts of my own about things that seem to be omitted from the conversation by both those who agree with Trump and those who don't. The first thing he said he's going to do is cut regulations. We will eliminate regulations that drive up housing costs with the goal of cutting the cost of a new home in half. We think we can do that. The regulations alone cost 30 percent. Regulation costs 30 percent. NAR responded to this saying those figures appear to be dramatically overblown. The National Association of Home Builders, a longstanding industry critic of regulations, estimates that site work and related permit fees account for 7.4 percent of the average new home cost with overhead and general expenses accounting for an additional 5.1 percent. So NAR is saying that the regulatory costs of building a home are only 12.5 percent, not 30 percent. This got me curious because I had recently read a report from the National Association of Home Builders that said the regulatory costs make up 24 percent of the sale price of the home. So I did a little digging to figure out which, if any, numbers are correct. In the NAR article, there's a link to the report so I was able to see the line items they were actually referring to. And I really appreciate when people link their sources. The line items they were referencing were building permit fees, impact fees, and water and sewer fees. What the report did not include was land development regulations. These are costs related to zoning, land use approvals, and environmental regulations. They usually come into play earlier in the process before home construction starts. The report NAR was referencing was only looking at the cost within an individual house build, not for developing the whole community. It also didn't include building codes compliance, which are expenses for adhering to evolving building codes and standards. This might include requirements to use more energy efficient materials or fire rated materials in a build, adding to the cost of a home. The report also didn't include delays and holding costs. These are financial impacts resulting from prolonged approval processes and compliance requirements. If the builder or developer is paying interest on a loan while the community is in development, the delays while waiting for approvals are going to cost them an additional interest payment. Those amounts can be substantial, especially in higher interest rate environments. I was talking to a friend just yesterday who had a client who was supposed to close on their new construction home in June and didn't end up closing until December specifically because of permitting delays. That's a lot of interest expenses for something that isn't even built yet. So it appears that a number closer to 24% is more likely realistic than the 12% stated by NAR. But where did Trump get 30%? I kept digging and I found that the National Multifamily Housing Council has said that government regulations make up 40% of a multifamily build. I don't know for sure, but I would guess that the 30% number is an estimate of the combination of single family and multifamily regulation costs. And if you think I'm playing softball with Trump, just hang on a minute. I'll get to some crazy things he has said. But in this case, I think his numbers were reasonable. The real question is, will Trump be able to limit these costs? Maybe. But it's important to keep in mind that many of these regulations are at the state and city levels. And part of Trump's campaign was that the federal government is going to stay out of local government decisions. Also, even if he could cut regulatory costs in half, so just for argument's sake, he makes them 15% of the total build instead of 30%, that isn't going to get us to housing costs lowered by 50%, like he said. He has some other goals as well. The next one is to lower the Fed interest rate. As inflation is tamed, interest rates will dramatically fall. They'll be down very, very low. We'll get them down. We had them down to 2.4% and even lower than that for a period of time. Reducing mortgage rates is a big factor. We're going to get them back down to, we think, 3%, maybe even lower than that, saving the average homebuyer thousands of dollars per year. LendingTree's senior economist, Jacob Chanel, says the president doesn't set mortgage rates. Trump probably wouldn't be able to arbitrarily decide to lower them, even if he wanted to. That is true, but he could eventually nominate a new Federal Reserve chairman, but even that wouldn't guarantee anything. But there's more to it. Rates set by the Fed are influenced by the greater economy. High rates happen when there's inflation, and the Fed raises rates to slow down the spiraling of prices. And that's exactly what's happened with today's higher rates. If Trump can have an impact on the economy, then we might see rates come down. However, Daryl Fairweather, the chief economist at Redfin, believes that economic work has already been done. She told MarketWatch mortgage rates will likely be lower next year, not because of the president, but because inflation is pretty much under control now. This is where it gets interesting, because there are a couple of things that concern me about what all of these people are saying are going to happen with rates. Let me show you something. I want you to look at these graphs the way I'm looking at them. Now, I'm not an economist, but when I'm looking at the data, something doesn't sit right with me. The story that we are hearing on the news doesn't match the graph that I'm seeing on my screen. I want you to tell me if you're seeing the same thing I am. Let me show you. This is the consumer price index from about 1970 on. You can see how it has a fairly steady, gradual slope of increasing prices from 1974 to 2020. There are two significant bumps in the 1980s and again over the last four years. Now, both of these times involve a historic period of inflation, followed by a presidential election. Now, I don't think we can make a straight connection between what happened in the 1980s and today. Just because there was inflation and then a presidential election, that doesn't mean the scenario was exactly the same. The 1970s and 80s were so incredibly different from today. I just want to focus on the relationship between rising prices and interest rates because there's something to learn here that does apply to the 2025 real estate market. Follow me for a minute while I walk you through this. In 1979, prices of goods and services started to rise and they continued to rise until about February of 1983 and it's 1984. Then they started to stabilize and return to the same trajectory that they were on before. Remember that date because I'm going to circle back to it in just a minute. In 1978, you can see that mortgage rates started to rise. This was before we can actually see the prices rise on the graph. Rates then reached a peak of 16% in April, 1980. Reagan took office in January of 1981. Rates jumped again, peaking to around 18% in October of 1981 before finally coming down to the baseline in his third year of presidency. This is a great example of how economies are not quick things to move. Now, let's look at 2020. You can see the drop in consumer prices right after COVID hits. It was a massive price decline or deflation in like a week. And then what we think of as the COVID inflationary period started to kind of trickle out. They told us at the time it was transitory inflation, meaning it's related to a specific event and it'll go away quickly, but that wasn't what happened. Now, I want you to look a little closer at this graph. Look where the COVID deflation happens and now look at the angle of the line for the first year after COVID hits. This is 2020. Does it look to you like the line is about the same angle as the previous years up until February, 2021? You can see this if you hold a straight edge up to the screen like this. After the drop in 2020, the line is roughly the same angle until February of 2021. There's a slight increase in the angle, but it's really February of 2021 that inflation starts to take off and it keeps on with that upward trajectory at that new steeper angle pretty much until today. And I have a theory for why this happened. Also, there's a little blip at the end of the graph where it starts to flatten a bit again. I think this is significant and we'll talk about it in a minute as well. But first, let's look at the mortgage numbers during this second inflationary period. There's this idea that inflation came from COVID, but if we look closely at this graph, I think it came from something else. And knowing what that is can help us understand what's going to happen next. Mortgage rates after 2020 did the exact opposite of what happened in 1980. Instead of rates jumping, they dropped. They were about 3.5% in February of 2020. By September of 2020, they were into the 2% range and they stayed in that 2% range until January of 2022. Personally, I think this was a huge mistake of the Federal Reserve. And I don't think either president was responsible for the rate drop. I think the Federal Reserve was trying to stimulate the economy because their fears of deflation were higher than their fears of inflation. If you look closely at the graph during the calendar year of 2020, there was no inflation. In fact, prices were lower than they were the year before. They were concerned that because of COVID, nobody would be buying anything because everyone was on lockdown. So they stimulated the economy with these rate drops to make businesses take risks. Businesses started producing goods at great prices because rates were so low and Americans started shopping at historic levels. Look at how many new TVs were bought during COVID. The Federal Reserve literally caused the mess we're in right now. If they had done nothing, maybe the economy would have tanked rather than getting so overheated that it caused the mess we have today. If they had dropped rates for three months and then brought them up, maybe it would have been better. Nobody really knows what would have happened if they had made different decisions, but I feel like we've forgotten the real story and it's coloring what people say needs to happen next. What do you think? Tell me in the comments. At any rate, I truly think intentions were good here, but the results were that housing prices got out of control. The other thing I know is that I would hate to be that person who has to make these decisions. They're not easy decisions to make, but there's more to the story. Once the low rates got the inflation ball running, two things kept it spiraling. The National Bureau of Economic Research did a study in 2023 and found that the main contributors to the headline inflation shocks were energy prices and a backlog of work. By backlog of work, they mean that there were too many job openings and we didn't have enough people to fill them. But I think point number two, the backlog of work, again, cycles back to the Federal Reserve's low interest rates. When rates are low, businesses hire new employees and expand on their products and services. This is what caused the backlog of work. So we're really looking at two key points. One is the Fed setting the rates too low, and two is energy prices being too high. First, let's talk about the rates and Trump's plans for them. 2% is way too low for mortgage rates. It is my hope that Trump is not talking about mortgage rates, but about the federal funds rate. The Federal Reserve sets the federal funds rate. Again, this is not controlled by the president. The federal funds rate is the base rate that mortgage lenders use to set the mortgage rate. Mortgage rates are usually a couple of points or so higher than the federal funds rate. If Trump is saying that consumers will pay 2%, that just isn't realistic because it'll again lead to the kind of inflation that we saw post-COVID. If he's saying that the federal funds rate will be at 2% and mortgage rates will be 4% to 5%, that seems to me to be more realistic benchmark to shoot for. Whether he can accomplish this, I think will depend a lot on the next point, energy. I'm going to tell you another short history lesson, and then I'll tell you how this all ties back to housing. In 1973, countries in the Middle East imposed an oil embargo. They stopped selling oil to the U.S. because we were backing Israel during a war. This caused long gas lines and prices of all goods and services tied to shipping started to spike. In response to that, the U.S. created the Strategic Petroleum Reserve. Initially, we purchased oil for the SPR stores from international sources, but eventually we started producing our own. The U.S. has some of the most plentiful oil reserves in the world. Incidentally, countries like Saudi Arabia, Qatar, and even Norway use their oil reserves as a way to fund government programs for their citizens rather than relying solely on taxes. By the 1980s, we had built up to a level of 500 million barrels. Reserve levels have gone up and down over the years as we fought different wars and released oil to provide the stability when the world gets unstable. This is what it's designed to do, but you have to keep restocking the reserve. By 2010, we had 726 million barrels, and today we have 387 million. This is because we dipped into our reserves to stabilize gas prices and because the war in Ukraine exacerbated global supply of oil. Again, we're supposed to do this, but you also have to restock it. The last time it was this low was in 1984, when we first started growing our reserves. Notice this was also when inflation numbers finally started to decrease. When COVID hit in February of 2020, we had 634 million barrels in reserve. We are not currently restocking our supply to effectively prevent these fluctuations in energy costs. There is a direct connection between the level of these oil stores and prices of goods and services in the United States. Because when levels are high, we're protected from potential supply disruptions, especially during times of conflict in the Middle East, where a lot of oil comes from. This is why the National Bureau of Economic Research said that energy prices were primarily responsible for inflation over the last few years. But what does that have to do with mortgage rates? A lot. If we can stabilize oil prices by filling our oil reserves, prices for goods will stabilize. And if prices for goods stabilize, interest rates can come down. And if interest rates can come down, mortgage rates will come down. And if mortgage rates come down, housing will be more affordable. But we still need to talk about the blip at the end of the inflation graph. We've been told that the inflation numbers are no longer rising. And that is true. You can see that the angle of the line turns back almost, but not quite to the more level angle that it was pre-COVID. Here's a chart of monthly annual inflation rates for the last 10 years. Yes, the rate at which prices are going up is declining. But that doesn't mean that prices are declining. Nor does it mean that wages are going up. The problem is prices are still high. They haven't come down and wages haven't kept up. And since rates have been so high, while we're not in a recession, the economy is stagnating and there isn't a lot of competition for jobs. When borrowing rates are high, companies don't take on new employees to expand into new products and services. And so there isn't an economic push for wages to rise. So again, while there isn't technically a recession, that doesn't mean that people aren't feeling the crunch of high prices and a less robust economy. In order to fix this, we have to fix the major things that play on each other for a strong economy. We need strong oil reserves. We need lower interest rates, but not too low. And we need one more thing that nobody is really talking about. Is Trump going to be able to fix these things? Regardless of what he does or doesn't do, we still have some problems that won't be an easy fix. Let's give him the benefit of the doubt. Let's say that interest rates come down, that builder's permitting and compliance costs come down, and then inflation levels out. We still don't have a good skilled labor force for construction to build more homes. One of the drivers of higher home prices is simple supply and demand. Everyone agrees that the U.S. market is short on housing. Part of the reducing of housing costs is increasing the supply, and that takes skilled laborers. We don't have enough of them. And simply trying to entice laborers from outside the U.S. won't necessarily fix that problem. The Labor Occupational Health Program at UC Berkeley published a study on immigrant workers in U.S. construction. According to the study, many immigrants arrive in the U.S. with limited construction experience and knowledge of U.S. safety practices. This is partly attributed to cultural differences and varying safety standards in their home countries. Many immigrants also enter the workforce as unskilled or semi-skilled laborers concentrated in low-wage trade. This suggests a lack of specialized training in specific construction skills. Regardless of what happens with immigration policy, the U.S. needs a strong trades educational program in order to build the housing supply we need. This won't be quick or easy to implement, and I don't see politicians talking about this problem at all. I want to hear your thoughts about this, because this should be the start of a conversation. And if you like this video, YouTube thinks you'll like this one next.