The real estate market in the new year looks much like the previous year, with high mortgage rates, limited inventory, and low affordability expected to persist into 2025. While there were some positive signs towards the end of last year, such as a four-month rise in pending home sales, the housing market’s deep freeze seems to be slowly thawing. Buyers are adjusting their expectations and taking advantage of the available inventory, particularly in markets like the South where homes are more abundant and job opportunities are plentiful.
Mortgage rates had a slight dip last summer before climbing towards the 7% mark by the end of the year. Despite hopes for a significant drop in rates, the recent caution from the Federal Reserve regarding further rate cuts has dampened expectations. Experts anticipate that mortgage rates will likely hover around the 6% range for the next couple of years.
Economic uncertainties, including inflation risks tied to potential policies under the new administration, are also impacting the housing market. Factors like tariffs, tax cuts, and immigration restrictions could lead to increased consumer prices. Additionally, the bond market is already reflecting these uncertainties, indicating that relief for homebuyers may not be immediate.
Elevated mortgage rates have contributed to the current state of home affordability, with the Federal Reserve Bank of Atlanta reporting the worst affordability levels for average-income families since 2006. Many buyers are stretching their budgets to enter the market, leading to financial strain for a significant portion of new homeowners. Overall, the challenging environment created by rising prices and interest rates is affecting both first-time buyers and those looking to move up the property ladder.
CoreLogic stated last month that many current homeowners who previously secured extremely low mortgage rates are now likely feeling constrained by those rates, further exacerbating the shortage of available homes on the market. However, CoreLogic also mentioned that newly constructed homes are beginning to enter the market in certain high-demand regions of the country, such as Florida and Texas, offering a glimmer of hope for a more balanced market by 2025.
