Now that we are just a couple weeks into the new year, sources have started to share predictions for 2025.
Five Real Estate Predictions for 2025
This year promises to bring significant developments in both commercial and residential real estate.
The latter half of 2024 saw modest changes for property owners, developers, and operators, largely due to the Federal Reserve beginning to cut interest rates. These long-anticipated moves started to ease the high cost of borrowing, which had slowed deal-making throughout 2023 and 2024.
In 2025, we’re likely to see a resurgence in activity, with investors ready to deploy capital into buying, selling, and developing properties. However, the extent of this revival remains uncertain, as various factors will influence how real estate stakeholders evaluate risks and opportunities.
While we don’t have a crystal ball, conversations with industry experts have provided insight into what lies ahead. Here are five predictions for the real estate market this year.
FULL STORY: Five Predictions for 2025’s Real Estate Market
Housing Affordability Improved Slightly in 2024
It might sound surprising given the ongoing housing affordability crisis, but conditions did improve slightly in 2024. That said, buying and owning a home still remained financially out of reach for many U.S. households.
To put things into perspective, the median household income of $83,782 in 2024 required 41.8% of that income to cover the monthly costs of a typical home. While this was an improvement from 2023’s figure of 42.2%, it’s still well above the 30% threshold considered manageable for housing costs.
Affordability also varies significantly across the U.S. According to Redfin, cities like Pittsburgh (25.3%), Detroit (25.5%), and St. Louis (26%) were among the most affordable, while Los Angeles (77.6%), San Francisco (76.2%), and Anaheim (75.9%) were the least.
Daryl Fairweather, Redfin’s chief economist, noted that while Sun Belt cities remain popular, Rust Belt cities are gaining attention due to their affordability. “It’s the last affordable part of the country, especially when factoring in insurance and property taxes,” she said.
FULL STORY: Housing Affordability in 2024
Migration Trends: California Struggles
New data from U-Haul International revealed that California ranked last among the 50 states for migration in 2024, based on one-way rental statistics. In contrast, Southern states dominated as the top destinations for movers.
Trump Announces $20B Data Center Investment
President-elect Donald Trump announced plans for a $20 billion investment in U.S. data centers, led by Emirati billionaire Hussain Sajwani, head of Damac Properties. The initial focus will be on states like Arizona, Oklahoma, Louisiana, Ohio, Illinois, Michigan, Indiana, and Texas, with potential for even greater investment depending on market conditions.
This highlights the growing importance of data centers in the real estate landscape, even as other sectors face challenges. Companies like Denver-based Tract have been expanding aggressively, acquiring over 23,000 acres across multiple markets.
However, data centers come with unique challenges, particularly regarding energy consumption. In 2018, they accounted for nearly 2% of U.S. electricity use, which grew to 4% in 2023. By 2028, this could rise to between 6.7% and 12%, according to the Lawrence Berkeley National Laboratory.
According to Movement Mortgage
“1. More Inventory Means More Options for Buyers
Good news: there are more homes available for buyers now. Inventory has reached its highest level since 2019, with a 4.3-month supply of homes. (New York Post) This means buyers have more options, and there’s less pressure to make quick decisions. If a buyer has been waiting for the right time, this could be it.
2. New Homes Are on the Rise
New construction has contributed to an increase in inventory. Builders are working hard to meet demand, especially for single-family homes. In October, construction spending went up by 0.4%, driven largely by new builds. (Reuters) Builders are also offering incentives like discounts and upgrades to make new homes more attractive. These perks can help buyers who are deciding between a new home or one that might need renovations. (The Wall Street Journal)
3. Home Prices Level off After Years of Increases
In October 2024, the median home price in the U.S. was $424,950, unchanged from the same time last year. (Realtor) This stabilization suggests that while prices remain elevated, the rapid increases we’ve seen in recent years are beginning to level off.
However, affordability remains a concern, especially for first-time buyers. Homes are still over 50% more expensive than pre-pandemic levels, making it challenging for many to enter the market. (Reuters)
4. Mortgage Rates: High but Stabilizing
Mortgage rates are higher than in past years, with the average 30-year fixed rate hovering around 6.84% in November. (MarketWatch) While rates are expected to drop slightly in 2025, they will likely remain above the historically low levels we’ve seen in recent years.
What does this mean for buyers? It’s important for house hunters to work with their loan officer to lock in a rate when it makes sense for their situation. Because it can sometimes end up costing more overall to “wait it out,” we encourage homebuyers who can afford to buy now to not wait for a dramatic rate shift before entering the market.
5. Loan Limits Are Going Up
In 2025, the baseline conforming loan limit for single-family homes in most areas of the U.S. will be $806,500. However, in high-cost areas, including Alaska and Hawaii, the limit is higher due to elevated home prices. For these regions, the loan limit for one-unit properties is set at $1,209,750. (Fannie Mae Single Family)
This change gives buyers a little more room to finance their home using a conventional loan. Conventional loans often have more favorable rates and qualifications standards than other options.”
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