Here’s what prospective homebuyers can expect in 2025.
Transcript:
CONWAY GITTENS: So the housing market in 2024, the slowest in decades. Do you expect the real estate market to pick up at all in the new year?
RALPH MCLAUGHLIN: If you squint really closely and you look at the data, it looks like 2025 will bring a little bit more life into the housing market than 2024. And I emphasize a little bit more. We are expecting home sales to increase by just about 1.5% so not much improvement over 2024. We are expecting however prices to continue to rise. They’re going to rise by about 3.7% And we do expect new construction to actually pick up a lot. The somewhat unfortunate news for those looking to buy a house is that our forecast for mortgage rates isn’t really much improved from where they are at now. We do expect them to average at about 6.3 to 6.5% for the year for 2025, and to end around the 6.3 mark. So not much improvement on that front. But there’s still a lot, still a lot of pent up demand in the market. And we do think time will erode some of the lock in effect of the high mortgage rate environments that we’ve seen over the past couple of years.
CONWAY GITTENS: So your firm recently released their 2025 housing forecast report. So give me some of the key takeaways from your outlook.
RALPH MCLAUGHLIN: Yeah, I think the biggest takeaway is like I just mentioned, mortgage rates are going to continue to be high. They’re not necessarily going to make the market any less of a desirable place than it was in 2024, but the bar is pretty low for that. We do expect sales to increase by about a percentage and a half. We do expect prices to continue to rise. But consumers are still under a lot of pressure. In particular, they’re under pressure from high mortgage rates and prices that really have not come back down. Typically what we’ve seen in the past when mortgage rates go up is that prices adjust and you get some built in affordability. But we haven’t seen that this time around.
One of the biggest things I think to look forward to, the silver lining in all of this is that we do expect buying power of consumers to increase slightly. And that’s going to be the first time in many, many years that home buyers actually will have felt an increase in buying power. And that’s due to a combination of mortgage rates that are going to fall again, down to maybe the 6.26.3 mark. So they’ll get some help from falling mortgage rates. But I think most importantly, they’re going to get help from growing incomes. We do expect incomes to grow by about 3.3 to 3.5%.
So the combination of those two is going to increase buying power. And then on the flip side of the market. We do expect inventory to continue to rise. We are at the highest levels of inventory. Now that we have been since before the pandemic. We expect that to continue into 2025. We expect inventory to go up by 11.7 11.8% So the overall impact on sales, we expect it to be fairly muted for home buyers. It could be a particularly good time to get out into the market because you are going to have slightly better buying power as your incomes go up and mortgage rates come down and 3, you’re going to have more inventory on the market. So you’re going to have more choice. And that’s not something that buyers have really had much over the past several years.
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