Housing Market Expected to Improve Next Year, Though Challenges Persist

The housing market in 2024 was one of the slowest for home sales in decades, leaving buyers and sellers frustrated. Looking ahead, 2025 is likely to bring modest improvements, though the road to recovery will remain uneven.

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Challenges such as 6% to 7% mortgage rates and high home prices persist, but experts predict a slight increase in inventory as buyers and sellers adjust to the higher-rate environment. This adjustment could signal a more active market in the coming months.

Breaking Free from the "Lock-In Effect"

Since mortgage rates surged in 2022, homeowners have been reluctant to sell, preferring to hold onto their lower 3% rates rather than face significantly higher ones. However, life events like job changes, growing families, and marriages will continue to create housing needs. This so-called "lock-in effect" may finally ease as rates stabilize and more homes come to market.

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Scott Pratt, a realtor from Buford, Georgia, expects an increase in inventory by spring 2025, with improved deals appearing as sellers become more realistic about pricing.

"By the end of 2025, even those who felt stuck will start to move," Pratt shared.

Affordability Stays a Major Hurdle

The recovery will remain slow due to ongoing affordability issues. Median home prices are roughly 30% higher than pre-pandemic levels, far outpacing income growth. High property taxes, insurance costs, and elevated mortgage rates further limit access to homeownership for many.

Danielle Hale, chief economist at Realtor.com, projects a 1.5% rise in existing home sales for 2025, reaching approximately 4.07 million. However, this figure is still well below the pre-pandemic annual average of 5.28 million homes sold. Surveys show buyers are waiting for rates to drop closer to 5.5% before jumping back into the market. While such a drop is unlikely, experts believe rates could stabilize between 6% and 6.5%, prompting some buyers to act.

Regional Trends Highlight Uneven Recovery

Nationally, home prices are expected to rise 2% to 4% in 2025, aligning with historical trends. However, regional differences will shape housing markets in unique ways:

• Coastal Metros: Cities like Boston, New York, and Washington, D.C., may see significant price increases due to limited inventory and demand from wealthier buyers.

• Southeast and Midwest: Areas like Florida and the Midwest might experience more moderate growth. Florida's condo market, for example, continues to struggle with repair costs stemming from the 2021 Surfside collapse.

• Pandemic Boomtowns: Cities such as Tampa, Florida, and San Antonio, Texas, may see flat or slightly declining prices following dramatic fluctuations during the pandemic.

"The divide in the housing market is widening," said Lisa Sturtevant, chief economist at Bright MLS. "Buyers with resources will thrive, while others face growing barriers."

Economic Uncertainty and Market Recovery

The incoming Trump administration's policies add another layer of unpredictability. Potential deregulation could boost home construction, increasing housing supply and easing prices. However, tax cuts or tariffs may fuel inflation, keeping mortgage rates higher for longer.

Jon Benya, a real estate agent in Waldorf, Maryland, noted concerns about potential federal job cuts. "If people fear job insecurity, buying a home drops to the bottom of their priority list," he explained.

Preparing for 2025: Opportunities and Challenges

While challenges like affordability and economic uncertainty persist, 2025 offers cautious optimism for gradual recovery. Buyers prepared to navigate the complexities of this market may find opportunities as inventory improves and rates stabilize, making the housing market slightly more accessible.

Also Read: Home Contract Signings Rise for Third Month as Buyers Overcome Higher Rates