Real Estate Rundown February 2025
February 01, 2025
Photo courtesy of Maria Zeigler via Unsplash
2025 US Housing Market Predictions
The 2025 U.S. housing market is expected to mirror 2024, with gradual home price increases, fluctuating by region. Some areas, like Florida, may see significant growth, while others, like Texas, might stagnate. Mortgage rates are projected to decline slightly but remain above 6%, potentially boosting demand. Affordability challenges will persist due to rising home prices, limiting some buyers. Inventory is expected to grow, leading to a more balanced market in some regions. A housing market crash is unlikely, and home sales are predicted to increase modestly. Whether 2025 is a good year to buy depends on local conditions and personal financial situations.
Fed Starts The New Year With A Pause
The Federal Reserve held interest rates steady during its January 29 meeting, as expected, with no clear timeline for future cuts. Fed Chair Jerome Powell emphasized a cautious approach, citing economic uncertainties, including inflation and policy changes from the new administration. Mortgage rates remained stable but are expected to fluctuate based on government policies and economic conditions. Higher rates continue to challenge home affordability, though rising inventory may help moderate price growth. As buyers navigate rate volatility, more homeowners are considering selling, which could further ease supply constraints in the coming years.
How Tariffs Can Affect The Housing Market
Higher tariffs are expected to prolong high mortgage rates, though the exact impact depends on inflation levels, the Federal Reserve’s response, and bond market reactions. If tariffs broadly raise prices, the Fed may delay rate cuts to control inflation, even if it doesn’t hike rates. Bond markets have already priced in potential tariffs, but mortgage rates could rise further depending on policy implementation. Additionally, tariffs on Canadian building materials will likely increase construction costs, reducing housing supply or raising home prices. Economic growth may also slow, particularly if key trade partners retaliate, potentially weakening housing demand and increasing the risk of stagflation.
Pending Home Sales Drop Sharply
Pending home sales fell sharply in December, dropping 5.5% from the previous month and 5% year-over-year, marking the lowest level since August. The decline followed four months of gains and was driven by a sharp rise in mortgage rates, which peaked at 7.14% mid-month, deterring buyers. The impact was most pronounced in high-priced regions like the West and Northeast. While homebuilders boosted new home sales by offering mortgage rate buy-downs, the overall housing market remained sluggish, with homes taking longer to sell. Despite rising inventory, home buying demand remains weak in early 2025, signaling ongoing affordability challenges and buyer hesitation.
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