The U.S. housing market enters 2025 with significant shifts, as mortgage rates persistently hover above 6% for the past 24 months, influencing buyer behavior and inventory levels. Active listings in November rose by 12.1% compared to the previous year, marking the highest level since 2020. Despite this increase, homes are selling at the slowest November pace since 2019, taking an average of 43 days to go under contract, according to Redfin.
The landscape of the housing market has been reshaped by high mortgage rates, which surged past 7% in October and remained elevated through the end of the year. This has led to a seller lock-in effect, though it began to ease in 2024. The cost of owning a home, when adjusted for inflation, is at its highest in decades, creating hurdles for potential buyers. Selma Hepp, CoreLogic's chief economist, noted that this environment poses challenges for first-time buyers and those seeking to upgrade.
"Buyers are struggling to keep pace with housing prices. The cost of owning a home now, when adjusted for inflation, is at its highest point in decades. This persistent increase in prices and interest rates has created a challenging environment for both first-time buyers and those looking to move up the property ladder," said Selma Hepp, CoreLogic's chief economist.
Despite these challenges, some optimism exists as pending home sales rose in November to the highest level in nearly two years, according to the National Association of Realtors (NAR). Lawrence Yun, NAR's chief economist, observed that consumers have recalibrated their expectations about mortgage rates and are capitalizing on the increased inventory.
"Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory," stated Lawrence Yun, NAR's chief economist.
However, the market remains complex. More than half of homes (54.5%) sat on the market for at least 60 days without securing a contract. Homes priced competitively continue to sell quickly, often within three to five days, while overpriced properties linger for over three months. The mixed quality of listings adds another layer of intricacy to the market dynamics.
"A lot of listings on the market are either stale or uninhabitable. There's a lot of inventory, but it doesn't feel like enough," commented Redfin agent Meme Loggins.
On the pricing front, the latest S&P CoreLogic Case-Shiller report showed a national price increase of 3.6% in October compared to the same month last year. This uptick highlights continued demand amid fluctuating economic conditions.
"With the latest data covering the period prior to the election, our national index has shown continued improvement," remarked Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices.
The housing supply increase offers buyers more options but also indicates potential challenges ahead. As mortgage rates remain high and inflation-adjusted homeownership costs rise, many potential sellers prefer holding onto their current low-rate mortgages rather than upgrading or relocating.