Key Themes and Facts:
Mortgage Rate Volatility: Mortgage rates rose for the fourth consecutive week, reaching 6.93% for a 30-year fixed-rate mortgage. This increase, attributed to a strong economy and persistent inflation, is causing buyer jitters. Experts anticipate rates to moderate or potentially decline throughout 2025, with predictions ranging from 6% to 6.65% for Q1 2025. However, unexpected global events or stubborn inflation could lead to further increases.
"The continued strength of the economy has put upward pressure on mortgage rates, and along with high home prices, continues to impact housing affordability." - Sam Khater, Freddie Mac’s chief economist
Decreasing Mortgage Applications: Mortgage applications dropped to their slowest pace in nearly a year as higher rates discourage potential homebuyers. Purchase applications for both conventional and government loans have declined.
"Applications decreased last week as rising mortgage rates continued to discourage buyers from entering the market and put a damper on purchase activity." - Joel Kan, MBA’s vice president and deputy chief economist
Slight Dip in Housing Sentiment: Despite ending 2024 substantially higher than the previous year, the Fannie Mae Home Purchase Sentiment Index® (HPSI) showed a slight month-over-month decrease in December. This dip reflects ongoing affordability challenges, with only 22% of consumers believing it's a good time to buy a home.
"While respondents remain discouraged by the pandemic-era run-up in home prices and mortgage rates, the upward trend in homebuying sentiment in 2024 may reflect a slow acclimatization to the generally less-affordable market conditions." - Mark Palim, Fannie Mae senior vice president and chief economist
Low Inventory Persists: A shortage of entry-level homes continues to plague the market, making it difficult for first-time buyers to enter. This limited inventory, coupled with higher mortgage rates, is further fueling a competitive market.
"Silver Tsunami" Wealth Transfer: A significant wealth transfer is anticipated as baby boomers age, with a large portion expected to stay within families. This trend could impact the housing market as inherited properties change hands.
Stronger than Expected Jobs Report: December's jobs report exceeded expectations, potentially signaling a continued strong economy. While this is positive overall, it could also lead to the Federal Reserve pausing rate cuts, potentially pushing mortgage rates higher.
"This will push mortgage rates higher in the near term." - Mike Fratantoni, MBA senior vice president and chief economist
Regional Variation in Affordability: While affordability remains a challenge nationwide, certain cities show promise for average wage earners. Toledo, Ohio, leads with 89.1% of homes affordable for local earners, followed by other Midwestern and Southern cities.
Homeowner Reluctance to Sell: Approximately one-third of homeowners say they will never sell their homes, primarily due to affordability concerns in the current market. This "lock-in" effect further restricts inventory and adds to the competitive pressures for buyers.
Other Notable Trends:
The luxury housing market is expected to perform well in 2025.
Buyers increasingly prefer move-in ready, turnkey homes, despite the higher price premium.
Rising property taxes are becoming a concern for homeowners, driven by skyrocketing home values.
Legal challenges against the National Association of REALTORS® (NAR) are ongoing, with lawsuits questioning their membership structure and policies.
Recommendations for REALTORS®:
Educate clients on market volatility: Emphasize the importance of understanding current market conditions, including fluctuating mortgage rates and the competitive landscape.
Showcase inventory strategically: Highlight the unique features and benefits of available properties, particularly move-in ready homes that meet buyer preferences.
Leverage local market knowledge: Provide insights on regional variations in affordability and highlight areas that offer opportunities for average wage earners.
Advise on negotiation strategies: Help buyers navigate a competitive market and prepare strong offers. Counsel sellers on setting realistic expectations.
Stay informed on legal developments: Keep abreast of any changes to NAR policies and regulations that may impact the real estate industry.
