Is the current home-buying Spring Market different than other years?
Let’s talk about the 2025 spring markets true budget bully:
Housing Expenses
(especially as it relates to Gen Z**).
Housing expense is one of two categories. Case one, rent ….. or case two a mortgage payment on a new home.
No one will dispute that both are totally off the hook.
You’d be astute if you realized the two prices have a relationship. One affects the other. For a consumer, either of these monthly payments provides a housing solution. And folks in real estate sales (myself included) shan’t forget there are choices available on which of these channels a consumer elects to pursue.
In short, I personally know dozens of past clients who would sell their house tomorrow if rental prices dropped to an attractive level. Eagerly and without blinking. Equity would get rolled into a passive investment account. After that, terms like gutter cleaning or condo fee would become analogous to semester finals and spring break to a graduate of college. It would be a sigh of relief from exasperation.
“A potential housing price reset may very well come from private equity companies building too many apartments.”
A potential housing price reset may very well come from private equity companies building too many apartments.
They’re getting closer by the day. Here’s how that potentially may play out in the spring market.
When you see a construction crane in the sky in 2025, it’s not to construct a commercial office building (with 37% office vacancy in Boston, the crane would be more apt to have a wrecking ball attached to it).
I’ll guarantee it’s for residential construction: apartments, condos, senior or assisted living. For instance if it is not, then it’s a 1 in 100 one-off/single-use manufacturing building for a company whose humus or pita chips were just awarded shelf space at Whole Foods. Furthermore if you think the crane is building biotech space, the news source you’re reading has a 2022 date on it.
There are many awesome landlords. They are conscientious and courteous. Earlier in their life they were tenants themselves, so they know what it feels like to be a tenant. These landlords respect the relationship with their tenants and understand the sacrifice a tenant makes by forking over half of their take-home pay to them. Even when the sink is full of dishes because the dishwasher is broken, and the new one is on backorder by the landlord.
But alternatively, to landlords, there are Private Equity (PE) Funds that build (and own) the largest share of apartments in our Commonwealth.
Most tenants don’t have a landlord. What they really have is a recent college graduate property manager who works for the PE fund.
Let’s raw-talk PE that’s entered the housing market.
You’re more likely aware of the PE syndrome of PE buying single-family homes by the hundreds of thousands. This drives UP the housing prices.
How?
It displaces the available inventory of homes for purchase by our future home buyers, reducing supply and increasing demand. More money chasing fewer goods.
PE is also buying up large Apartment Communities.
They don’t care about the tenant (the renter is the “R” in R.O.I (return on investment)). Read our full opinion paper here.
The way PE makes money is by increasing profits on the fund. The dirty little secret that a consumer doesn’t know, is that Apartment Communities are sold based on their Capitalization Rate (cap rate).
Increase an apartment community’s Cap Rate and the PE fund just increased their sales prices.
Good flip. Happy fund.
Cap Rate increases come in only two ways:
- Torque up the Monthly Rent just shy of the breaking point (see lawsuit on illegal pricing fixing by PE). or,
- Cut expenses. Terminate property management staff (and build an app to handle complaints). Close the pool (cut lifeguard salary) and stop funding upgrades when equipment wears out in the gym. Move the landscaper to a fortnight lawn cut rotation. Or just pave the grass.
I’ll say the silent part out loud now, PE is driving housing inflation.
For a while, it was reckless Quantitative Easing (QE), but not anymore.
It’s a delicate seesaw that can be controlled with finger pressure only. Maximize fund performance without saturating the market.
So what comes next? Watch the spring market for apartment exodus. Either:
Tenants voluntarily retreat to cheaper (more reasonable) housing with a good landlord.
Or, involuntarily because Elon Musk’s three musketeers are sniffing at your employers’ books.
This will all unfold quicker than you would expect it to. Especially in Massachusetts, where government contractors are plentiful. For a Massachusetts example, Google: “John Snow INC. Layoffs.”
Source: https://evictionlab.org/
The Spring Market may have more spring in it than just the name of the season after winter.
Are you still renting?
Your time has come. Lucky you for reading to the end. Access our Tenants’ Lounge to unlock your Home Ownership Score© for free!
*
Eggs may be an economic indicator, but when a US health organization ordered the slaughtering of 100 million chickens to stem off bird flu, yeah, you’re going to have an egg shortage and prices will spike.
**
Gen Z is our exit strategy. Think I’m funny? The shares of NVIDIA, you someday sell for your retirement RMD, will need to be purchased by someone from Generation Z. That four-bedroom colonial you raised your kids in? Someone born in 2005 is going to be critiquing your choices on appliances and bathroom tile colors. Without Gen Z buyers, then you’ll have a longer wait to sell and the bottom shoppers will low-ball your asking price. And they may not want your highly used Tesla. Now I’m being funny (trying).