10. Residential Real Estate Basics

The single largest investment for most individuals in their lifetime is real estate, typically their home. The housing market is a little unsettled at the moment and is transitioning from a seller’s market to a buyer’s market. From 2019 to mid-2024, there was a strong seller’s market, and one selling a home might get multiple offers, above asking price, on the property’s first day on the market. This has become less true with each passing day since mid-2024.

This shift toward a buyer’s market caused me to think about the housing market a little more, and I decided it might be a good time to discuss residential real estate.

The State of Homeownership

Homeownership remains a central part of the American Dream, viewed as a symbol of financial stability, independence, and long-term wealth building. However, achieving this dream has become increasingly difficult. High home prices, elevated mortgage rates, low housing supply, and challenges in saving for a down payment all serve as barriers, especially for first-time buyers such as Gen Z and millennials.

Financial and market pressures include rising home prices, high mortgage rates, limited inventory, and stricter lending criteria. Inflation further reduces purchasing power. In addition to economic challenges, societal factors such as wage stagnation, delayed major life events, a lack of generational wealth, and increased purchases by institutional investors make entering the housing market more difficult for younger buyers.

Market Trends and Definitions

Cash purchases accounted for 32.6 percent of U.S. home purchases in 2024, still higher than pre-pandemic averages. Investors purchased approximately 27 percent of U.S. homes in the first quarter of 2025, the highest share in five years. Interestingly, most investor purchases come from small “mom-and-pop” investors, not large institutions.

Understanding the differences between a buyer’s market and a seller’s market is essential. A buyer’s market occurs when there are more homes for sale than buyers. This leads to increased negotiation power, lower prices, and more options for buyers. Factors that can lead to a buyer’s market include job market struggles, recession, increased development, and shifts in interest rates.

A seller’s market occurs when demand is high and housing inventory is low. Homes sell quickly, prices rise, and buyers have limited negotiating power. Strong job markets, population growth, low interest rates, and limited new construction can create a seller’s market.

Mortgages, Notes, and Foreclosure

For buyers who are not paying cash, it is important to understand the distinction between a mortgage and a promissory note. A mortgage is not the IOU; rather, it is the document that allows the lender to take the property as collateral if the borrower fails to meet the loan obligations. A promissory note is the borrower’s written promise to repay the loan and contains the loan amount, interest rate, repayment terms, and penalties.

Different states use either mortgages or deeds of trust. Mortgage states require judicial foreclosure, which is often slower, while deed of trust states use a non-judicial process that is typically faster. Tennessee and Mississippi are deed of trust states, while Arkansas uses both systems.

Foreclosure is the legal action lenders take to recover a defaulted loan by selling the property. A foreclosure remains on a borrower’s credit report for seven years.

Buy or Build?

Deciding whether to buy or build depends on one’s priorities. Building offers customization and modern features but involves higher upfront costs, longer timelines, and more complexity. Buying is faster and often less expensive but may require compromises or renovations. Renovation costs vary based on scope, materials, labor, and location.

Depreciation and Financing

The structure of a home depreciates over time, but the land typically appreciates. A home’s overall value depends on maintenance, location, and market conditions.

Real Estate Commissions and Contingencies

Real estate commissions are typically 5 to 6 percent of the sale price but are now more flexible and negotiable. Buyers and sellers must have written agreements outlining compensation. Contingency clauses, such as financing, inspection, appraisal, and title contingencies, play a significant role in negotiations.

Final Thoughts

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