6 days Ago By Cory Smith
Home sales are expected to rise next year, but the market isn’t likely to fully normalize even though more supply should help throttle rising prices and spur activity. The National Association of Realtors published its 2025 outlook, which calls for a 7% to 12% increase in the sales volume of existing homes and a 2% price increase to about $410,000. NAR expects about 4.
5 million home sales next year after a couple of years closer to 4 million. NAR Chief Economist Lawrence Yun said 6 million home sales would be a normal amount given current job and population dynamics. But the housing market is just beginning its course back to normalcy.
Home sales have been depressed while home prices have shot up by about 50% over the last five years. Some sellers have stayed on the sidelines because they locked in mortgage rates much lower than the going rates. The lack of supply drove up prices, blocking many buyers from the market.
October saw the first annual growth in home sales since summer 2021. Yun said pending contracts for November point to another month of positive sales growth. He said the depressed housing market looks like it has “turned a corner.
” “We are not fully there in terms of normal transaction volumes, but it’s an improvement from this very frozen market we experienced in the past couple of years,” he said Friday. An outlook that calls for continued price increases might not sit well with buyers, but the 2% forecast is tame compared to the price increases of recent years. Yun said it’s “a healthy development” for buyers that their incomes should begin rising faster than home prices.
The Atlanta Fed wage growth tracker, for example, shows pay is rising over 4%. So how healthy is the housing market? “I guess health is a relative term,” Bankrate housing market expert Jeff Ostrowski said. “If you’re a homeowner, a home seller, it’s just a phenomenally great market.
Prices are high. They’re not going up at the same pace that they were a few years ago, but they haven’t come down. So, prices are high, demand is strong,” Ostrowski continued.
“Then on the buyer side of the market, it’s just a really challenging, almost unhealthy market. It’s financially prohibitive to buy a house. It’s difficult to buy a house.
There’s a lot of resentment among younger Americans about the price of homes, about their inability to afford homes. So, it’s really two separate markets.” NAR predicts that mortgage rates will stabilize near 6% in 2025.
Yun called 6% mortgage rates the “new normal.” A homebuyer was able to get a 30-year fixed-rate mortgage under 4% five years ago. Mortgage rates dipped below 3% during portions of 2020 and 2021.
Ostrowski said 6% mortgages will dampen affordability but won’t be as onerous as when they were over 7% in recent months. “I think there’s some just resetting of expectations,” he said. Homebuyers might be disappointed that Federal Reserve interest rate cuts aren’t likely to drive down mortgage rates more.
Fed monetary policymakers ratcheted up their benchmark interest rate 11 times between 2022 and 2023 as a lever to tame rising consumer prices. Inflation cooled enough to allow the Fed to start moving interest rates in the other direction, with cuts already in September and November. Another rate cut could come when the Fed meets again next week.
But mortgage rates don’t move in lockstep with the Fed’s benchmark interest rate the way some other consumer borrowing rates do, such as credit card rates. Investors in mortgage-backed securities are also focused on the returns they can get from the safer 10-year Treasury, which could stay high with no sign the U.S.
government is going to reduce its debt. That competition for investor dollars could keep upward pressure on mortgage rates. “The Federal Reserve looks like they will continue to make the rate cuts throughout 2025 as inflation, broad consumer price inflation, comes down,” Yun said.
“But due to the large budget deficit that the country is experiencing, so much government borrowing means less private capital, less money, less mortgage money out there for the housing market. And consequently, we will not see a return to 4% mortgage rates, 5% mortgage rates. The 6% mortgage rate looks to be the new normal.
” Supply has been the “key bottleneck” in the housing market, Yun said. But he’s forecasting that supply will basically align with the demand in the coming year. More supply should come from an increase in new construction projects and from homeowners deciding to list their properties, encouraged by stabilizing mortgage rates and improving market conditions.
Housing starts are expected to reach 1.45 million units in the next couple of years, just shy of the historical average annual level of 1.5 million units.
Ostrowski said home building has been depressed for a long time. “Everyone agrees that the home builders have underbuilt by millions and millions of homes over the past decade and a half,” he said. “And any increase is good, but it’s not going to make up for that deficit.
” Yun said they looked at several hundred metro markets. While he’s expecting widespread growth next year, these 10 are poised to outperform most of the country. They looked at various factors in determining the hot spots, including net migration, job creation for millennial buyers, and the potential for a high number of pent-up sellers to finally list their homes.
The South led the list with four of the 10 hot spots, followed by the Midwest with three..
