The two major trends in the housing market that we should keep an eye on in 2025

All housing market data for 2024 are in, and it is fair to say that the housing market has surprised us again! However, there are two big trends that stand out as we head into 2025: affordability and sellers in the marketplace.

The elephant in the room is affordability. House prices have risen nationally by a few percent in 2024 and mortgage rates are at their highest level in seven months – more than 7% as we enter January. In fact, at $2,290, the typical mortgage payment for homebuyers starts this year at an all-time high.

There are a few markets in the South where home prices have fallen recently — and every little bit helps buyers — but those prices haven’t adjusted much, and there are no signs of a major correction in the works. By 2025, U.S. housing affordability will remain at its worst level in decades.

In recent months, the market finally saw some sales growth compared to the previous year. That growth will be at risk if we remain on the high side of mortgage rates until the first quarter of 2025. Homes now stay on the market 20% longer than a year ago. The quickest path to changing affordability is changing interest rates, but there is no guarantee that interest rates will fall.

In HousingWire’s mortgage interest rate forecast for 2025, we have included the possibility of a five-hand interest rate during the year. What is the scenario in which mortgage rates fall by more than 100 basis points in 2025? If we’re lucky with the economic news and spreads continue to tighten a bit, we could see some relief from the affordability crisis everyone is in right now.

The other trend to watch is whether more sellers will finally enter the market in 2025. The three years of the post-pandemic housing market have been marked by very few sellers – 60,000 new homes in a given week versus 80,000 in recent years. . There are some signs that seller volume is starting to creep back to normal levels.

Let’s look at this week’s data and see if we can unravel the signals impacting the housing market in 2025.

The stock continues to shrink

There are now 651,000 single-family homes unsold on the market in the US. That is 2.5% less than a week earlier. Of course it’s the holidays. This week we will see another week of inventory shrinkage, midway through the week of New Year’s.

Some years, when demand is stronger, the available inventory of unsold homes continues to shrink until February or March. But demand isn’t strong nationally, so we expect inventory to fall below 650,000 homes in January and start rising again in February.

Inventory is increasing in virtually every market across the country. Sun Belt markets have led inventory growth while Northern markets have been much tighter, but we expect this disparity to disappear somewhat by 2025.

There are few new entries

Looking deeper into the supply side of the market, there were 32,500 new listings unsold this week. That is very low during the holidays. But it’s notable that there were more new listings this week in the last week of the year than in the same week in the last six or seven years.

It’s hard to measure exactly with the holidays, but 32,000 is 33% more than came onto the market in the 52nd week of the year in 2023. This is probably related to when the holiday falls on the day of the week. The thing to keep an eye on is that in December we had much more “normal” levels of new listings each week.

These are unsold new listings. There is another group of sellers that we call “instant sales.” These are the homes that are put on the market and receive offers immediately after listing. They are never added to the active inventory because they have already been sold. Taking these new offers into account, there were 21% more sellers than a year ago.

We have an average of 8% more sellers every week. There were only 5,000 direct sales this week. That is the least since we started measuring this phenomenon during the pandemic. Again, it’s the holidays, so there’s a lot of noise around the day of the week that Christmas and New Year fall so close. Keep an eye on the number of new offerings as we move into the first quarter of 2025. It may be that the shortage of sellers is finally easing.

The total number of outstanding applications is increasing

Looking at sales volumes, there are 269,000 single-family homes under contract. That is 4.25% more than where we closed 2023. It is the end of the year and there are now 8% fewer homes under contract than in the week before Christmas. This is the week of the New Year’s holiday, so we have another week of declining home sales before the rebound begins in January.

This graph shows the total number of single-family homes under contract. Each line is a year. The red lines are 2024 and 2023, which saw very few home sales and is just starting to increase. On the left side of the graph you can see that 2025 starts just above previous years. These are ongoing contracts, so these are sales that will be closed in January.

There are 30% fewer home sales underway than at the beginning of 2022, when the pandemic frenzy was still underway. Still, you can see why we predict 2025 will have 5% revenue growth over 2024

It will be fascinating to see home sales next month. How sensitive are homebuyers to the 7% mortgage rate and this latest affordability crisis? Are we losing all the sales momentum we’ve been seeing lately?

The new average pending has dropped to 44,000. The last four weeks this year include both Christmas week and late Thanksgiving week. Yet the weekly average of new applications is only 1.3% above last year. Keep an eye on the outstanding details. I remain optimistic that we will see some revenue growth in 2025.

House prices lead to an affordability problem

Let’s move on to house prices and affordability issues. Nationally, home prices will start at $395,000 in 2025, which is 4% higher than a year ago. If you have the Altos Research data every week, this will not surprise you. Even when home sales are low, when the stock of unsold homes increases across the country, and when affordability is at crisis levels, home prices have not fallen. In fact, they are getting closer.

In this view we have the median price of all homes under contract. The 2024 red line at the top shows how prices cluster right around the big round numbers, in this case $400,000 for most of the year.

It turns out that due to a host of factors, including seller psychology and legal and tax reasons, it is rare for home prices to decline year after year. This vision shows us the year 2022, when mortgage rates soared after the pandemic – higher and faster than anyone expected.

The important lesson from the data is that while affordability is the most important issue for homebuyers, we have not seen any signal that the price of homes will fall.

Price reductions higher than in Q1 2024

Finally, let’s look at the leading indicators for home prices at the start of 2025. There are currently 36% of homes on the market that have seen a price reduction from the original list price. That’s more than we started in 2024, indicating a slightly weaker balance between supply and demand than a year ago. There are 27% more homes on the market and only 4% more sales, so you can see why slightly more sellers are attempting a price reduction than a year ago.

However, this number is not very high. It will continue to decline this spring with new inventory and new buyers for the coming months. If mortgage rates remain above 7%, buyer demand will remain limited and some sellers will not get the deals they were hoping for. Buyers like to wait, while sellers have to act.

These price reductions are a leading indicator for future sales prices. This number has now been increased, and with a mortgage rate of 7% from 2025, this is where we will see how many homebuyers are concerned about this affordability crisis.

Mike Simonsen will be a featured speaker at the Economic top in the field of housing in Dallas on February 26. More information here.