Forbes Advisor writes, "Home prices remain at record highs and mortgage rates are climbing again. Is there any relief in sight for buyers? Potentially. Although home prices continue to break records, they’re rising at a slower pace due to loosening inventory and sluggish demand—and experts project further price growth deceleration in 2025.
Meanwhile, even as many are still waiting for lower mortgage rates before taking the home-buying plunge, pending sales data indicates that at least some prospective buyers are starting to dip their toe into the market.
In fact, experts say now might be the ideal time for buyers to get ahead of a potential demand surge in 2025—one that could drive home prices up again and leave some would-be homeowners out in the cold.
Housing Market Forecast for 2024 and 2025
U.S. home prices posted a 4.2% annual gain in August, down from 4.8% annual growth in July, according to the latest S&P CoreLogic Case-Shiller Home Price Index.
“Home price growth is beginning to show signs of strain, recording the slowest annual gain since mortgage rates peaked in 2023,” said Brian D. Luke, chartered financial analyst (CFA), head of commodities, real and digital assets at S&P Dow Jones Indices, in the report.
Price growth had already been decelerating this year. Perhaps more indicative of weakening price growth, monthly prices receded 0.13%. This makes it the first August to post a monthly decline since August 2022, wrote Selma Hepp, chief economist at CoreLogic.
Yet, even with the slowing pace, the index still managed to eke out another record high, indicating that home prices likely remain out of reach for many would-be buyers. Although experts forecast continued home price deceleration, median existing-home prices have surged roughly 50% over the past five years and mortgage rates have risen. This means affordability will likely remain a challenge for many potential homeowners into 2025.
Will the Housing Market Crash in 2025?
With record-high home prices still trending upward in many markets, you may be concerned that we’re in a bubble that’s prime to pop, as it did in the 2008 financial crisis. However, the likelihood of a housing market crash (a rapid drop in unsustainably high home prices due to waning demand) remains low as we look ahead to 2025.
“[T]he record low supply of houses on the market protects against a market crash,” says Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a nonqualified mortgage lender.
Experts are also quick to point out that today’s homeowners are on much more secure footing than those coming out of the 2008 financial crisis, with many having substantial home equity. What’s more, a record number of homeowners today are mortgage-free.
“The 2008 housing market crash was a result of a unique set of circumstances that aren’t present in today’s market,” Amy Lessinger, president at RE/MAX, LLC, tells Forbes Advisor. “Back then, widespread risky lending practices, subprime mortgages and an oversupply of homes contributed to the collapse.”
Is Buying a Home Still a Safe Strategy?
Lessinger explains that enormous pent-up demand could provide a cushion in the event of a downturn.
“While there are certainly considerations around affordability and inventory now and in recent years, these issues are different from the problems that led to the 2008 crash,” she says.
Lessinger emphasizes that housing remains a reliable long-term investment, with trusted real estate agents playing a key role in navigating changing market dynamics and helping clients make well-informed decisions based on their individual financial situations and timing.
Jess Schulman, president and COO at Bluebird Lending, agrees with the unlikelihood of a housing market crash in 2025, noting that all indicators suggest a more robust economy and that further Fed rate cuts are in store. The Federal Reserve slashed the benchmark federal funds rate by 50 basis points in September and then by another 25 basis points in November. Note that one basis point is one one-hundredth of a percentage point.
“Mortgage rate reductions should create more transactions and could result in home price increases because of pent-up demand,” Schulman says.
How Much Are New Homeowners Paying Monthly for a Median-Priced Home?
While the Fed doesn’t set the interest rates that borrowers pay on mortgages, its actions have an indirect impact. Consequently, mortgage rates declined in anticipation of the Fed’s first interest rate cut in September—but that descent turned out to be short-lived.
After steady declines through September, ending at 6.08%, the national average 30-year mortgage rate shifted upward in October, hovering in the mid-6% range and squeezing affordability for home buyers.
For example, a buyer who purchased a $404,500 median-priced resale-home in mid-September with a 20% down payment and a 6.08% rate on a 30-year fixed loan would currently have a $1,956 monthly principal and interest payment. A month later, with average rates at 6.54%, the monthly payment for a home with the same price and down payment increased to $2,053.
“While lower mortgage rates are widely anticipated by home shoppers, reality has not played out as expected,” noted Danielle Hale, chief economist at Realtor.com, in an emailed statement.
Can We Expect a Housing Market Recovery in 2025?
For a housing recovery to occur, several conditions must unfold.
“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”
Meanwhile, mortgage rates have crept back up higher in the 6% to 7% range, though they remain well below the 7.79% October 2023 peak. Experts believe rates may have crested and are hopeful for a turnaround next year.
“We are bullish about the spring 2025 housing market,” said Mike Fratantoni, chief economist and senior vice president for research and business development at the Mortgage Bankers Association, in a press release. “Mortgage rates at this level should support home buyer demand and gradually reduce the lock-in effect, thereby increasing the inventory of existing homes and supporting higher purchase origination volume in 2025.”
Will Homes Finally Be Affordable in 2025?
Despite recent volatility, many industry experts expect mortgage rates to decline in 2025. However, Gumbinger says don’t hope rates cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.
Gumbinger adds that returning mortgage rates to a more “normal” upper 4% to lower 5% range would also help the housing market, but he predicts it could be a while before we return to those rates.
Affordability Seems To Be Improving
Meanwhile, there are clear signs that affordability is improving. For instance, the latest National Association of Realtors (NAR) Housing Affordability Index rose to a preliminary reading of 98.6 in August, up from 93.8 in July. A national index reading below 100 indicates that a median-priced home is unaffordable for the typical family earning a median income—so 100 is in sight.
Additionally, although Freddie Mac reports in its latest Economic, Housing and Mortgage Market Outlook that starter home price appreciation has outpaced other segments, experts say first-time home buyers should soon find more options in their price range.
“We’re seeing an increase in the number of homes on the market and the increase is actually even larger in lower price points,” Hale tells Forbes Advisor. “Builders have actually shrunk the size of new construction homes that they’ve been building trying to address some of these affordability challenges … so that might be an avenue for first-time home buyers to consider.”
Will the Housing Market Be More Balanced in 2025?
Whether the housing market comes into better balance in 2025 will depend on numerous variables, Gumbinger says. These include whether mortgage rates actually decline and by how much, as well as how home prices react amid the unleashing of pent-up demand.
“I would think 2025 will be a better year for housing, but not a great year,” he says. “Affordability would only be improved somewhat, even with lower mortgage rates in place.”
Housing Inventory Forecast: When Will There Be Sufficient Supply To Reduce Prices?
Despite more resale and new homes entering the market, for-sale inventory remains well below pre-Covid averages, according to a Freddie Mac report. Thanks to multiple headwinds, a severe inventory deficit will likely remain for some time.
For one, many homeowners remain “locked in” at ultra-low mortgage rates, unwilling to exchange for a higher rate in a high-priced housing market. Consequently, demand continues to outpace housing supply—and likely will for the remainder of this year.
“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.
In the meantime, in addition to new home construction offering some relief, steeper mortgage rate declines could loosen the lock-in effect and provide some much-needed housing supply. Resale inventory has also been replenishing slowly—with inventory in some states reportedly above 2019 levels—as would-be buyers hold out for lower mortgage rates.
Still, it will take far more supply than these sources can provide to fill the vast inventory deficit that a Pew Charitable Trusts report estimates at four to seven million homes.
Here’s what the latest home values look like around the country.
Home Builder Sentiment Edges Up Amid Easing Inflation, Mortgage Rates
Builder sentiment seems to be back on an upward trajectory—at least for now. Thanks to inflation and mortgage rates easing and builders seeing more of this to come, the outlook for new construction is showing tentative signs of improvement.
Builder Confidence Rising
According to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence rose from 41 to 43 in October. A reading of 50 or above means more builders see good conditions ahead for new construction
Although builder sentiment has remained in negative territory since April, October marks the second consecutive month of gains in the index.
“While housing affordability remains low, builders are feeling more optimistic about 2025 market conditions,” said Carl Harris, chairman of NAHB, in a press statement.
NAHB chief economist Robert Dietz anticipates interest rates to see bumpy but downward-trending mortgage rates in the coming months, enticing more prospective buyers off the sidelines.
New Home Completions Also Increasing
Recent new residential construction data supports the NAHB’s optimistic view.
Housing starts for single-family homes in September were up 2.7% month-over-month and 5.5% from a year ago, according to the latest data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD). New home completions were down 2.7% month-over-month but up 1.6% from September 2023.
Residential Real Estate Stats: Existing, New and Pending Home Sales
Existing-home sales slid in September, but a rebound in pending home sales suggests that pre-owned home sales activity will perk up in the coming months.
Here’s what the latest home sales data has to say.
Existing-Home Sales
Following a 2.5% monthly decline in August, monthly existing home sales receded 1% in September, according to the latest report from NAR. This puts the seasonally adjusted annual sales rate at 3.84 million in September, the lowest annualized rate of activity since 2010. Sales fell 3.5% compared to a year ago.
This latest sales decline comes as the national median resale home price rose 3% to $404,500 compared to a year ago, marking the 15th straight month of year-over-year price growth.
Experts explain that buyers may be taking a time out as they wait for mortgage rates to recede further and for the outcome of the presidential election. Nonetheless, they’re trying to add a positive spin to the data.
“There are more inventory choices for consumers, lower mortgage rates than a year ago and continued job additions to the economy,” said Lawrence Yun, chief economist at NAR, in the report.
The latest NAR data shows inventory ticked up slightly month-over-month, rising 1.5% between August and September and a whopping 23% from a year ago. At the current monthly sales pace, unsold existing inventory stands at a 4.3-month supply. Most experts consider a balanced market between four and six months.
New Home Sales
Meanwhile, new home sales showed continued strength amid builder price reductions and incentives. September sales of newly constructed single-family houses increased 4.1% compared to August and 6.3% compared to a year ago, according to the latest U.S. Census Bureau and HUD data. This increase marked the highest annualized seasonally adjusted new home sales since May 2023.
Lisa Sturtevant, chief economist at BrightMLS, noted that the stark differences between resale and new home sales could be related to timing, as a contract signing triggers the recording of a new home sale versus a closing for a resale home.
She also says to expect more buyers in the market in the last stretch of 2024, predicting mortgage rates to slide closer to 6% and new homes to face more competition amid rising resale inventory.
Pending Home Sales
Despite sour September sales data, a sweet turnaround appears to be on the horizon for the resale market. NAR’s Pending Homes Sales Index rose by a whopping 7.4% in September compared to August—the highest level since March—and was up 2.6% from a year ago.
A pending home sale marks the point in the purchase transaction when the buyer and seller agree on price and terms and is considered a leading indicator of a closed existing-home sale within the next one to two months.
“Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices,” said Yun in the report.
Sales were especially strong in the Northeast and Midwest, which currently offer markets that are more affordable compared to other regions. Beyond this latest data, Yun predicts an even rosier future for the housing market as home price growth continues to decelerate.
“After two years of sluggish home sales in 2023 and 2024, existing-home sales are forecasted to rise to 4.47 million in 2025 and more than 5 million in 2026,” he said.
Will 2024 End With a Foreclosure Surge? Here’s What Experts Say
Lenders began foreclosures on 19,763 properties nationwide in September, down 5% from the previous month and 21% from a year ago, according to real estate data firm Attom. Completed foreclosures also decreased, with real estate-owned properties, or REOs, dropping by 9% compared to the previous month and down 21% from a year ago. REOs are homes that didn’t sell at foreclosure auctions, with mortgage lenders ultimately taking possession.
Third-quarter stats also showed dips in foreclosure activity, with foreclosure filings (the beginning of the legal process a lender undertakes when a borrower misses multiple mortgage payments) declining 2% from the second quarter and 13% from a year ago.
Foreclosures Seem To Be Decreasing, But It Could Change
While this latest data suggests a potential downward trend for the remainder of 2024—and beyond—experts remain vigilant, monitoring multiple economic variables that could introduce stress in the housing market.
“Moving forward, we anticipate foreclosure levels will stay relatively low, but there could be localized increases in areas struggling with affordability or other market pressures,” said Rob Barber, CEO at Attom.
“Foreclosure activity continues to lag behind pre-pandemic levels and is still at about 70% of 2019 numbers,” says Sharga.
Home Equity Levels Impact Foreclosure Levels
Sharga explains that a significant factor contributing to today’s comparatively low levels of foreclosure activity is that homeowners—including those in foreclosure—possess an unprecedented amount of home equity.
Homeowners with mortgages saw a collective increase of $1.5 trillion in home equity, lifting total net homeowner equity to over $17 trillion in Q1 2024, the highest figure since late 2022, according to the latest CoreLogic home equity report.
Meanwhile, more homeowners are getting richer as home price growth surges. The percentage of equity-rich mortgages rose in 48 out of 50 states between Q1 and Q2 this year, according to Attom.
“For a homeowner in the early stage of foreclosure, that equity helps them avoid a foreclosure sale, either by leveraging the equity to pay down past due mortgage bills, or by selling their property in order to protect the equity they’d otherwise lose at the auction,” Sharga says.
Will 2024 or 2025 Be Better to Buy a Home?
Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.
Use a mortgage calculator to estimate your monthly housing costs based on your down payment. But if you’re trying to predict what might happen in 2025, experts say this is probably not the best home-buying strategy.
“The housing market—like so many other markets—is almost impossible to time,“ Orphe Divounguy, senior macroeconomist at Zillow Home Loans says. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs and that they can afford.”
Gumbinger agrees it’s hard to tell would-be homeowners to wait for better conditions.
“More often, it seems the case that home prices generally keep rising, so the goalposts for amassing a down payment keep moving, and there’s no guarantee that tomorrow’s conditions will be all that much better in the aggregate than today’s.”
Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth.
Why Experts Advise Against Postponing Your Home Purchase Until 2025
Should hopeful buyers wait until 2025 to climb the ladder?
Divounguy says if you’re ready to buy a home, now is the best time.
“Competition for homes is a lot less frenzied than it has been—buyers today have more time to review their options, more leverage in negotiations and sellers are cutting prices at record-setting levels,” Divounguy says. “I think waiting for lower rates would be a mistake.”
Gumbinger agrees that waiting until 2025 for market conditions to improve may not be the best home-buying game plan since there are no guarantees.
“If 30-year mortgage rates should fall back to the mid-5% range by mid-year [2025], they will be the lowest in about three years at that point,” Gumbinger says. However, he cautions that lower mortgage rates in 2025 do not equate to a buyer’s market.
“Mortgage rates coming down an appreciable amount over a short time window might incite (or loosen pent-up) demand, and competition for properties would heat back up again.”
Pro Tips for Buyers and Sellers
Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.
Pro Tips for Buying in Today’s Real Estate Market
Hannah Jones, a senior economic research analyst at Realtor.com, offers this expert advice to aspiring buyers:
- Know your budget. Instead of focusing on price, figure out how much you can afford as a monthly payment. Your monthly housing payment is influenced by the price of the home, your down payment, mortgage rate, loan term, home insurance and property taxes.
- Be flexible about home size and location. Perhaps your budget is sufficient for a small home in your perfect neighborhood, or a larger, newer home further out. Understanding your priorities and having some flexibility can help you move quickly when a suitable home enters the market.
- Keep an eye on the market where you hope to buy. Determine the area’s available inventory and price levels. Also, pay attention to how quickly homes sell. Not only will you be tuned in when something great hits the market, you can feel more confident moving forward with purchasing a well-priced home. A real estate agent can help with this.
- Don’t be discouraged. Purchasing a home is one of the largest financial decisions you’ll ever make. Approaching the market confidently, armed with good information and grounded expectations will take you far. Don’t let the hustle of the market convince you to buy something that’s not in your budget, or not right for your lifestyle.
Pro Tips for Selling in Today’s Real Estate Market
Gary Ashton, founder of The Ashton Real Estate Group of RE/MAX Advantage, has this expert advice for sellers:
- Research comparable home prices in your area. Sellers need to have the most up-to-date pricing intel on comparable homes selling in their market. Know the market competition and price the home competitively. In addition, understand that in some price points it’s a buyer’s market—you’ll need to be prepared to make some concessions.
- Make sure your home is in top-notch shape. Homes need to be in great condition to compete and create a strong “online curb appeal.” Well-maintained homes and attractive front yards are major features that buyers look for.
- Work with a local real estate agent. A real estate agent or team with a strong local marketing presence and access to major real estate portals can offer significant value and help you land a great deal.
- Don’t put off issues that require attention. Prepare the home by making any repairs or improvements. Removing any objections that buyers may see helps focus the buyer on the positive attributes of the home.
Source: Forbes Advisor
Written by: Robin Rothstein
Published: November 7, 2024
Posted by Grossman & Jones Group on
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