Whether it’s refining your business model, mastering new technologies, or discovering strategies to capitalize on the next market surge, Inman Connect New York will prepare you to take bold steps forward. The Next Chapter is about to begin. Be part of it. Join us and thousands of real estate leaders Jan. 22-24, 2025.
With the economy finishing up the year on a surprisingly strong note, economists have good news and bad news for the real estate industry and Americans who are thinking about buying or selling a home.
A soft landing for the economy would mean that home prices keep rising in many markets — albeit at a slower pace — and that mortgage rates settle in at around 6 percent for a year or two.
That could keep millions of homeowners feeling locked in to the low rate on their existing loans, and reluctant to make a move to a new market or trade up or down.
TAKE THE INMAN INTEL INDEX SURVEY FOR DECEMBER
All of which means sales are expected to pick up only modestly in 2025. That’s not great news for real estate agents who depend on commissions for a living, because 2024 is looking like it will go down in the record books as the slowest years for housing sales in three decades.
In their 2025 forecasts, economists at Fannie Mae and the Mortgage Bankers Association predicted sales of existing homes will grow by 5 percent next year, to 4.25 million. National Association of Realtors Chief Economist Lawrence Young charted a more optimistic path at a Dec. 12 summit, forecasting sales of existing homes could grow by 7 to 12 percent in 2025.
More inventory is steadily appearing in the market as life events — like the birth of a child, retirement or a death in the family — activate pent-up demand, motivating would-be homebuyers to take action, Yun said.
Lawrence Yun
“The lock-in effect is still there, but it is less strong over time as life-changing events lead to more inventory, and more inventory is leading to three-straight months of increased pending contracts and the closing activity recently rising,” Yun said.
Economists agree that sales of existing homes will vary widely by region, with markets where homebuilders are active and job growth is strong leading the pack.
Odeta Kushi
“Over the pandemic, we sort of were in this national housing market where everywhere you look, there was double-digit house price growth,” said First American Financial Corp. Deputy Chief Economist Odeta Kushi. “I think we’re back in a world where real estate is, once again, local. So it really will depend on where you are in the country.”
In approving their third rate cut of the year on Dec. 18, Federal Reserve policymakers laid out a more conservative path for future rate cuts, with most not expecting to cut rates more than twice in 2025.
Because bond market investors who fund most mortgages had expected more aggressive easing in 2025, mortgage rates are ending the year nearly a percentage point higher than they were before the Fed started cutting rates in September.
Rates for 30-year fixed-rate conforming mortgages hit a 2024 low of 6.03 percent on Sept. 17 on expectations for Fed rate cuts, according to rate lock data tracked by Optimal Blue. But once the Fed did start cutting, mortgage rates bounced back to a fourth-quarter high of 6.87 percent on Dec. 18.
Mark Palim
“I think that the basic trend around what’s happening to the mortgage rates that they are going to come down because of the normalization of monetary policy,” Fannie Mae Chief Economist Mark Palim said. “That’s going to be helpful for the volume of transactions and the lock-in effect.”
The economy “appears poised to end 2024 on solid footing,” economists with Fannie Mae’s Economic and Strategic Research (ESR) Group said in making five predictions for the housing market in 2025. “Consumer spending has been resilient and, while the labor market is slowly cooling, unemployment remains low, and job growth is currently at a healthy pace based on demographic trends.”
Fannie Mae’s 5 housing market predictions
- Mortgage rates will be volatile and remain above 6 percent. “Unless economic growth starts to slow significantly, we expect mortgage rates to remain elevated relative to pre-pandemic levels, moving only slightly downward to around 6 percent by the end of 2025. However, given ongoing uncertainty over the resilience of economic growth, the stickiness of inflation, and future policy changes, we expect bouts of volatility in mortgage rates next year.”
- Sales will remain near 30-year lows, but more listings will come online in some markets. “Many of the Sun Belt states, including Florida and Texas, and parts of the Mountain West region and Pacific Northwest have inventory levels near or above pre-pandemic norms, according to Realtor.com. In contrast, the Midwest and Northeast have significantly fewer homes available for sale relative to 2019.”
- New home sales will remain a bright spot. “The South and Mountain West are places where land and zoning allow for more construction and thus make up the bulk of sales … In 2025, we expect the Sun Belt region will continue to see significant homebuilding activity.”
- Home price appreciation will decelerate. With annual home price growth projected to cool to 3.6 percent in 2025, “softening home price appreciation in 2025 could allow for nominal wage growth to exceed home price growth for the first time since 2011, helping to start a gradual improvement in homebuyer affordability conditions.”
- Multifamily will remain in a holding pattern. “Depending on the measure, we expect rent growth to be between 2 and 2.5 percent in 2025. This will be helpful for renter affordability as it will represent the second-consecutive year of nominal wage growth exceeding rent growth in certain metros. However, slower rent growth will contribute to fewer new construction projects, especially in light of continued high longer-term interest rates.”
One wild card in 2025 will be how successful president-elect Donald Trump is in following through on campaign promises to cut taxes, impose tariffs and deport millions of immigrants. Many economists think that if fully enacted, Trump’s policies could reignite inflation, which was trending down toward the Federal Reserve’s 2 percent goal for most of 2024.
On the other hand, the Trump administration is also expected to do away with regulations that can make it harder to get new housing approved. Less red tape could boost home production and ease supply constraints, although many of the obstacles developers face are at the state and local level.
David Dworkin
In laying out the housing opportunities and risks of a second Trump administration, National Housing Conference President and CEO David Dworkin acknowledged that the potential of a trade war with China, deportations of construction workers, and tax penalties on investors in single-family rental housing are worries.
But Dworkin also sees “high value opportunities” such as the potential to pass bipartisan bills like the Affordable Housing Credit Improvement Act that could create up to 1.94 million homes over the next decade.
The nomination of Scott Turner to lead the Department of Housing and Urban Development (HUD) “significantly increases the likelihood that there will be a reboot of the Opportunity Zone program,” Dworkin said in a post-election commentary piece, citing Turner’s former role as executive director of the White House Opportunity and Revitalization Council.
NAR’s top 10 2025 market hotspots
NAR has singled out 10 markets it thinks will be hotspots in 2025, based on factors including job growth, the proportion of locked-in homeowners, and Millennial renters who can afford to buy.
Other key factors in the markets identified as promising by NAR include the inventory of start homes, net migration and demographic factors including the number of households reaching homebuying age in the next 5 years.
- Boston-Cambridge-Newton (Massachusetts-New Hampshire). Boston’s housing market has a lower proportion of locked-in homeowners than the national average — and surprisingly, a larger proportion of starter-homes with 41 percent of owner-occupied units valued at less than $550,000 level.
- Charlotte-Concord-Gastonia (North Carolina-South Carolina). In addition to job growth of 10 percent over the last 5 years and strong migration to the area, more than 11 percent of households will in the Charlotte market will reach the prime homebuying age of 35 to 40 in the next 5 years, and 43 percent of homes in the area are priced at less than $324,000, qualifying them as starter homes.
- Grand Rapids-Kentwood, Michigan. NAR sees strong demand for housing in the Grand Rapids market, and with a smaller proportion of homeowners locked into mortgages with rates below 6 percent than other markets, inventory could be forthcoming. More than one-third (36 percent) of Millennial renters in the Grand Rapids metro area are able to afford homeownership and 12 percent of households are approaching prime homebuying age.
- Greenville-Anderson, South Carolina. Strong net migration and affordability earned Greeenville a place on NAR’s 2025 hotspot list, with 42 percent of homes categorized as starter homes and 43 percent of movers deciding to purchase a house instead of renting. Historically, mortgage rates in the market have also tended to be well below the national average.
- Hartford-East-Hartford-Middletown, Connecticut. Hartford offers mortgage rates well below national averages, and also has a high proportion of homeowners that have been in their homes for longer than 17 years, the average for the area, which could bode well for more inventory coming on line.
- Indianapolis-Carmel-Anderson, Indiana. Strong job growth and housing affordability earned Indianopolis a spot on NAR’s 2025 hotspot list, with nearly 42 percent of the housing stock priced under $236,000. Compared to the national level, fewer homeowners are locked in to low rates on their existing mortgage.
- Kansas City (Missouri-Kansas). NAR says Kansas City benefits from lower average mortgage rates and a smaller share of locked-in homeowners, and is also one of the most affordable markets for Millennial renters to become homebuyers.
- Knoxville, Tennessee. Strong migration gains and the fact that nearly 50 percent of people who move to Knoxville end up buying a home helped earn Knoxville a place on NAR’s 2025 hotspot list. With home prices now nearly double their pre-pandemic levels, many existing homeowners have equity to trade up.
- Phoenix-Mesa-Chandler, Arizona. NAR says lower living expenses, housing affordability and job growth make Phoenix a popular destination for California residents.
- San Antonio-New Braunfels, Texas. Market dynamics in the Texas Triangle make lenders willing to offer borrowers mortgage rates well below the national average, NAR says, and San Antonio has experienced strong job growth that continues to draw new residents to the area.
“The demand is there. I do think there’s a demographic angle at play here, maybe over a longer-term horizon,” Kushi said. “We have a lot of baby boomers who own their homes free and clear. Starting in the late 2020s and really picking up speed in the 2030s, that’s around the time that we start to see older generations age out of homeownership, so that will unlock some supply as well — but that’s sort of more of a longer term dynamic.”
Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.
