More houses are expected to hit the market this year along with steadier mortgage rates, but persistent economic pressures could put off first-time home hunters.
Overall, the National Association of Realtors has projected a more favorable market for homebuyers in 2025. The group expects inventory to grow and existing home sales to rise 7% to 12% this year. Mortgage rates are projected to stabilize near 6%.
Last year marked a historic low for first-time buyers, who made up less than a quarter of consumers purchasing their first homes. Industry analysts are hopeful for improvement despite ongoing macroeconomic and industry-specific challenges.
"While home prices remain high and mortgage rates are forecasted to stay above 6% throughout 2025, the year is expected to see more inventory hit the market — a silver lining for shoppers who will see more or less choice depending on where they are," Realtor.com chief economist Danielle Hale said in a company statement this month.
But it may not be enough to incentivize enough first-time buyers. Fannie Mae's Economic and Strategic Research group provided a more cautious outlook in its December report.
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“From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6%, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels,” Mark Palim, Fannie Mae senior vice president and chief economist, said in the report. He noted that “on average, we expect mortgage rates to remain elevated and a hindrance to activity.”
Palim also noted “meaningful regional differences in market conditions, and the homebuying experience — as the adage goes — will continue to be a local one.”
While California’s housing market and Los Angeles County in particular is expected to experience severe fallout from the LA fires, other regions like the Sun Belt are expected to have more favorable conditions for homebuyers, according to Fannie Mae economists.
"On average, we expect mortgage rates to remain elevated and a hindrance to activity"
Persistent headwinds and economic uncertainty are likely to impact affordability and keep homeownership out of reach for some of the buyers for longer.
“There's some fundamental imbalance between housing availability, housing affordability, jobs and income, which are the drivers of whether housing is considered affordable,” says Jerry Jiang, a real estate entrepreneur and founder of Unrepped, a property tech startup that provides information and tools for underrepresented buyers.
The overall outlook is not entirely bleak. Fannie Mae economists see an uptick in nominal wage growth this year, which should boost homebuyers’ ability to afford their first home in the longer term.
“While we foresee the current affordability crunch hampering activity through our forecast horizon, we expect nominal wage growth will outpace home price growth for the first time in more than a decade in 2025, slowly but surely providing some much-needed relief to potential homebuyers,” Palim said.
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