Rates are in the spotlight again as 2025 approaches. That short-lived dip to two-year lows prompted renewed optimism for home buyers and bumped sales volume, then the rebound in October brought a reminder of unpredictability. Rates are likely to remain volatile throughout next year, say Zillow economists.
Read on for more about rates and four more predictions for 2025.
Housing market activity will pick up, home value growth will cool
“Buying a home in 2024 was surprisingly competitive given how high the affordability hurdle became,” says Zillow Chief Economist Skylar Olsen. “More inventory should shake loose in 2025, giving buyers a bit more room to breathe.”
Expect to see more sales and only a modest 2.6% increase in home value growth in 2025, as the market slowly becomes unstuck. This is mainly because we expect more sellers to list next year. A steadier market could make for simpler pricing conversations with those seller clients.
Some markets are expected to outperform this forecast, such as Hartford, Connecticut (4.2% home value growth), Providence, Rhode Island (3.9% growth), and Miami (3.8% growth).
But markets like New Orleans (-3.8%) and San Francisco (-2.3%) are expected to see declines, while Austin is predicted to have minimal growth (0.4%).
Mortgage rates will remain volatile
Borrowing costs should ease in 2025, but as we saw in 2024, mortgage rates rarely do what’s expected of them. What’s more certain is that buyers should expect plenty of ups and downs throughout the year. Also expect sprints of refinancing — which can present conversation opportunities of their own — during the rate dips.
Buyer’s markets will spread to the Southwest
As of November 2024, a total of 25 major metro areas, mostly in the South and Southeast, were considered buyers markets, according toZillow’s Market Heat Index. Zillow predicts buyers markets will spread to the Southwest in 2025 as inventory continues to come unstuck in relatively affordable markets.
These buyers markets should see the greatest number of movers, while sellers will feel the heat of competition. But if mortgage rates fall more than expected, it dims the prospect that buyers markets will spread west. A significant mortgage rate dip would bring more buyers back to the market, again tilting negotiating power in favor of sellers.
More Americans will embrace small-home living
The pandemic-era need for more space is coming to an end. In 2025, buyers will increasingly embrace smaller homes as a more sustainable and affordable way to live.
The word “cozy” is appearing in more listings — 35% more in 2024 compared to 2023 — reflecting design trends that have shifted away from spacious open floor plans, toward more contained spaces that save both builders and buyers money.
John is talking about builders here but I couldn’t pass up his mention of last January and February being sensational, and then fizzling out. If rates start climbing again (and it was a bad week – see above), we could have a surge of new listings colliding with rising rates that together really scare off the buyers.
First, a look back
After more than a few rough spots in 2023, January and February of this year were nothing short of sensational. But that soon fizzled as mortgage rates regained their unwelcome upward momentum and sapped much of the wind out of the sails of the spring selling season. As Dillan said, “Once we got into those core spring selling season months—March, April, May—rates went up to 7%–7.5%,” and momentum slowed.
Part of this is the return of normal seasonality to the housing market. Cara highlighted this: “Seasonality has returned, and people have to accept that.” She noted that builders are learning to navigate a market where traditional patterns are re-emerging post-Covid, offering some stability amid uncertainty.
But that beginning-of-the-year head fake has possibly colored how we view the year. The housing market took every punch high rates had to offer yet was still standing by year’s end. That many see 2024 as a disappointment, then, seems unfair. Maybe LeBron cooled off after a monster first quarter, but he still wound up with a solid 25 points. (That’s two sports analogies in one bullet. Nice.)
Some things change, some things don’t
Though the Sunbelt and more affordable markets remain the growth loci, high-flying states like Florida and Texas have seen setbacks. Rising listings and new home inventory have softened sales in many markets in those states, even while other parts of the Southeast continue to thrive.
One thing that has not changed is the continuing dominance of larger builders. Jody called the growing market share of public builders—nearly half of all new home sales— “mind-boggling” (obviously, she hasn’t seen Blades of Glory). Access to capital and land, the ability to negotiate national contracts, and integrated information systems give bigger builders an edge.
Smaller private builders, though, are still in the game. They can carve out a niche with their local knowledge, long-term relationships, nimbleness in going after land, and sometimes partnering with bigger players. As Jody explained, “Private builders are often very well-connected locally.…They dominate specialty sites, like close-in transit-oriented locations, that public builders shy away from.”
If it is changing at all, affordability is another item that is trending for the worse. Home sales to first-time buyers are at record lows while rising prices and still-high mortgage rates don’t offer much hope for improvement. Affordability is something we are all keeping an eye on.
Not sure if you noticed, but we had an election
While there are some potential pluses with a new administration, like regulatory relief that could lower building costs or a friendlier development environment, uncertainties are looming over 2025. A couple of those stand out:
Threatened tariffs against Mexico, Canada, and China have the potential to reinflame inflation. High inflation means higher rates, which worsens affordability and makes builder buydowns more expensive—and more necessary.
Immigration restrictions would likely exacerbate labor shortages and raise labor costs. They could also deplete demand, particularly if there are restrictions on the H1B visas that many high-earning tech sector workers rely upon.
Though builders face these uncertainties, they have proven adept at figuring out ways to find buyers. With buydowns, more speculatively built homes to maintain absorption levels, and tapping into resale broker networks, builders have found ways to succeed. Success breeds optimism, and most builders forecast sustained growth for 2025.
To demonstrate further how the momentum is building, let’s look at SE Carlsbad.
4th Quarter SFR Closed Sales Between $2,000,000 and $3,000,000 in the 92009:
2023: 9
2024: 23
The optimism coming off the election helped, because ALL of these went pending since November 5th:
Only one had to take a real haircut on price – so far, two sold for full price and one sold over list!
If four of the pendings close this month, it will mean that the 4Q24 sales were 3x more than last year!
True, those could have been the last buyers ever for the 92009. But doesn’t there have to be potential buyers who decided to wait-and-see what 2025 has in store? I think so, and around the 92009, there will be a strong set of recent comps to support the valuations!
It reminds me of the 4th quarter of 2012 which snuck up on us because the short sales and foreclosures had not cleared yet. The NSDCC sales in 4Q12 were 44% higher than in the previous fourth quarter, and the following year, 2013, was the hottest year of the decade.
As usual, the pricing forecasts for next year are varied. How do we know what to expect?
The average and the median is +3.55%.
Two entities picked +2.3%.
Just go with the highest at +10.8%?
Moody’s, the leader of the Doom Squad, just couldn’t say flat. They had to go with -0.4%.
None of these supplied their math or any reasoning to justify their guesses.
We do have this going for us:
“The American people re-elected President Trump by a resounding margin giving him a mandate to implement the promises he made on the campaign trail, like lowering housing costs for all Americans. He will deliver,” said Karoline Leavitt, spokeswoman for the Trump-Vance transition.
NSDCC 2024 Detached-Home Annual Sales:
Median Sales Price: +9% YoY
Average $$/SF: +7%
Median $$/sf: +10%
Sales +2% and we still have the whole month of December to add!
Realtor.com, owned by News Corporation, has thoughts on how Trump will affect the real estate market:
On the campaign trail, Trump had blamed rising home prices on a surge of illegal immigration during the Biden administration. He also claimed that he would somehow lower mortgage rates if elected, although presidents do not control mortgage rates.
Here’s a look at some of Trump’s signature policy proposals, and what impact they might have on the housing market.
He makes an interesting comparison between June and December.
It looks like this will be the first year in the last eight that could have a higher months-of-supply reading in December than in June. If so, it means there will be more than the usual active (unsold) inventory carrying over into 2025.
It’s been steady between La Jolla and Carlsbad lately, using the average number of actives for the month:
NSDCC Months-Of-Supply
June, 2024: 470/153 = 3.07
October, 2024: 470/165 = 2.85
Last month, there was a flurry of sales that keeps the ratio down for now, but the number of December sales should be quite lower. It looks like we could enter the new year with 400+ unsold listings, and I sugggested here that the healthy months-of-supply (active listings divided by monthly sales) is around 3.0. It looks like it the actual ratio will be closer to 4.0 by the end of the year.
Bill suggests that it will cause soft prices. I agree.
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Lance says the SD inventory is +63% YoY – the highest of any metro on his list. Yikes!
The Fed came through yesterday and lowered their rate by 1/4%.
It caused mortgage rates to come all the way back to….7%.
This is probably as good as it will get for the next few months.
The market feels fairly balanced currently, with some tilt towards a buyer’s market for the fixers and older listings. Creampuffs are still selling for a premium!
I think any distractions from the election have passed and the housing market should be better than expected for the rest of the year! Those who are thinking about selling in 2025 and who are ready to go now should consider expediting their plans.
When to sell your home:
When no one else is.
When you have good comps.
When you know where you’re going.
If you have all three going for you now, let’s go!
Most home sellers are reluctant to do much, if anything, to prepare their home for sale. The covid frenzy was very forgiving when buyers were desperate to buy anything at any price – which spoiled sellers (and agents) who were still able to sell homes for retail regardless of condition. Those days have passed:
With all the talk about the presidential election being so close, some thought it could take weeks to determine the eventual winner – and only a powerful Trump victory could avert it.
Standoff averted!
No matter how you feel about it, another Trump presidency should be good for home sales.
Why? Because we saw when Covid broke out that uncertainty encourages people to hunker down.
Buyers will be motivated to end their search before rates go much higher – which will be in the mid-7s shortly. If my predicted surge in inventory happens early in 2025, there will be plenty of homes to go around. Some will wait-and-see, but the highly-motivated buyers and sellers (the only ones that matter) will be pushing to make deals as soon as possible.
Who should put their home on the market right now?
The homes with big ocean views. December and January have clear weather and the best time to appreciate the view, unlike April-June when it is gray and gloomy.
Fixers – the homes that need work are easy to skip when the choices are plentiful.
The unicorns – the unusual homes that are hard to value.
Just when it looked like home sales were going to take a break….here we go!
I thought the run-up to the election would cause potential home sellers to wait it out.
Wouldn’t it make sense to NOT list your home in the month or two before the most contentous election in history? Certainly home sellers would have foresight and believe that buyers would be distracted. Everyone would be doing the wait-and-see!
Nope – and we’re not done with new listings this month. There will probably be another 10-20 homes go on the market before Friday (plus late-reporters).
It means that a surge of listings is in the works.
Our stager told Donna yesterday that she is already getting booked up for January. Our regular contractors have been voicing the same thing – they are very busy, and getting busier.
How about this as an indicator:
I already have three listings signed for January/February, and another 2-3 in the works. Never before have we had a January listing signed in October!
It means the first quarter of 2025 is going to be insane – a frenzy of inventory!