Dave Ramsey Explains The Housing Market In 2025

Brought to you by the EveryDollar app. Start budgeting for free today. Hey Dave, can I ask you a quick real estate question real quick? You can. All right, so this might be bad math in my head. So let's say we're in Nashville, Tennessee, where the real estate has gone way up in value over the last 5-10 years, right? Okay. So let's say the house I bought back in 2020 is quote-unquote worth double. And I put on the market for double what I paid for it in 2020. And let's say, because of the influx in inventory, I have to drop the price a bit. And somebody comes in and bids $10,000 left. So it's just a little under double. I feel like on social media and whatever, the report is house prices are falling. But the way I look at it is, I'm still on house money because it's worth almost double what I paid for it. And just because I take... Is that a bad way for me to look at the real estate investment? Okay. Do you get what I'm saying? No, it is house money, but it's different than that. The reason social media is wrong is for a different reason. Market value of a property, by definition, when I went to real estate, when I got my four-year degree in real estate, I have a degree in real estate and finance. If you go to appraisal class and you go to even take your real estate test, they teach you this. The definition of market value of a piece of real estate is what a willing buyer is able to give a willing seller and willing when neither are under duress. Okay. So in other words, if you're getting foreclosed on, that's not a valid... You can't use that sale when you're doing an appraisal. Right. Because it does not establish market value because one of the parties is under duress. Okay. If you've had a house on the... If you bought another house and you're having to sell your house out of desperation because you shouldn't have bought the other house, and now you've got two house payments, one of the parties is under duress. Okay. So they might sell it, quote unquote, below market value. Yes. Just to get rid of it. Yes, but it does not establish market value. So when someone says house prices are going down, they mean market values are going down. Market values have not gone down, but there are some parties, because the market has been sluggish, that are under duress. Gotcha. And are selling. Because they may have leveraged a bunch of properties. They're what you call a motivated seller for one reason or another. And a house has been sitting on the market, and they lower the price below what the appraisal would be, what a willing buyer. But they're no longer without duress. They have duress. I mean, there's a stress... They're in a stress situation. Okay. And so that doesn't establish market value. That doesn't establish what home prices are doing. Now, but if you're in a seller's market, then the buyers are under duress, because they can't... That's when you get 83 offers on the house. If you're in a buyer's market, which we haven't seen in a long time, because inventories have never kept up with demand. But if you're in a buyer's market, that means there's houses everywhere, and the buyers could come in and cherry pick what they want, and they can demand stuff from sellers, because the sellers are under more stress. And that drives prices down. But we haven't seen that in two decades. But even if market value went down 20%, I'm still up in my investment. You're still on house market. But house prices would have gone down, if that was the case. Correct. There you go. So social media would be correct. But social media is a drama queen. Correct. It's not functioning on anything except some 20-something-year-old living in his mother's basement having a little snowflake attack. Correct. And that's your social media. That's not going to do with the actual reality of what's happening in the market. That's just somebody pissed off because they feel like they got boxed out of the market, because they're a barista after getting a PhD. Or they're pissed off because they did some napkin math, and looked at the wrong internet website, and said, my house is worth $1.2 million. They get an offer for 700, and in their soul, they feel like they lost $500,000. If it was not worth $1.2. That's exactly right. Yeah. It was never worth that. And so is there actual market value? So if you're going to do an appraisal on a piece of residential real estate, you find three comparable sales within the last 90 days, comparable in area, comparable in attributes, and comparable in square footage. And you adjust for square footage. If one's a five-bedroom, one's a four-bedroom. One's got six baths, one's got four baths. One's got a five-car garage, one's got a three-car garage. You adjust for the differences, and you do that. And then you take the average of those three after adjustments, and you have a residential appraisal. But the qualification is all three of those comparable sales cannot have had a buyer or a seller under duress. So you can't use two foreclosures in the neighborhood. Gotcha. As your comp, as your comparable sale. Otherwise, you have an invalid appraisal. What'd they do in 2008 when whole neighborhoods were getting wiped out? Well, then you've got a new market. The market established that this neighborhood is foreclosure neighborhood. Okay. So it drove it down. Yep. Because everything in there was. So if you had like those townhouses and stuff where they, you know, where these bogus investment deals, that's what happened in 2008. And the mortgage bank securities, all that crap crashed. And so they started punt-punting on these loans left and right. And so they end up with whole neighborhoods back. Now you've got a complete reset on that neighborhood. But that's not a statement of real estate. That's a statement on that neighborhood. That neighborhood was full of investment, real estate, 100% renters. And 100% of the investors in air quotes were leveraged, walked away. And so now you've got a reset. And now we've got, okay, what will people pay in that neighborhood? That where neither are under duress. And that takes about a generation to get through that. Not a generation of people, but a generation of sales. The bank, when they take it back, they're under duress. So when the bank resells it, you can't count that. That's a real estate on an REO. You can't count that as your appraisal. And so that's what we're getting into. So no, we, that's what this thing, I just said, go to our website. We track this stuff. There's 1,036,101 homes on the market right now. We know exactly how many are on the market. We know exactly when we're tracking all this stuff in detail. When you can go there and find the actual data and your month over month, over month, every month, this year, median house price, which is the middle, not the average, it's the middle of house prices is what a median is. And the statistics goes as gone up every single month. It's not gone up much. It's gone up like a thousand bucks or 2000, but it's not crashing. Like it's not going down. Right. Is the point it's going up and there's good inventory and there's good demand and everybody's sitting around waiting to see if the fed chairman's really going to get fired. And if we're really going to see some interest rates adjusted. And once they get past that waiting game, probably about September, you may see this market take off like a dad gun hair on fire thing. September could be wild in terms of house prices going up again, but we're not, we've been telling you guys this out there and it's proven to be true. I've been telling you this for five years, house prices are not going down. This is not a bubble. A bubble is when there is an is when the prices have gone up faster than the demand. Demand has outpaced inventory. Demand is higher than supply. Every time you see that in economics, you see prices go up. It's a simple thing. It's seventh grade economics. If anybody taught economics in seventh grade anymore, but that's it. I mean, when there's a shortage of goods or services, the price goes up on those. When there's an overabundance of goods or services, the price goes down on those. It's very simple. And you really can't hardly figure out at any time in economics with an open market anyway, that that gets violated. It just shows up that way every single time, given a half a minute. But I mean, you get weird anomalies like COVID and that kind of stuff that hit a marketplace. It takes a little while to get the wrinkle out of that, out of the sheet on that, like the supply chain stuff, same thing. The problem is everybody's just so frustrated that wants a house and can't get one right now. So they're throwing all these darts out there that they call truth to try to make themselves feel better about it. And it's just not, it doesn't change anything. You still have to do the math. Create your free every dollar budget today. The simplest way to budget for your life.