Housing Market Outlook: What to Expect in 2025
The US housing market is facing a critical juncture, with affordability crisis looming large. According to Moody’s Analytics economist Matthew Walsh, restoring 2019’s housing affordability levels would require a drastic 40% drop in home prices or a staggering 70% wage hike.
Home Prices Continue to Rise
Despite the challenges, home prices show no signs of slowing down. Redfin’s November data reveals a 5.4% year-over-year increase, with median home sale prices reaching $430,010. Zillow reports a 2.5% annual increase, with typical home values standing at $357,469. Experts predict continued price growth in 2025, albeit at a slower pace.
Mortgage Rates: A Key Variable
Mortgage rates remain a crucial factor in the housing market. Zillow senior economist Kara Ng expects rates to stay above 6% throughout 2025, while Redfin forecasts an average of 6.8% with weekly fluctuations. Buyers should be prepared for a year of uncertainty, with rates influencing their purchasing decisions.
Rental Market Offers Some Relief
The rental market, however, offers some respite for tenants. Redfin chief economist Daryl Fairweather predicts that new apartment supply from pandemic-era construction will keep rents flat in 2025. Rising wages will improve rental affordability, even as home purchases remain out of reach.
Homeowners Start to List Properties
Homeowners who delayed selling amid high rates are now showing signs of listing their properties. This trend, combined with new construction reaching the market, could help recalibrate the wages and bring the market closer to balance.
Campaign Promises and Market Dynamics
The supply shortage has sparked campaign promises from both presidential candidates to address the widening gap between housing supply and demand. However, market dynamics during 2024 will likely overshadow any new policies from the administration. Major shifts in rates or income remain unlikely for 2025, according to Walsh.
Investing in Real Estate
In this uncertain market, investors are looking for alternative ways to capitalize on real estate opportunities. Certain private market real estate investments offer high-yield opportunities, providing access to a pool of short-term loans backed by residential real estate. With minimum investments as low as $100, these opportunities are becoming increasingly accessible to retail investors.
What’s Next for the Housing Market?
As we move into 2025, the housing market will continue to face challenges. While experts predict continued price growth, the pace is expected to slow. Mortgage rates will remain a key variable, and the rental market may offer some relief for tenants. As the market dynamics unfold, investors will need to stay vigilant and adapt to the changing landscape.
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