The U.S. housing market in 2024 navigated a path marked by highs and lows. Inflation edged closer to the Federal Reserve’s 2% target, and interest rates began a gradual decline after years of tightening. However, mortgage rates hovered around 7%, creating affordability challenges. Despite these hurdles, the housing market showed resilience, with a notable uptick in sales activity in the final quarter as mortgage rates started to stabilize. In this article we take a quick look on how the market performed and what are the key take-aways and emerging markets for 2025.
Key Metrics from 2024
Existing Home Sales were at 3.96 million, up from 2023. The increase in existing home sales means the market is showing some resilience and recovery despite affordability issues. It means even small rate declines encouraged more buyers to buy and it means consumer confidence grew, especially in the 2nd half of the year as the economy stabilized. It’s a sign of momentum going into 2025 if affordability improves and inventory increases to meet demand.
Median Home Price went up to $407,200, from $391,600 in 2023. This signifies continued demand in the housing market despite affordability challenges. This growth highlights the limited supply of homes, particularly in high-demand markets, and underscores the resilience of housing prices even as mortgage rates remain elevated. It also suggests that buyers are still willing to engage in the market, possibly motivated by stabilizing interest rates and long-term investment potential. However, it reflects ongoing challenges for first-time and lower-income buyers.
Housing Affordability Index improved to 102.3, signaling slight easing in affordability pressures. Reflects income growth and stabilizing mortgage rates helping buyers re-enter the market. Suggests early signs of improving conditions for prospective homebuyers.
While the Federal Reserve’s policies brought some relief, affordability remained a central concern, particularly as mortgage rates hovered near multi-decade highs. These dynamics set the stage for a promising yet cautiously optimistic 2025.
Key Factors Shaping 2025 Housing Market
The housing market in 2025 is poised for a period of stabilization and new opportunities. Key factors driving this outlook include monetary policy, affordability improvements, and gradual inventory growth.
Gradual Rate Cuts
The Federal Reserve is expected to maintain a cautious approach to monetary easing, stabilizing mortgage rates around 6%. While rates are unlikely to return to pre-pandemic levels, this stabilization is expected to provide some relief for prospective buyers.
Affordability Improvements
As mortgage rates dip below 6.5%, the qualifying income required to purchase a median-priced home will align more closely with the median family income. This shift is expected to enable 6.2 million additional households to afford median-priced homes, improving market accessibility.
Inventory Growth
Housing inventory is expected to grow as new construction expands and more homeowners list their properties. Builders are set to initiate 1.11 million single-family housing starts, marking significant progress in addressing long-standing inventory shortages. However, inventory levels will likely stay below pre-pandemic norms, keeping competition high in many markets.
Modest Price Growth
Home prices are anticipated to grow by approximately 2%, offering stability for both buyers and sellers. This slower pace of appreciation marks a shift from the rapid increases seen in previous years.
Job Growth
Markets with above-average employment gains will see stronger housing demand. Job growth drives economic stability and income increases, both critical factors for home affordability.
Demographic Shifts
Millennials and households entering the prime homebuying age of 35-40 will, therefore, significantly influence market activity. As a result, this demographic trend is expected to shape demand for both starter and move-up homes.
Top Housing Markets for 2025
The National Association of REALTORS® has identified ten markets which are expected to have steady growth in 2025. These markets stand out due to their unique combination of job growth, affordability, and demographic trends.
1. Boston, MA-NH
Boston’s market benefits from fewer locked-in homeowners, easing inventory constraints. Additionally, a significant share of starter homes supports accessibility for first-time buyers.
2. Charlotte, NC-SC
With strong job growth and affordability, Charlotte continues to attract first-time buyers and young families. Over 43% of homes fall into the starter-home category, priced below $324,000.
3. Grand Rapids, MI
High affordability for Millennials and increasing inventory make Grand Rapids a standout market. Approximately 36% of Millennial renters can afford to buy homes here.
4. Greenville, SC
Greenville’s strong migration gains and accessible starter homes drive demand. The area’s average mortgage rate is below the national average, providing additional relief for buyers.
5. Indianapolis, IN
Affordability and reduced “lock-in” effects position Indianapolis for continued growth. Nearly 42% of the housing stock is priced below $236,000, appealing to young families.
6. Kansas City, MO-KS
Competitive mortgage rates and Millennial affordability highlight Kansas City’s potential. Approximately one-third of Millennial renters here can afford homeownership.
7. Knoxville, TN
Knoxville boasts significant migration gains and high homeownership rates among movers. Nearly 50% of movers choose to purchase homes, reflecting the area’s long-term stability.
8. Phoenix, AZ
Phoenix remains a key destination for Californians seeking lower costs of living and housing affordability. Moreover, its strong job growth, which has expanded by 12% over the past five years, further enhances its appeal. Consequently, this combination of affordability and economic opportunity continues to attract new residents.
9. San Antonio, TX
San Antonio’s strong job creation and favorable mortgage rates underline its growth prospects. Borrowers in this area secured mortgage rates well below the national average in 2023.
10. Hartford, CT
Hartford’s low mortgage rates and long-term homeowner tenure, therefore, contribute to inventory growth. Consequently, this market is poised for gradual yet steady growth in 2025.
Strategic Insights for Stakeholders
For Investors
Markets with strong job growth and migration trends, like Knoxville and Greenville, offer promising returns. Investors should focus on areas with high rental demand and appreciation potential.
For Developers
Increased construction opportunities exist in areas with high demand for starter homes, like Kansas City and Grand Rapids. Developers should prioritize affordable housing projects to capture unmet demand.
For Homebuyers
Stabilizing rates and improving inventory, therefore, present opportunities, particularly in high-growth markets like Charlotte and Phoenix. However, buyers should act quickly in areas with limited inventory; otherwise, they may miss out on securing favorable deals.
Conclusion
The housing market in 2025 is expected to offer a blend of challenges and opportunities as it stabilizes from years of volatility. With mortgage rates normalizing, affordability improving, and inventory gradually increasing, the year ahead provides a promising landscape for buyers, sellers, and investors alike. By focusing on top-performing markets and staying attuned to key economic trends, stakeholders can position themselves for success in an evolving real estate environment. As always, adaptability and strategic planning and using the right REI tools will remain crucial for investors and wholesalers navigating the complexities of the housing market.
