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With the economy ending the year on a surprisingly strong note, economists have good news and bad news for the real estate industry and Americans looking to buy or sell a home.
A soft economic landing would mean that home prices in many markets would continue to rise (albeit at a slower pace) and mortgage rates would settle at around 6% for a year or two.
As a result, millions of homeowners may feel locked into low interest rates on their existing loans and be reluctant to move into new markets or trade up or down.
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All of this means that sales are expected to increase only slightly in 2025. This isn’t good news for real estate agents who make a living on commissions. This is because 2024 is likely to go down as the housing industry’s worst year on record. First sales in 30 years.
In their 2025 forecast, economists at Fannie Mae and the Mortgage Bankers Association expect existing home sales to increase 5% next year to 4.25 million units. Lawrence Young, chief economist at the National Association of Realtors, offered a more optimistic outlook at the Dec. 12 summit, predicting that existing home sales could rise 7% to 12% in 2025.
More inventory is steadily appearing on the market as life events such as the birth of a child, retirement, or death in the family activate pent-up demand and motivate homebuyers to take action, Yun said. said.
Lawrence Yun
“While the lock-in effect still exists, life-altering events have led to increased inventory, with pending contracts increasing for the third consecutive month due to increased inventory, and closing activity increasing recently. , its strength has weakened over time,” Yun said. Said.
Economists agree that existing home sales vary widely by region, with markets with active home builders and strong job growth leading the way.
Odetakushi
“During the pandemic, we were in a sort of national housing market where everywhere you looked, home prices were increasing by double digits,” said Odeta Kusi, principal deputy economist at First American Financial Corporation. said. “I think we’re back in a world where real estate is local again. So it really depends on where you are in the country.”
In approving the third rate cut of the year on Dec. 18, Fed policymakers laid out a more conservative path for future rate cuts, with most not expecting more than two cuts in 2025. It was.
Investors in the bond market, which funds most mortgages, were expecting even more aggressive monetary easing in 2025, so mortgage rates are now roughly below where they were before the Fed started cutting rates in September. It is rising by a percentage point towards the end of the year.
The 30-year fixed rate conforming mortgage rate hit a 2024 low of 6.03% on Sept. 17 on expectations for a Fed rate cut, according to RateLock data tracked by Optimal Blue. But once the Fed began cutting rates, mortgage rates rebounded to a fourth-quarter high of 6.87% on Dec. 18.
mark parim
“We think the fundamental trend of what’s happening with mortgage rates is that they will decline as monetary policy normalizes,” said Mark Parim, Fannie Mae’s chief economist. “That will help with trading volumes and lock-in effects.”
Economists in Fannie Mae’s Economic Strategic Research (ESR) group said the economy “looks poised to exit 2024 on solid footing” and made five predictions for the housing market in 2025. Ta. The economy is slowly cooling, unemployment remains low, and job growth is currently proceeding at a healthy pace based on demographic trends. ”
Fannie Mae’s five housing market predictions
Mortgage interest rates are volatile and likely to remain above 6%. “Unless economic growth begins to slow significantly, we expect mortgage rates to remain high relative to pre-pandemic levels, declining slightly to around 6% by the end of 2025. continued uncertainty about the resilience of Given the persistence of inflation and future policy changes, we expect mortgage rates to become more volatile next year.”Sales remain near their lowest level in 30 years, but in some markets. There will likely be more online listings. “Many Sunbelt states, including Florida and Texas, as well as parts of the Mountain West and Pacific Northwest, have inventory levels near or above pre-pandemic norms, according to Realtor.com. In contrast. In the Midwest and Northeast, there are significantly fewer homes available for sale compared to 2019.”The outlook for new home sales remains positive. “The South and Mountain West are where the majority of sales will be because the land and parcels allow for more construction…We expect the Sunbelt region to continue to see significant homebuilding activity in 2025. “We expect house price growth to slow.” Annual house price growth is expected to slow to 3.6% in 2025, and if house price growth slows in 2025, nominal wage growth could outpace house price growth for the first time since 2011. “Multifamily housing is likely to continue to be an ownership pattern.” “Depending on the metrics, rent growth in 2025 is expected to be between 2% and 2.5%. This marks the second year in a row that nominal wage growth will outpace rent growth in certain metropolitan areas. However, slowing rent growth will likely lead to fewer new construction projects, especially given that long-term interest rates remain high. ”
One wild card in 2025 will be how well President-elect Donald Trump follows through on his campaign promises to cut taxes, impose tariffs and deport millions of immigrants. Many economists say President Trump’s policies, if fully implemented, could reignite inflation, which has been trending downward towards the Federal Reserve’s 2% target for most of 2024. I’m thinking.
Meanwhile, the Trump administration is also expected to repeal regulations that could make it harder to approve new housing. Reducing red tape could boost housing production and ease supply constraints, but many of the obstacles facing developers are at the state and local level.
david dworkin
National Housing Council President and CEO David Dworkin identifies the housing opportunities and risks of the second Trump administration, including the trade war with China, the deportation of construction workers, Approved the possibility of taxing investors in single-family rental homes. I’m worried.
But Dworkin also sees “high-value opportunities,” including the possibility of passing bipartisan legislation like the Affordable Housing Credit Improvement Act, which could create up to 1.94 million housing units over the next 10 years.
Scott Turner’s nomination to head the Department of Housing and Urban Development (HUD) “significantly increases the likelihood that the Opportunity Zone program will be rebooted,” Dworkin wrote in a post-election op-ed. said, citing Turner’s previous role. Executive Director of the White House Opportunity and Activation Council.
NAR’s Top 10 Market Hotspots in 2025
NAR has selected 10 markets that it believes will become hot spots in 2025 based on factors such as job growth, percentage of homeowners locked in, and millennial renters who can afford to buy.
Other important market factors that NAR sees as promising include demographic factors such as starter home inventory, net migration, and the number of households reaching homebuying age over the next five years.
Boston – Cambridge – Newton (Massachusetts – New Hampshire). Boston’s housing market has a lower percentage of permanent homeownership than the national average, with an astonishing 41% of owner-occupied homes valued at less than $550,000. Charlotte – Concord – Gastonia (North Carolina – South Carolina). In addition to a 10 percent increase in employment over the past five years and increased migration to the region, more than 11 percent of households in the Charlotte market will reach their prime homebuying age of 35 to 40 in the next five years, and 43 percent will This is expected to be the peak period for home buying. Homes in this area are priced under $324,000 and qualify as starter homes. Grand Rapids – Kentwood, Michigan. NAR sees strong demand for housing in the Grand Rapids market, with a smaller percentage of homeowners locked in mortgages with interest rates below 6% compared to other markets, leading to future inventory. There is a possibility. More than one-third (36%) of millennial renters in the Grand Rapids metro area can afford to own a home, and 12% of households are nearing their prime homebuying years. Greenville Anderson, South Carolina. Strong net migration and affordability earned Greenville a spot on NAR’s 2025 Hotspots list, with 42 percent of homes classified as starter homes and 43 percent of movers deciding to buy instead of renting. I did. Historically, market mortgage rates have also tended to be well below the national average. Hartford-East-Hartford-Middletown, CT. Mortgage rates in Hartford are well below the national average, and a high percentage of homeowners have lived in the area for more than 17 years, which could portend more inventory. There is sex. INDIANAPOLIS-CARMEL-ANDERSON, IN. Robust job growth and housing affordability earned Indianapolis a spot on NAR’s 2025 Hotspots list, with approximately 42 percent of its housing inventory selling for less than $236,000. Compared to the national level, fewer homeowners are locked into lower interest rates on their existing mortgages. Kansas City (Missouri – Kansas). According to NAR, Kansas City benefits from low average mortgage rates and a low percentage of locked-in homeowners, making it the most affordable market for millennial renters to become homebuyers. It is said to be one of the. Knoxville, Tennessee. Due to the significant increase in immigration and the fact that nearly 50% of people who move to Knoxville end up buying a home, Knoxville was featured on NAR’s 2025 Hotspots list. With home prices now nearly double their pre-pandemic levels, many existing homeowners have equity to replace. Phoenix Mesa Chandler, Arizona. NAR says Phoenix has become a popular destination for California residents due to a lower cost of living, housing affordability and job growth. San Antonio – New Braunfels, Texas. According to NAR, market dynamics in the Texas Triangle mean lenders are willing to offer mortgage rates to borrowers well below the national average, and San Antonio has strong job growth and is attracting new residents to the area. They say they continue to gather.
“The demand is there. I think it’s probably driven by a demographic perspective in the long run,” Cusi said. “We have a lot of baby boomers who are free and own clean homes. It will start in the late 2020s and really accelerate in the 2030s, but it will be the same as the older generation ages and loses ownership of homeownership. It’s about time we start to see it come off, so some supply will become available, but in a sense it’s a long-term movement.”
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