The affordability of housing will be front and center in America’s political conversation this year, as everyone from the President down seeks cheaper interest rates to take pressure off values and rents.
The nation’s ability to deliver affordable housing – a common challenge among many western economies – will affect millions of households.
The market has been hemmed in by interest rates that hit 5.25%-5.5% in 2023-24.
While the Federal Reserve Bank has now reduced the rate to 4.25%-4.5%, we’re only now starting to see the emergence of owners in the market as they seek to either upgrade their property or downsize.
Many first homebuyers have also been scared off by a mixture of high interest rates and stubbornly high values.
The median sale price for an existing home hit a record-high $426,900 last June, according to the National Association of Realtors (NAR).
Predictions for 2025 suggest the friction in the market will dissipate.
Zillow expects home values to grow 2.9% on the back of 4.11 million sales of existing homes. Its economists expressed concern that mortgage costs might not fall as quickly as anticipated because of America’s strong employment numbers.
As a result, more people will stay in the rental market. Zillow forecasts single-family rents will rise 4%.
In its market outlook, CBRE predicts economic growth and firming real estate fundamentals will drive a moderate recovery.
Investors will have the “opportunity to secure long-term returns that have not been available for many years”.
It also expressed concern for renters, saying: “Making homeownership even more difficult for renters, nearly 80% of all current homeowners have mortgage rates below 5% and will remain reluctant to sell in an ongoing high-interest-rate environment.
“This challenge will remain even more pronounced in many of the largest markets, where the average monthly cost of buying a house is forecast to be two to three times more than the average rent in 2025.”
Respected industry researcher CoreLogic predicts values will slow to 2% compared with the 4.5% achieved last year.
There’s a more optimistic view at Redfin, which forecasts a 4% rise in the median home sale price.
Fannie Mae/Pulsenomics suggests a 3.8% gain, while the Mortgage Bankers Association is more bullish, predicting a 5.1% rise in values.