The Housing Market is at an Inflection Point
As we prepare to head into 2025, the U.S. housing market is at an inflection point. We’ve seen unprecedented low inventory levels over the past few years, and we still face a national market defined by limited supply. This inventory scarcity in many markets has kept home prices high, given investors few homes to consider, and made it challenging for single-family investors to find acceptable deals.
The good news?
Now that the average 30-year fixed mortgage rate has dropped to 6.08% as of last week, and the Fed has shifted into rate-cutting mode, some homeowners—who might have wanted to sell their home and buy something else over the past two years but didn’t, unwilling to trade their 3% or 4% rate for a 7% or 8% rate—may now consider making the move if rates stay below 6.0%.
For single-family investors and landlords, this could create opportunity.
While the market may not be delivering major price corrections, I expect that transaction volumes will increase as rates stabilize. This uptick will foster a sense of optimism in the market. A slight increase in turnover within the existing home market will create more opportunities for investors to find the right deals, even if we don’t experience significant price drops or the same level of rent appreciation we had over the prior years. Moving forward, maintaining realistic expectations regarding proforma rents and expenses will be key for investors as they evaluate the increased inventory to the market.
Here are a few expanded thoughts.
Listing Recovery Will Take Time
Now that mortgage rates have come off the highs, we should begin to see more new listings. However, it’ll take time/years to get the resale market fully back to pre-pandemic 2019 levels for new listings. Even with mortgage rates coming down slightly, we’re still in a situation where the majority of homeowners are sitting on sub-4.5% rates, and many are unwilling to sell their homes unless it’s necessary. Simply put, the lock-in effect will ease but not disappear in 2025.
Total U.S. new listings for sale, by month
There are Already More Deals in Regional Pockets
Unlike new monthly listings, total active listings—everything for sale in a given month—are already beginning to increase/recover in some areas of the country. Affordability concerns, the end of the pandemic migration boom, and competition from builders using buydowns mean that existing homes are taking longer to sell in certain pockets of the country. For example, Days on Market are increasing in some areas. Much of the increase in active inventory has occurred in pockets of the Southwest and Southeast, which were extremely red-hot during the pandemic housing boom. Homebuyers have already gained more leverage in areas where active inventory is rising.
Where active housing inventory for sale is above (purple) or still below (yellow) pre-pandemic levels
The Biggest Mortgage Rate Dip is Here--But a Little More Could Come
The biggest drop in mortgage rates, with the average 30-year fixed mortgage rate as tracked by Freddie Mac falling from 7.79% in October 2023 to 6.08% as of last week, might already be here. While most of the major research firms still expect some more declines for mortgage rates, they don’t foresee anything too dramatic coming over the next year.
Below is the forecast for the average 30-year fixed mortgage rate in Q4 2025:
- Mortgage Bankers Association: 5.80%
- Fannie Mae: 5.70%
- Wells Fargo: 5.55%
Where the average 30-Year Fixed mortgage rate is predicted to go through the end of 2025
Big Picture
As mortgage rates decrease slightly and more inventory enters the market, transaction volume should increase, boosting confidence across the real estate sector, including among realtors, mortgage professionals, and investors. Though significant home price and rent changes are unlikely in 2025, the increase in confidence and transaction volumes should make everyone involved in the market happier in 2025.