The Housing Market: A 2025 Perspective

As we begin the New Year, many homebuyers face a similar issue as last year with the current real estate housing market: there is more housing supply, but that supply is stale. Why? According to Redfin, while active listings were 12.1% higher than in November 2023, 54.5% had sat on the market for at least 60 days without going under contract. Reasons for this include unreasonable expectations of home sellers, and mortgage rates remaining over 7% since October of last year.

What other factors are affecting the real estate market?

As indicated in our earlier blog, aside from supply and interest rates, there still is the seller lock-in effect, where some sellers do not want to trade in their current low interest rates in order to move. While the seller lock-in effect eased a bit in 2024, such sellers moved due to life events or the need to tap into their home equity. Overall, the additional housing inventory did not move the number of sales, largely because of costs.

Aside from the seller lock-in effect, issues of the cost of home ownership and the supply of attainable or affordable housing still remain a huge issue. The cost of owning a home, when adjusted for inflation, is arguably at its highest point, especially for first time home buyers. Further, while higher mortgage rates are at a “new” normal for some homebuyers, the increased rates are too high for others. In addition, down payments, higher moving costs and broker fees preclude renters from buying. Bottom line: while housing demand remains, there are many factors that are slowing the housing market which still holds for 2025.

What may be the “hidden force” to bring mortgage rates down?

According to a recent Wall Street Journal article, one factor that may help in moving the needle to lower mortgage rates is the “hidden force” behind mortgage rates: the unusually wide gap between mortgage rates and Treasury yields. This gap or “spread” between current mortgage bonds and the yield of Treasuries is between 1.3 to 1.4 percentage points. This gap has been large for a couple of years, mainly due to volatility, lack of demand for mortgage bonds from banks, and the end of the Federal Reserve mortgage buying in 2022.

However, this year, conditions may be ripe for the gap to tighten roughly 1% point, which could in turn marginally lower mortgage rates for borrowers. Rate cuts may not, in themselves, do too much to change mortgage rates; however, the spreads might tighten as the Federal Reserve ends its cutting cycle with volatility of the market subsiding, and investors feeling more comfortable in investing into the mortgage bond market. If the Federal Reserve make its anticipated cuts in 2025 that too could also, in turn, lead to banks extending more credit and also purchasing more mortgage bonds. Bottom line should this occur: it may be less expensive this year to refinance or buy a home with a mortgage.

What does this all mean?

The housing market is in a state of flux as it is dependent on supply and demand. While there may be more of a supply, the supply itself overall may not be priced at a level that is attainable. While there may be some “gloom and doom” as to the stagnancy in the market, the housing market is fluid, and the Federal Reserve’s next steps may be a decisive factor.

For thirty plus years, Oppenheim Law has served local, national, and international clientele particularly in the areas of real estate and business law. Our sister company, Weston Title & Escrow, Inc., has provided title insurance and title related services for three decades. Should you have any questions related to a real estate or business matter, feel free to call us at 954-384-6114 or contact our firm directly at contactus@oppenheimlaw.com, and should you need assistance with a commercial or residential real estate closing, please call us at 954-384-6168 or contactus@westontitle.com.