While US home prices had moderate gains in 2024, the total number of sales was meager. Existing-home sales dropped to the lowest level in nearly 30 years, as reported by the National Association of Realtors. Median home prices reached record highs at $407,500. This was, in part, due to the performance of higher-end homes. Sales on homes priced over $1 million rose 35% over the year, while properties under $250,000 experienced a drop in sales.
The lack of inventory for lower-end homes has compounded the ongoing challenges of first-time buyers. Investors and existing homeowners have the benefit of leveraging equity, as evidenced by the fact that all-cash sales grew to 28% in December. On the flip side, NAR revealed that the annual share of first-time home buyers fell to its lowest level on record and the median age of first-time buyers increased to 38 years old.
Despite the stark contrast between demographics, promising data emerged at the tail end of 2024 as existing-home sales had a 9.3% YoY rise in December. As emphasized by NAR Chief Economist Lawrence Yun: “Home sales in the final months of the year showed solid recovery despite elevated mortgage rates. Home sales during the winter are typically softer than the spring and summer, but momentum is rising with sales climbing year-over-year for three straight months."
Going into 2024, there was a lot of talk about lower interest rates. Those predictions largely fell flat. Forecasts this year are more reserved with many economists predicting negligible changes to the average mortgage rate. This may be disheartening to those who were hoping to increase their buying power, but the silver lining is that it allows buyers to adjust their expectations.
As Freddie Mac described in its January Economic, Housing and Mortgage Market Outlook, “While last year, prospective buyers and sellers anticipating rate declines may have stayed on the sidelines waiting for lower rates, this year, they may make a move earlier as they are not expecting rates to move lower. This should increase home sales relative to last year, though the absolute level of sales is still likely to remain well below historical averages.”
The rate lock-in effect is also expected to wane. Homeowners who scored historically low mortgage rates have been hesitant to re-enter the market. Freddie Mac noted, “Even if mortgage rates stay flat or decline modestly, amortization of mortgage balances will bring down the lock-in effect and make it more palatable for potential home sellers to list their property despite having a low mortgage rate.”
Homeowners who purchased when rates were at an all-time low have gained significant equity. The average sales price in the US increased nearly $93,000 between 2021 Q1 and 2024 Q4. Having that kind of head start toward their next home could help sellers who have been on the fence about trading in their lower rate.
The 2025 outlook on new construction is cautiously optimistic. It is difficult to predict how federal regulations under the new administration will impact the industry, but housing starts could climb near the historical annual average of 1.5 million units in the coming years. The NAR forecasts 1.45 million housing starts in 2025, 1.11 million of which are expected to be single-family.
Additionally, a report released this week by the National Association of Home Builders showed that new single-family home sales rose to 494,000 in December, up 10% from the previous year. New home sales are defined by a signed contract at any stage of construction. Homes under construction made up the bulk of this inventory. According to the NAHB, “This represents an 8.5 months’ supply at the current building pace.”
One thing that both sellers and buyers can take solace in is that prices will likely continue to trend upward, but it will be slight compared to the steep increase of the early 2020s. Fannie Mae predicts 3.6% YoY appreciation in 2025 and 1.7% in 2026. The Mortgage Bankers Association predicts 1.3% YoY price increases in 2025. The NAR expects price growth of 1.8% in 2025 and 2.3% in 2026.
While the coming year may not bring sweeping changes to the housing market, gradual inventory shifts offer hope after a year of stagnancy. As always, we want to remind you that real estate is very personal based on your situation and location. Contact your trusted Realtor for tailored guidance!