What To Expect in 2025 (Housing Market Update)

It was December 2024. The election had happened, crypto and the stock market were booming, and everyone seemed to be in a honeymoon phase and wondering what happens next. This is what I told people to expect heading into 2025.

Start with the basics. Rates were somewhere in the sixes, and affordability was still a problem for most middle-income families. The same fundamentals we had for two years were still there. The big one is the lock-in effect. Millions of homeowners bought between 2015 and 2021 at rates under 5%. They might love to move for a different side of town or some acreage, but when they compare the new payment and price to what they pay now, it is not exciting. Until that changes, we stay in a low inventory market with more demand than supply.

Everyone was asking whether a new president would change that, so I summarized three ideas. One was cutting regulation. The second was releasing federal land for builders. The third was incentives for builders who build affordable housing. In California that means homes in the $250,000 to $350,000 range, and builders do not build them because subdividing land, environmental studies and permitting can take two or three years, so the risk is too high. If any of it worked it would help, but it remained to be seen.

On rates, a lot of people were hoping and praying they would fall in 2025. I did not think that would happen anytime soon. The Fed was reducing its rate in late 2024, but the Fed rate and mortgage rates are two different things. Three things would lower rates. One, inflation coming down in a meaningful way. Two, a weakening economy, since rates fall when the stock market drops and money flows into bonds. And three, a black swan event, something unexpected that rattles the markets. I did not expect a weak economy, so my best guess was a gradual drop in the 30-year fixed through the year, to somewhere between the fives and the sixes by the third quarter. I said to take that with a grain of salt, because I did not know for sure.

The big question is whether to wait. I said that timing the market is a losers' errand, and I gave two families. Family A bought in 2021, put a little money into cosmetic fixes, and their house was worth $60,000 more than they paid. When rates dipped in 2024 they cut their payment by $200 a month. Family B did not have 20% down and used a down payment assistance program with no money down, against the rules some people preach. Three years later they had about $100,000 in equity and paid less than it would cost to rent the same house down the street, because rents in California had kept climbing. Since 2008 we have added about 15 million households, and estimates of the national housing shortage run into the millions of homes.

If you are a low to moderate income family and you have looked and cannot make it work, I feel for you. I mean that. You need a long-term plan. For most people that means making more money, getting extra certifications or licenses, tracking your spending, cutting bad spending and paying off bad debt. Credit card debt near 20% is killing a lot of people's ability to even think about buying.

If you want to see what is possible, start with down payment assistance or get your rate. MortgageOne is now licensed in 49 states.