Over the last several years, I’ve given various statistics from inventory, absorption rates, closings, consumer confidence, mortgage rates, etc… to provide guidance on where the real estate market is heading. Unfortunately there is one variable that I am now seeing that could drastically alter the market, the idea of herd mentality. What is this “soft” variable and what can it tell us about where the market is heading?
What is herd mentality in Real Estate?
Herd mentality refers to the tendency of individuals to adopt the beliefs, behaviors, or attitudes of the majority in a group, often at the expense of their own judgment or individuality. It’s like a sheep blindly following the flock, making decisions based on what others are doing rather than their own thinking or analysis. Or this can be thought of as merely following the crowd.
In real estate this means that if you see others listing their houses then you should list yours or on the commercial side if everyone is now leasing in a “hot new area” that this must be a good place to lease or buy a commercial property.
Why talk about herd mentality in real estate?
Real estate can be drastically altered by buyers and sellers “feelings” on an area or about what is happening in the market. For example, if more property owners “feel” that we are at the peak in the market, they are more likely to want to list their house in order to get the most money they can. The crazy part is that we can’t necessarily quantify before hand the herd mentality but we can see the impacts later. For example in the residential market, we are now seeing a surge in inventory in many markets. Look at the stats for Denver for the first 4 months of the year, inventory has suddenly surged almost 22%.
No concrete explanation for the inventory herd mentality
Ironically, the US economy isn’t that different than it was last year, stock values are still up, interest rates are around the same, there has been no surge in unemployment and yet we are still seeing huge changes in real estate.
I can come up with various theories about what has led to the herd mentality including nervousness about the economy, interest rates staying high, tariffs, etc.. but at the end of the day the answer doesn’t necessarily matter it is the result of the surging inventory that is having a profound impact on the real estate market.
The herd is running in one direction in real state
Regardless of what all the statistics are saying about the health of the economy, for whatever reason real estate has reached and inflection point, and the driver now is the herd mentality that we are at the top of the market and that if you need to sell you better list now before the market crashes. We are seeing this on the residential side in many once hot covid markets like Denver as well as in various commercial markets like the office market where suddenly it seems like everyone is finally waking up that there is a big problem of oversupply. Even though I can’t say with 100% confidence of the why this is occurring the data on inventory is showing a profound shift in the market.
The herd will drive real estate lower into 2025
As of this writing, the economy looks healthy with the stock market staying near record highs,, unemployment remains low, inflation is falling, and yet real estate is clearly not doing well in most markets. Regardless of the statistics, the “herd” had a different plan for real estate in 25. Although we don’t know exactly why the herd suddenly shifted, it is clear that a profound change has recently occurred that we can now see showing up in the inventory data.
In real estate, there is no doubt the herd is in the driver’s seat which will ultimately lead to a big change in real estate in the second half of the year. For whatever reason, there seems to be a rush for the exits in many residential real estate markets which is leading to a large increase in inventory.
Redfin came out with their predictions of price drops around 1%, I think this is a very “light” prediction as the herd mentality is going to lead to even more inventory coming online.
Ultimately this surge in inventory will lead to price declines in the 5-10% range in many markets on the residential side(note some markets could see a 15% reset over the next 18 months) and a huge drop in commercial office properties in many markets like Denver.
The million-dollar question is will the herd subside and real estate stabilize heading into 26 or has the running of the bulls just started? Unfortunately, it is too early to say which scenario will play out in the future, but I can say with certainty today that the herd will drive real estate prices lower through 2025 in most markets with many of the once hot markets like Denver seeing a larger number of sellers heading for the exits.
One note, even with a 5-10% decline, real estate over the last 10 years has basically already doubled in many markets. Although it is not any consolation for people that are selling now or who recently bought a property, but it is helpful to put the decline into perspective.
Additional Reading/Resources:
https://www.fairviewlending.com/category/2025-real-estate-predictions/
https://www.redfin.com/news/sellers-vs-buyers-price-impact/
https://www.fairviewlending.com/will-real-estate-prices-fall-in-2025/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. I’m not an armchair reporter/writer. We are an actual private lender, lending our own money. We service our own loans and own commercial and residential real estate throughout the country.
My day job is and continues to be private real estate lending/ hard money lending which enables me to have a unique perspective on the market. I don’t accept any paid sponsorships or ads on my blog to ensure accurate information. I’ve been writing this for almost 20 years and have over 30k subscribers. Please like and share my blogs on linkedin, twitter, facebook, and other social media and forward to your friends . I would greatly appreciate it.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, and Florida. We are recognized in the industry as the leader in hard money lending/ Private Lending with no upfront fees or any other games. We fund our own loans and provide honest answers quickly. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all we need is our simple one page application (no upfront fees or other games).
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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