Real Estate Industry Challenges, Change And What To Watch In 2025

While 2024 was certainly a challenging year for the real estate industry, 2025 may be a doozy if the Counselors of Real Estate’s (CRE) 2025 Top Ten Issues Affecting Real Estate report is to be believed. From price expectations to the impact of a Trump presidency, uncertainty is the main driver of today’s market. The 2024 global chair of CRE, Anthony DellaPelle, presented the report at the National Association of Realtors’ NXT conference in Boston on Sunday.

CRE is a global organization consisting of roughly 1,000 members representing a wide swath of real estate professionals from agents and appraisers to urban planners, architects and economists. This is the thirteenth year the group has put together its “Top Ten” list.

In order of least to most impactful, the 2025 list includes the price expectations gap, office vacancies and the tax base, sustainability, artificial intelligence, housing attainability, insurance costs, geopolitics and regional wars, loan maturities and debt repricing, the cost of financing and global and U.S. elections.

Price expectations gap

According to DellaPelle, real estate buyers and sellers are in a standoff when it comes to asset prices.

“I am going to hopefully sell my single-family home in a very nice New Jersey suburb sometime early next year,” DellaPelle said. “I think the expectations that I have as a seller are probably different than the buyer, but the game there is smaller.”

Despite the shrinking expectations gap and the fact that buyers are less often surprised by property prices, many consumers are still holding strong on their positions, with sellers waiting for an uptick in demand to list their property in order to get a better price and buyers sitting on the sidelines in hopes that prices may come down.

Office vacancies and the tax base

Although it may not appear that office vacancies have much of an impact on the residential real estate sector, DellaPelle quickly dispelled that myth.

“I have a client who recently bought a $32 million assessed office building and paid $8.5 million for it in a very strong suburban market. So, what happens when that kind of deal occurs? Well, obviously the buyer resets the market because they paid a fraction of what it had traded for a few years earlier,” DellaPelle said.

As office vacancies increase, the value of commercial office buildings decreases, and if the properties are reassessed for much less than they were worth a few years ago, the town may see a dramatic decrease in property tax revenue. The town may then decide to pass on some of those financial challenges by taxing homeowners at a higher rate or by providing fewer town services, which may lead homeowners to leave the town, selling their properties, which could result in dropping home prices due to a rapid rise in inventory and a drop in demand.

Additionally, DellaPelle noted that higher rate of office vacancies also impacts local small businesses such as dry cleaners and sandwich shops, as fewer people visit local businesses to take care of needs created by working in an office.

Sustainability

More so than prior generations, Millennials, many of which are entering their peak homebuying years, are focused on sustainability and whether a property they invest in can withstand the effects of climate change, while also maintaining a smaller carbon footprint. This combined with the increased occurrence of extreme weather events and a changing regulatory environment pushed sustainability to the No. 8 spot on CRE’s list.

“Property owners are continuing to feel growing pressure to better understand their carbon footprints, to try to decarbonize their properties. The demand for more sustainable properties will continue,” DellaPelle said. “To make our building more resilient, the real estate industry has to embrace technology.”

Artificial intelligence

When thinking about how the real estate industry must push into the future and embrace technology, the focus naturally goes to AI. While many in the real estate industry have lauded AI as a useful tool to help industry professionals improve the accuracy and speed at which they complete tasks, DellaPelle and CRE believe there are risks real estate professionals should be aware of when using the technology.

Many real estate professionals have begun using AI to help them prepare comparative market analyses on a property. Although this may provide some time savings, DellaPelle noted that agents should always double check the accuracy of the AI-generated reports.

“If you are looking at a comp data sheet, don’t trust it,” said DellaPelle. “Call whomever you need to verify the information is accurate, as the AI may not have understood the specific dynamics of the market or something as simple as the location. Does the AI know that the property—which is a multi-family building in an urban core with street level retail—is near mass transit and how that impacts the price?”

Housing attainability

Housing affordability challenges are certainly not new and not surprising, especially in an environment that has seen home values increase rapidly in recent years in tandem with rising mortgage rates.

For DellaPelle, a large contributor to this issue is the lack of housing inventory, which he and CRE attribute to the changing nature of the population base.

“I’m not going to sell my house as readily as I used to because, if you are my age (62) with no kids left in the house, you either don’t have a mortgage or what is remaining on that mortgage is going to be miniscule. Why would I sell my house and buy a new one, taking on a 7% mortgage to get a smaller house that is going to end up costing me more than my big house?” DellaPelle posited. “Inventory is diminished because there are fewer people selling than there used to be. On top of that, we are also living longer, so we are staying in our homes longer because we are healthier.”

Additionally, DellaPelle said the market of buyers has also decreased, as many younger potential buyers are frustrated by the lack of affordable homes, and are instead choosing to rent for longer.

In his view, this means that there needs to be more programs and initiatives to help first-time buyers and access the housing market.

“We need to look for way in which the attainability of housing can be mitigated by public sector enhancement of private sector opportunities,” DellaPelle said.

Insurance costs

In addition to the challenge of housing affordability, many homebuyers are also facing challenges related to rising insurance costs.

“It affects the price of your home,” DellaPelle said. “Insurance companies are only in the business if they can make money, and they are only writing policies if they are confident in the level of risk. If you own real estate or help people to own real estate, you need to be very sensitive to this issue because it is going to be hard to predict what it might cost to insure properties going forward.”

Geopolitics and regional wars

Although it may seem far-fetched that a war in a distant corner of the globe may impact your local housing market, DellaPelle said the idea isn’t as strange as you may think.

“All those conflicts affect us more today than they used to. The world has clearly become more uncertain and risky because of the geopolitical landscape and the way in which we are all connected with each other,” DellaPelle said. “The world has gotten smaller.”

As DellaPelle pointed out, a conflict in a different country could easily impact the supply chain, leading to an increase in the cost of certain goods, which may impact consumers’ level of savings, hindering their ability to purchase real estate. Additionally, historically many foreign investors have chosen to store money in U.S. real estate when conflicts have occurred in their home countries, forcing U.S. homebuyers to compete with investors for properties.

Loan maturities and debt repricing

At the end of 2026, an estimated $2.5 trillion in commercial loan debt is expected to come to maturity. For the majority of these loans, this will mark a rapid shift as they were written in a very different commercial real estate market and when interest rates were much lower.  

“How does our economy get through that? What happens to real estate knowing that most of those loans are secured to properties that have a different set of value parameters than they did when they were cast?” DellaPelle asked.

While this issue will primarily impact the commercial market, if it results in even stricter lending standards across the board, that could make things even more challenging for homebuyers trying to break into the housing market.

Cost of financing

In a similar vein, DellaPelle and the CRE are also not expecting interest rates to cool down any time soon. Although the Federal Reserve has cut interest rates by 75-basis points over the past few months, DellaPelle said the days of what he calls “free money” are over.

“Whether the Fed reduces rates four times, or two or three of five, rates are not going down to zero,” DellaPelle said. “I don’t think you’ll see people get mortgages under 3% for a long, long time, unless something weird happens, and I don’t wish that upon us.”

Despite this, DellaPelle believes that rate cuts are a good indicator that monetary policy is beginning to normalize.

“It is giving us hope that monetary policy is at a turning point, but it might take another couple of years before it irons out,” he said.

Global and U.S. elections

Playing a significant role in shaping future monetary policy is, of course, the results of elections. While many expect the election of Donald Trump as the U.S.’s 47^th president to usher in a new era of business-friendly policies, DellaPelle stressed that no one really knows exactly how things will play out.

“The policies, not only of our leadership in this country, but in other countries, is likely to evolve, especially with respect to things like monetary policy,” DellaPelle said. “The uncertainty that is attached to the fact that we have a lot of change politically is something you should think about. The decisions that are made by our elected leaders are very important to all of us and they will affect the real estate industry. You need to understand that the elections, not just here, but elsewhere will have impacts that you probably can’t even anticipate right now.”

Although these issues may seem intimidating, DellaPelle told attendees the most important thing to consider, and follow are population demographics.

“You have to anticipate where they [people] are going. Like Wayne Gretzky used to say you want to go where the puck is going, not where it was,” he said.