The silver lining of the 2025 housing market

The Street

Ralph McLaughlin, Senior Economist at Realtor.com, joins TheStreet to reveal the silver lining of the 2025 housing market.

Transcript

00:00So, the housing market in 2024, the slowest in decades.

00:05Do you expect the real estate market to pick up at all in the new year?

00:09If you squint really closely and you look at the data, it looks like 2025 will bring

00:15a little bit more life into the housing market than 2024.

00:18And I emphasize a little bit more.

00:21We are expecting home sales to increase by just about one and a half percent.

00:26So not much improvement over 2024.

00:29We are expecting, however, prices to continue to rise.

00:33They're going to rise by about 3.7 percent.

00:37And we do expect new construction to actually tick up a lot.

00:42The somewhat unfortunate news for those looking to buy a house is that our forecast for mortgage

00:50rates isn't really much improved from where they are at now.

00:55We do expect them to average at about 6.3 to 6.5 percent for the year for 2025 and to

01:02end around the 6.3 mark.

01:04So not much improvement on that front, but there's still a lot, still is a lot of pent-up

01:09demand in the market.

01:12And we do think time will erode some of the lock-in effect of the high mortgage rate environments

01:18that we've seen over the past couple of years.

01:20So your firm recently released their 2025 housing forecast report.

01:25So give me some of the key takeaways from your outlook.

01:29Yeah, I think the biggest takeaway is, like I just mentioned, mortgage rates are going

01:35to continue to be high.

01:37They're not necessarily going to make the market any less of a desirable place than

01:43it was in 2024.

01:45But the bar is pretty, pretty, pretty low for that.

01:47We do expect sales to increase by about a percentage and a half.

01:54We do expect prices to continue to rise.

01:57But consumers are still under a lot of pressure.

02:03In particular, they're under pressure from high mortgage rates and prices that really

02:11have not come back down.

02:12Typically, what we've seen in the past when mortgage rates go up is that prices adjust

02:16and you get sort of some built-in affordability.

02:19But we haven't seen that this time around.

02:22One of the biggest things I think to look forward to, the silver lining in all of this,

02:28is that we do expect buying power of consumers to increase slightly.

02:35And that's going to be the first time in many, many years that homebuyers actually will have

02:39felt an increase in buying power.

02:42And that's due to a combination of mortgage rates that are going to fall, again, down

02:47to maybe the 6.2, 6.3 mark.

02:50So they'll get some help from falling mortgage rates.

02:53But I think most importantly, they're going to get help from growing incomes.

02:57We do expect incomes to grow by about 3.3 to 3.5%.

03:02So the combination of those two is going to increase buying power.

03:06And then on the flip side of the market, we do expect inventory to continue to rise.

03:13We are at the highest levels of inventory now that we have been since before the pandemic.

03:17We expect that to continue into 2025.

03:21We expect inventory to go up by 11.7, 11.8%.

03:25So the overall impact on sales, we expect it to be fairly muted.

03:29For homebuyers, it could be a particularly good time to get out into the market because

03:33you are going to have slightly better buying power as your incomes go up and mortgage rates

03:37come down.

03:38And three, you're going to have more inventory on the market.

03:42So you're going to have more choice.

03:44And that's not something that buyers have really had much over the past several years.

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