Chris Seveney shares his bold 2025 predictions, diving deep into the forces shaping the economic landscape. Get ready for a no-holds-barred analysis of interest rates, home prices, and potential market crashes. Discover the hidden risks in real estate, the looming threat of loan defaults, and where savvy investors should be placing their bets (and where they should definitely be staying away!). This is your roadmap to navigating the uncertainties of 2025 and making smart financial decisions.

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Welcoming 2025: Our Economic And Real Estate Predictions For The New Year!

Predictions For 2025

Welcome back. I’m going to give my predictions for 2025. I’m recording this in early December, and as always, every year I like to do my predictions. I just recorded a video of what I got right, what I got wrong in 2024, based off of what I predicted a year ago. If you haven’t seen that, I gave myself an overall B. I was floating B minus, and then when I went back and looked at some predictions on mortgage rates, which I was probably against the grain on in some of those areas, I thought, I hit that one pretty well. I’ll give my predictions for interest rates, home pricing, loan defaults, and areas of concern that I would have as an investor going into 2025.

Let’s get started. First, I will say this is interesting because we have a new administration coming in, which has been in party previously, but I’m not sure anybody knows what is going to happen. The markets did predict, I’d say, favorably based on the decision, not saying I agree with that or I’m not putting any political spin on this. I’m actually down-the-middle independent, so I honestly don’t like either party. Let me say it’s a little more challenging because of the unknown. I’m going to look at things from a macro level and maybe dive in a little bit to the micro level.

Let me first start by talking interest rates. I am looking at the interest rate environment, and people probably are not going to like this, but I’m not going to predict a significant decrease in interest rates. I think where the government is, with the amount of money they printed, what people are willing to pay for our bonds, which are ten-year treasuries, which are tied to interest rates, the stock market has been hot. People have been not really flexing into the bond market to make it competitive. It’s left interest rates high. I would not be surprised if they get into the 5%.

I don’t believe that they will get into the 4% unless we see a significant economic retraction, whether we have significant job loss, a significant home price decline, significant market declines, and people look for a less risk-averse alternative and get back into the bonds, which would potentially decrease the interest rates. I think the free markets will play out. As somebody who bought their first home in 2001, which was at 6%, and my wife, I want to say, in 2005 or 2006, her interest rate, I think, was close to 8% when she bought her townhouse.

For a lot of younger people, that’s the norm. Five percent is great. 6% or 7%, that’s been the norm. I think we’re going to shift a little bit back more towards that norm, unfortunately, unless there is some significant economic news that causes stress to the markets. People are probably not going to like that, but I think that’s where rates are going to end up. When we talk in a year from now, if I had to pin a number, I’d say between five and a quarter and six and a half.

They might come back down three-quarters of a point or a point. I think when I checked my credit union, I could get a mortgage on a conforming 30-year fixed at 5.875 with 2.6 points, an APR of 6.1%. Somewhere floating right around, if there were no points, they would probably be six and a quarter, maybe a half-point decline. I think they might come down slightly, but again, I don’t think they’re going to come to the point where people want them to get to.

Let’s play that into the next topic, which is home prices. I have to say, I was probably wrong last year where I thought I’d see more softening in home prices. I think we have seen it in markets like Texas and Florida, where we have seen some drops and some softening. I know in Kansas City, for example, they have seen, because I know an investor there, some significant price cuts in those markets. Home prices, again, are a price today that isn’t really getting reported for 4 to 6 months down the road. Year over year might show it’s still up slightly.

I’m having a hard time believing that if we look at pricing from the peak, which was, I think, 21 or 22 or whenever it was, where we’re going to end next year, I’m thinking it’s going to be 15% lower from the peak. Median price home. That’s not a crash. That’s not good, but Chris, someone asked, why are you thinking that? I’m a numbers guy. As a numbers guy, I look at where I think mortgage rates are going to be. What’s it cost to own a home today? When you factor in taxes, when you factor in insurance, we just had a quote to replace an HVAC system. It was equivalent to what we paid to have our whole entire house ducted and two systems put in place ten years ago. Everything is getting significantly more expensive in owning and operating a home.

It comes to a point of people listening, how much has your pay increased over the last four years compared to your cost of goods and services? Most people are going to say it has not kept up. When we look at data of credit card debt, it has gone up over a trillion dollars. Those rates are enormously high. People are struggling, and their savings are being depleted. When I talk about where I see defaults going, we’ll talk a little bit more about what that looks like. Essentially, something’s got to give, and I’ve mentioned this in the past. You’ve got everyone under 30, how many of those people can go out and buy a home based off of mortgage rates and home values? One of the best ways that people have been able to create wealth over time has been through real estate because it typically will follow inflation. If you buy in a good location, people who bought, I’m in the Washington DC area.

 

I know when I was building condos ten years ago, people bought houses in the eighties for $100,000 and were selling them for $2.5 million 30 years later. It’s a nice bump and nice growth to get that way. If you can’t get into real estate, you can’t get that. People who’ve been in real estate for ten years, like myself with my primary residence, I’m happy with what the numbers look like today. But if I was starting out and looked at where I am financially today, I couldn’t buy my house for what it’s worth today and get a mortgage on it. Nor would I want to. I could afford my neighbor’s house, which is half the size of mine.

I’m not bragging about it, but I’m just saying, your buying power today is like half what it was several years ago. I think that eventually it’s going to have to soften, and it’s going to come down. That’s where I throw a spitball, I just say 15%. I have no idea. I just think that, and again, certain markets are going to be much worse off than others. Again, I’m in the Washington DC area. This market is typically more resistant because of the federal government and the number of jobs we have, but who knows, if they cut jobs, will that have an impact? Typically, the markets that see the greatest spike up typically also see the greatest spike down. They get back to a median or normal growth cycle.

Defaults On The Rise

It’ll be interesting to see how that plays out, but that’s where I’m going with that. Next is defaults. I was looking at some recent data from the New York Fed that they just released. It’s pretty interesting what they’re showing. They’ve got serious delinquencies essentially back to where they were pre-COVID. During COVID, delinquency rates were floating just under four. These went down to probably under three, and now they’re back up close to four. If you look at every chart that has been put out there regarding delinquencies, debt, and everything else, it’s basically, you’re seeing everything got suppressed down to the good during COVID.

We’re back to where we are pre-COVID, with the exception of credit card debt, which has skyrocketed. An interesting one is mortgage transition, which is how many loans have transitioned to being 30 days late. A year ago, that rate was about 3%, and it huddled between COVID right during that time, also because of forbearances and other things. In the last quarter alone, it bumped up about half a point, and it’s nearing its way closer to 4%, which, again, is bringing it back to where we were pre-COVID. I’ll give you an idea, 2008, 2009, 2010, that number was up around 12%. It was skyrocketing.

We’re back more towards COVID. Pre-COVID, it was about five and a half, and then dropped down to under four. Again, things typically float back to the mean. I think it’s got another point to go up, but the fact that it’s transitioned, and who’s hitting the hardest is those 18 to 29. Those who are the youngest are getting hit the hardest. Why? Because they typically aren’t making as much as somebody who’s been working for twenty years, and taxes, insurance, and other things have gone up significantly.

I think that’s something we continue to watch as well. Along with that, defaults are where I think they’re going to come up. Another thing to just talk about is, again, overall revolving debt and credit card debt. Pre-COVID, that number was roughly $700 or $800 billion. Now it’s floating about $1.1 trillion. It has been historically, from 2003 across the spectrum up through 2020, pretty consistent, probably between $600 and $700 plus billion.

Ever since interest rates spiked, that has gone up well over $1 trillion. The other interesting thing that I looked at was credit scores and credit scores at mortgage origination. During COVID, the average credit score, basically, the 10th percentile was like 680, the 25th percentile, 730, and the 50th percentile, close to 800. Those have gone down about a 5% drop. Again, they’re back to levels seen in 2015, 2016, 2017. When you look at all these charts, you have this from 2020 Q1 to 2024, essentially, you have this huge blip where either things went really high for the good or down for the good.

Everything during that time is floating back to the surface of where it historically is. People say, does that mean things might just shake out similar to what they were back then? I think, again, people need to look at is, and this is why, again, I think we’re going to see that increase in defaults, everything is so much more expensive today than it was, and really salaries have not kept up. The job market is considered to be one of the best it’s ever been in unemployment rates. If unemployment goes up, which a lot of people predict it will, and compensation does not start to catch up, it could cause some pain. I think we’re going to start to see, again, that uptick in defaults will continue next year, which, as a default note fund, we already see ample opportunity. I think it’s just going to be more ample opportunity that we’re going to see.

Everything is so much more expensive today than it was, and salaries have not kept up. Share on X

Areas Of Concern For Investors

As we wrap up this episode, what are some of the areas of concern? I’m an investor. I invest. Where do I see concern? What would concern me? Where am I not investing this year? This is not financial advice. I am not an accountant, CPA, or financial advisor. I’m just giving you my two cents for what I look at. I, over the last several years, have consistently, between my wife and I, gone to some more conservative investments within our portfolio. What does that mean? Things that don’t have a lot of leverage. Leverage amplifies a situation, whether good or bad.

You’ve seen it in both aspects of real estate. Pre-COVID and beginning COVID, interest rates are low. It’s great. It doesn’t cause a huge spike in values. People have a ton of equity. When rates spiked, all of a sudden, if you have investment property, your debt service has increased significantly. It might outpace the rents. You’re losing money. Multifamily, perfect example. We’ve seen tons of multifamily deals go sour. I look at risk, and the thing I measure risk by is the debt service and understanding I want to invest in something that’s not heavily debt-ridden. I’ve mentioned this last year, and I was wrong. I’m going back to the well and probably going to prove myself wrong again.

I believe that we will see cracks in several asset classes of real estate. I think short-term rental, where it is not a class A location, I believe people will start to, as the operating costs continue to increase, taxes, insurance, electrical, all that stuff, struggle. People who underwrote only for a short-term rental, especially in an area that really isn’t a vacation spot, I think you’ll start to see some of the struggles there. I think you’re going to also see struggles in some of the class B and C rental markets, which eventually might impact class A because there’s a lot of inventory coming online.

Leverage amplifies a situation, whether good or bad. Share on X

I think rents are going to come down slightly. With rents coming down and interest rates not having major impacts, I think that’s going to put more pressure on some of those asset classes. Again, it goes back to what’s your debt service, because if your debt service is high, that’s going to be problematic. The one I went to last year, and I’ll go back to again, seller financing. The seller financing space that had LTVs over 90%, I think it’s a ticking time bomb waiting to happen, where there’s a right way to do seller financing.

I know a lot of people are doing it wrong because they were able to get their hands on a property, increase the price by $30,000 or $40,000. That property is not worth that value. I do see that day coming, which we saw with contract for deeds 5 or 6 years ago, where people had these performing contracts for deeds and they all started just going into default, and nobody wanted to touch them. They sell at a significant discount because they were not underwritten properly. People didn’t want to touch them. Perfect example, I’ll just share briefly.

 

I saw someone talking about a note in New York that they were trying to get somebody to service it because they needed to go after the borrower, and nobody will touch it because of the laws. They’re like, we’re not touching it. This person’s stuck and really can’t do anything. That other area of that seller financing side, I think you’ll see.

Fix And Flip Market Concerns

The last area that I think is going to be interesting that people got to be careful of is that fix and flip market. Things are taking longer to be on the market, taking longer to get built. It’s costing a little bit more money. Your cost of money, again, if you’re borrowing, gets amplified. We’ve already this year started to see a significant uptick in defaults. I was reviewing a company that does a lot of fix and flip loans, and I can’t name this company, but if I wrote their name on a piece of paper, stuck it in the ground, and buried it, and dug it up in three years, I’m pretty confident that that company will not be around based off of how I see them operating.

It’s one of those areas where it’s interesting that, just the underwriting and when people have money to lend or to spend, it’s interesting sometimes what they do with it. To me, I’m not the person who knows it all. I’m just a person, just like all of you, put my socks on the same way every morning and so forth. I’ve been around a little bit. Sometimes when I see something that just doesn’t look right, in the past my gut has been pretty good on it.

When people have money to lend or spend, it's interesting sometimes what they do with it. Share on X

I think that’s another, again, market where they’re now called residential transition loans, which are really hard money loans. There are good loans that you can give, and there are not-so-good loans. People are seeing loan-to-cost of 90% or 100%, and elsewhere, I’m starting to see some of the bigger players start to look great. Some of this not-performing stuff, once you get behind the curtain, how well are they doing?

Those are my 2025 predictions. I will add another that I always do, as a company, we’re going to hit a thousand investors. We’re going to top and have over a thousand investors by the end of next year within our fund. That is where I’m going to leave it. I just want to say to everyone, thank you for listening or watching this video. Hope you all have a happy, safe holiday season and new year. Take care.

 

Important Links

• 7e Investments
• Christopher Seveney on LinkedIn
• New York Fed