Over the past year, the gap between the number of active sellers and active buyers has widened to its largest margin since the wake of the Great Recession. According to Redfin, as of April 2025, sellers outnumbered buyers nearly 4 to 3, with a full 500,000 more selling their homes than looking to buy one.
This does not mean that another real estate-driven financial crisis is approaching (mostly due to stronger borrowers with low-interest, fixed loans, unlike the subprime teaser rates of pre-2008). But it does clearly indicate that the real estate market is softening. And this comes at an inopportune time, as a silent crisis has been eroding the cash flow of real estate investors for several years now: the operating cost crisis.
While I rarely see it discussed openly, every investor I’ve talked to recently has felt the squeeze that operating costs have put on our businesses. Just take a look at how much various operating costs have gone up in 2024:
- Property taxes nationwide went up an average of 5.1%
- Home insurance went up an average of 10.4%
- Meanwhile, wages went up 4.2% as of March
All these are substantially higher than the current inflation rate.
Some price growth has actually moderated, but only after enormous increases in the past few years. For example, construction material prices only went up only 1.3% in 2024, but that’s after increases in 2021 and 2022 of 14.6% and 15%, respectively. Gas prices have actually come down for two straight years, but are still over 50% higher than they were in 2021. Electricity rates only increased 0.9%, but that was after a 12.1% surge in 2022.
Furthermore, with the recent federally mandated switch from using R-410A to R-454B AC units, HVAC prices are likely to…