Good Monday Morning!

Will 2025 bring in an improved housing market with greater affordability for buyers? The economists at the National Association of Realtors believe that this will take place. They are forecasting an improved housing market with slightly lower mortgage interest rates, slower gains with home prices, and a larger inventory of homes. If the past is repeated, our nation does not climb out of a housing crisis quickly. We have always had slow but steady improvements. If NAR economists are correct, it looks like this trend will repeat, and that is great news for homeowners and would-be home buyers as well. Here is the recent NAR report.

The housing market could open up more opportunities to home buyers in the new year and lead to a housing rebound after two years of sluggish sales, housing economists said on Thursday during the National Association of REALTORS®’ Real Estate Forecast Summit. During the virtual summit, NAR released its 2025 housing forecast, predicting stronger home sales (rebounding after hitting a 15-year low this summer), moderating but still increasing home prices, a greater number of homes coming up For Sale—both newly built and existing—as well as stabilizing mortgage rates.

“Home buyers will have more success next year,” said Lawrence Yun, NAR’s chief economist. “The worst of the affordability challenges are over as more inventory, stable mortgage rates and continued job and incoming growth pave the way for more Americans to achieve homeownership.” NAR research shows that if mortgage rates fall to 6%—as NAR predicts they likely will in 2025—homeownership could be made more affordable to about 6.2 million more prospective buyers than when rates were near 7%.

Already, some early signs are popping up that more home buyers are re-emerging: Sales activity picked up this fall as mortgage rates began to slightly ease from multi-decade highs that surpassed 7% to a drop in the mid to upper 6% ranges.

“I’m optimistic about the spring of 2025—all the factors are lining up that we could really see increases … with the increase in inventory really being one to focus on,” said Michael Frantantoni, chief economist at the Mortgage Bankers Association.

Snapshot of Housing Market Outlook for 2025 and Beyond

Existing-Home Sales

  • · 2025: +7% to 12%
  • · 2026: +10% to 15%

New Home Sales

  • · 2025: +11%
  • · 2026: +8%

Median Home Price

  • · 2025: +2% ($410,700)
  • · 2026: +2% ($420,000)

Mortgage Rates

  • · 2025: Near 6%
  • · 2026: Near 6%

Job Gains

  • · 2025: Near 2 million
  • · 2026: Near 2 million

More Listings, But Is It Enough?

Housing inventories have been making sizable gains, with listings up about 20% annually in October. Economists predict that the upswing will continue in 2025 as more homeowners—who may have delayed selling—finally get more motivated, due to stabilizing mortgage rates and improving market conditions. 

“I’m most optimistic about the growing inventory,” said Danielle Hale, chief economist for realtor.com®. “That’s going to make the market better not just for buyers but also sellers—many of whom turn around and become buyers, too. Sellers will still be in a good position with home prices expected to go up but that improving market balance should help to facilitate more transactions … A housing market that is better balanced works better for everyone.”

The expected increase in listings also likely will come from an increase in new home construction, which NAR projects to reach the historical annual average of 1.5 million units over the next couple of years. 

More than half of single-family home construction is occurring in the South, said Robert Dietz, chief economist of the National Association of Home Builders. Also, builders—still facing lot shortages nationwide—continue to focus on new-home construction in the exurbs and outer suburbs, a lasting shift that occurred during the pandemic. 

About two-thirds of builders are using sales incentives to attract buyers, including mortgage rate buydowns and amenity upgrades, Dietz said. “Any frustrated home buyer who is unable to find what they’re looking for in the [resale market] should shop for a new home to see if the upgrades and amenities” and incentives could make homeownership more attractive, he said. He also noted an uptick in lower-cost projects, like townhome construction, which grew by 6% in 2023, that could offer more affordable and entry-level homes.

Mortgage Rates Set a New Normal as ‘Lock-in Effect’ Lessens

NAR is anticipating mortgage rates to moderate, hovering near 6% in both 2025 and 2026. That may prompt more prospective home buyers to finally give up on the return of ultra-low rates in the 2% and 3% range from the pandemic. “The new normal for mortgage rates will be around 6%,” Yun said. “By historical standards … it’s still below the long-term average of 7%.” 

Hale said realtor.com® research shows that 84% of homeowners have a mortgage rate under 6% and that likely will fall to 75% by the end of 2025. “The lock-in effect is likely waning … and will be less impactful for the housing market,” she said. Life changes—marriages, growing families, job changes, retirements, deaths and more—may take precedence over keeping a lower mortgage rate, Yun said. 

Echoing that sentiment, Frantantoni expects a shift to more “repeat home buyers” in the marketplace. “They have the equity to fuel those purchases,” he said, adding that first-time home buyers likely will continue to face affordability challenges. MBA predicts a 20% growth in mortgage originations from 2024 to 2025, coming off low volume levels and based on projections that home sales will increase in the new year. 

Home Prices Still Increasing But on a Smaller Scale

Home prices are expected to continue to rise, albeit at a slower pace than in previous years. NAR predicts a 2% increase next year, reaching a $410,700 median existing-home price. 

After years of appreciation, homeowners have accumulated record-high amounts of equity in real estate. That has put homeowners’ median net worth surging above renters’—projected in 2024 to be $415,000 median net worth for homeowners versus $10,000 for renters, Yun said. About one-third of repeat home buyers are leveraging the equity from a home to pay all cash on their next purchase, a growing portion that is also part of the record high of all-cash buyerswho dominated the 2024 market, at 26%, said Jessica Lautz, NAR’s deputy chief economist.

“The housing market has been working really [favorably] for existing homeowners, but it has been more of a challenge for others to break into,” Hale said, noting the affordability challenges of first-time home buyers (whose market share fell to a record low of 24% in the 2024 housing market). “But with home prices going up at a slower pace … affordability likely will marginally improve,” she added, along with income gains and an increase in new-home construction and housing inventory that can help more home buyers move ahead in the new year.

Some housing markets are expected to rebound faster than others in 2025. Find out which ones: NAR unveils its Top 10 Housing Hot Spots for 2025.

Have An Awesome Week!

Stay Healthy! Stay Safe! Remain Positive! Trust in God!

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