According to the National Association of REALTORS®, 2024 existing home sales of 4.06 million were the lowest recorded since 1995. At the same time, median home prices increased to a record high of $407,500. How is it that so few homes are selling and prices are still rising?
IT IS A DIFFICULT MARKET FOR HOME BUYERS
The current market is difficult for buyers, especially for first time home buyers. Interest rates in the 7% range coupled with record high home prices make payments challenging for first-time home buyers.
“The current market is difficult for buyers, especially for first time home buyers.”
Buyers who are selling a home are bringing equity to the transaction and have an easier time purchasing a home. The net impact of current interest rates and high home prices results in fewer home purchases. This explains the record low number of transactions, even though there are 80 million more people in the United States since 1995.
SELLERS REMAIN RELUCTANT TO SELL
The vast majority of homeowners have record low interest rates. Those rates may be 4%, 3%, or even 2%. Given these record low interest rates, buying a new home at current rates of approximately 7% means a larger mortgage payment.
While many homeowners want to move, they want to keep their mortgage payment low more than they want to move. This results in fewer homes available to purchase than would normally be the case. This shortage of homes available for sale keeps home prices from falling.
“While many homeowners want to move, they want to keep their mortgage payment low more than they want to move.”
BUILDERS ARE FILLING THE GAP, BUT NOT TOO AGGRESSIVELY
Builders see opportunity in this market. Large, well-funded home builders are buying down interest rates, covering closing costs, and offering other incentives in an effort to keep buyers coming. They have an advantage over existing home sellers by making it easier to buy. They are building, but not so aggressively so that they drive home prices and builder margins down.
WHAT TO EXPECT IN 2025
In 2010, the housing market was too cold. The housing-led recession decimated equity and led to lost jobs throughout the economy. In 2021 the housing market was too hot. Limited supply and covid cash propelled housing demand to new heights. Buying a home meant bidding over ask and prices rising too quickly. In 2025 we expect interest rates to remain in the 6-7% range and prices to rise in the low to mid single digits. There will be reasonable selection for buyers, but it will remain expensive for first-time home buyers and sellers will still be reluctant to sell. This is the more balanced housing market we have needed.
“This is the more balanced housing market we have needed.”
Neil Walter
CEO