The 2025 Real Estate Report
Experts Predict Home Values
to Increase 1.5% to 3.6% in 2025.
Top housing
experts and economists give a glimpse of what mortgage rates, home values and
the national real estate market will do in 2025.
Key Takeaways
●
Mortgages are forecasted to remain
higher for longer; but there are things you can do to lower your rate.
●
Home values are predicted to
increase incrementally on a national level; and there are projects you can do
to increase your home’s value.
●
The national market will slightly
favor sellers in negotiations; however, real estate is driven by local dynamics
and may favor either buyers or sellers.
Note: real
estate is a dynamic market and forecasts made in this article will change as
the year unfolds.
Mortgage Rates
Will Average 6.4% in 2025
In 2023, the
average 30-year mortgage peaked at 7.79% following the pandemic. Rates came
down from that peak in 2024. What will mortgage rates do in the next year?
The Federal
Reserve is predicted to lower the federal funds rate 6 to 8 times in 2025; but
mortgage rates are not set by the Federal Reserve and may not drop
significantly (National Association of REALTORS®).
Fannie
Mae predicts mortgage rates to average 6.4% in 2025. Mortgage Bankers Association also predicts
mortgage rates to average 6.4%, but with slightly higher rates compared to
Fannie’s forecast.
Sources: Fannie Mae Housing Forecast: November 2024 and
Mortgage Bankers Association Mortgage Finance Forecast: November 2024
When Will
Mortgage Rates Drop Back to 3%?
Historically,
rates have never been as low as the pandemic era interest rates. 30-Year
mortgage rates averaged between 4% and 6% during & after the
housing crisis and Great Recession. A return to a 3% range is very unlikely.
Source: Federal Reserve of St. Louis
Tips to get a
better mortgage rate…
While we can’t
affect the average 30 year mortgage rate, you can improve your credit and get
the best possible rate. Here’s an example of recent mortgage rates by credit
score:
Source: myFICO.com
If you’re thinking
of making a move, the earlier you talk
to a mortgage finance professional, the more time you have to work on improving
your credit to get a better rate.
Need a recommendation to a trusted lender? Send me a
message.
Home Values
Will Increase by 1.5% to 3.6%
Since 2020, the
average sales price of a home has gone up by $97,000 or 29.7% (Federal Reserve
of St. Louis). Which indicates homeownership to be a great investment. But,
what will home values do in the next year?
On a national
level, home price growth is predicted to slow down from 2024. However, home
prices are predicted to increase in 2025. Fannie Mae predicts home prices to
increase on average by 3.6%. MBA is predicting an average increase of 1.5%.
Sources: Fannie Mae Housing Forecast: November 2024 and
Mortgage Bankers Association Mortgage Finance Forecast: November 2024
Home values are
influenced by local market dynamics. If you want to understand what home values
are forecasted to do locally, consider talking to a real estate professional.
Want to increase your home’s value? Consider these remodeling projects for the highest
return on investment.
Will Home Values Crash in 2025?
For home values to
drop significantly, a major influx of homes for sale would have to hit the
market. Freddie Mac estimates the U.S. housing stock is 3.7 million units below
what’s needed to meet demand. It will take time to build up inventory to meet
demand. Which is why a major drop in home values and prices is unlikely.
Will 2025 Be a
Home Buyers or Sellers Market?
Who will have the
advantage in the 2025 housing market, buyers or sellers? One measure of the
market is Months Supply and it shows who has the advantage.
Months Supply is
calculated by dividing the total number of homes for sale by the average number
of homes sold each month. For example if there are 500 homes for sale in a
particular area and an average of 100 homes are selling each month, the Months
Supply is 5 months.
Here’s a chart of month’s supply going back to November of 2023:
Source: Federal Reserve of St. Louis
6 Months Supply is
considered a balanced market. Over 6
months supply is considered a buyers’ market. Below 6 months supply is a sellers’ market. At 4 months supply on a
national level, the market slightly favors sellers.
Inventory is
rising nationally, however, which could shift the market to favor buyers in the
next year. With that said, all real estate is local and local markets will
differ in favoring buyers versus sellers.
If you want to know if your area favors buyers or
sellers, send me a message.
What This Means
for Homeowners
If you own a home,
you will likely see a slight increase in your home's value. If you want to
increase your home’s value and enjoy the upgrades, consider making some home
improvements. If you want advice on which features or projects are best suited
for increasing your home’s value, consult with a professional.
Tips for
Potential Home Buyers
If you’re thinking
of purchasing a home, the sooner you start planning the better. Knowing your
price range, optimizing your credit, and working towards your downpayment are
steps you can take now. Even if you’re in the market to buy in the next 12 to
24 months, talking with a real estate professional early in the process will
set you up for success.
Tips for
Potential Home Sellers
Sellers need to
prioritize their objectives. Is getting top dollar for your home the highest
priority, is it moving within a specific timeframe? Do you have to sell a home
prior to purchasing your next one? These objectives must be prioritized so that
an effective plan and marketing strategy can be put into place. Thinking of
making a move? Talk to a real estate professional!
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