The real estate market is expected to remain unchanged in 2025 due to the high mortgage rates, limited supply, and poor affordability that have beset the housing sector.
Late last year, there were a few indications of progress. Through November, pending house sales increased for four consecutive months, raising optimism that the two-year deep freeze in residential real estate was beginning to lift. According to industry experts, consumers are becoming more flexible with their expectations and concluding that they cannot wait for mortgage rates to drop before purchasing a property.
Lawrence Yun, chief economist for the National Association of Realtors, said in a statement that consumers are taking advantage of additional inventory that is available in some locations. Over the last 24 months, the average mortgage rate has been more than 6%. Buyers are no longer anticipating or waiting for a significant decline in mortgage rates. Pending house sales increased 5.2% in November, especially in the South, where there are comparatively more homes and jobs.
Prior to the Federal Reserve’s first interest rate decrease in four years in September, mortgage rates fell in the latter part of the summer. At the end of the year, however, they started to march toward the 7% threshold and have stayed at decades-long highs. Therefore, the roughly 22% decline in mortgage applications at the end of December was not shocking. Although that is usually the slowest month for homebuying, expectations that mortgage rates will drop much in the near future have been shelved as the central bank has signaled caution on the pace of additional rate decreases this year.
Robert Reffkin, the CEO of Compass, a real estate company, told CNBC last month that he no longer believes mortgage rates would drop to zero in the upcoming year or even the year after. For the next two years, we think they’ll remain around the 6% level.
The housing market is also being affected by broader economic uncertainty, specifically the inflationary risks associated with President-elect Donald Trump’s economic program.Most economists concur that restrictions on immigration, additional tax cuts, and tariffs pose a danger to consumer prices.
Trump’s promised mass deportations of undocumented people, homebuilders warned NBC News last autumn, ahead of the election, would deplete their immigrant-heavy workforces, slowing construction and raising prices. However, some expressed skepticism that the next government could implement such a broad crackdown.
Homebuyers waiting for relief may be let down because mortgage rates are determined by the yield on 10-year Treasury notes, and the bond market is already accounting for some of these policy concerns. According to a poll of mortgage lenders conducted last year, 56% of potential purchasers want a mortgage rate in the 5.5% to 5.75% range, which appears to be well out of reach in the near future.
One of the main causes of the poorest housing affordability in decades is high mortgage rates. According to the Federal Reserve Bank of Atlanta, average-income family affordability is at its lowest point since 2006. Budgets are being stretched by many of the people who have been entering the market. About one in four middle-class new homeowners, twice as many as ten years ago, are purchasing homes whose costs leave them financially constrained, according to an October NBC News study of federal statistics.
According to statistics firm CoreLogic this month, the ongoing rise in prices and interest rates has made the real estate market difficult for both first-time purchasers and those aiming to advance in their careers. According to the report, a large number of current homeowners who were able to obtain ultra-low mortgage rates in the past are probably feeling tied in at this time, which makes the inventory deficit worse by reducing the number of available properties.
According to CoreLogic, there is some hope for a more balanced market in 2025 because new houses are still being built in several in-demand regions of the nation, such as Florida and Texas.
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