December 31, 2024 – Happy New Year Predictions!

Economic Commentary

We hope you all are having a great holiday season. With the new year we are always looking to bring the latest predictions concerning the real estate market and the general economy. Of course, this also comes with our annual warning – predictions are futile (adapted from Star Trek). No one can predict the future – but the economists of the world certainly give it a good try every year. So, what do they have to say this year? Let’s start with home prices.

Looking at predictions from Fannie Mae, Red Fin, Fitch Ratings, HousingWire and the National Association of Realtors – it appears that the consensus for home price growth is 3.0% to 4.0% on an annual basis for 2025. This is slightly lower than we are seeing in 2024, but the trend for appreciation is definitely easing. We did not see a single prediction for housing prices to fall in 2025. With regards to home sales, HousingWire sees continued sluggish growth in existing home sales and slightly better growth in new home sales.

Mortgage rates are universally predicted to fall –but not by that much. Most predictions seem to have 30-year fixed mortgage rates nearing 6.0% by the end of 2025. This seems to be conservative as we were close to 6.0% at the beginning of fall this year – though they bounced back quickly towards 7.0% even though the Fed lowered rates one more time in December. Originations of mortgages are expected to rise as rates fall due to rising refinance applications. As for the economy, most are predicting economic growth in 2025 to be in the 2.5% to 3.0% range—fairly close to the results of this year. Again, these are just predictions—so take them with a grain of salt!

Weekly Interest Rate Overview

The Markets. According to Freddie Mac, we continued to see higher mortgage rates last week.  Rates were less volatile in during the holiday week, and thus did not recover much from the sharp rise from the previous week.  30-year fixed rates increased to 6.85% from 6.72% the week before. In addition, 15-year loans rose to 6.00%. A year ago, 30-year fixed rates averaged 6.61%, almost .25% lower than this past week. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates increased for the second straight week, rebounding after a decline from earlier this month. While a slight improvement in new and existing home sales is encouraging, the market remains plagued by an overwhelming undersupply of homes. A strong economy can help build momentum heading into the new year and potentially boost purchase activity.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

Realtor.com’s 2025 Housing Forecast has found that broader economic factors are expected to have a larger impact on the housing market than potential new federal policies in 2025. Realtor.com’s forecast predicts home sale prices will grow by 3.7%, mortgage rates will stay above 6% and rents will remain virtually unchanged (-0.1%). Growth in inventory with single-family home starts is expected to grow 13.8% and existing for-sale home inventory is expected to grow by 11.7%, which will help bring the first balanced market in nine years. “While the new administration can work quickly to implement some regulatory changes, other policies that will affect housing, such as tax changes and broad deregulation, require the cooperation of other branches and levels of government,” said Danielle Hale, Chief Economist for Realtor.com. “For now, we expect a gradual improvement in housing market dynamics powered by broader economic factors. The new administration’s policies have the potential to enhance or hamper the housing recovery, and the details will matter.”  Overall, buyers and sellers should expect to see a more balanced market in 2025, which will require some give and take on both sides. Homebuyers frustrated by higher interest rates will have some buyer-friendly conditions in 2025, such as the highest for-sale inventory since December 2019 and nearly 20% of listings coming with price cuts. Mortgage rates are expected to improve slowly in 2025, but the drop likely won’t move the needle back towards a seller’s market. Buyers should expect a friendlier, less competitive housing market than in past years, although one that is still costly because of stubbornly high mortgage rates and home prices.  Source: NAR

The Amherst Group released a survey finding that 81% of respondents would live in a modular home. Almost all respondents–or 90%–report finding something appealing about modular homes. The Amherst Group defined modular housing as traditional homes that are precision-built offsite and placed on a permanent foundation. About 70% of respondents are interested in seeing more types of alternative homes in their neighborhood, and nearly 60% of respondents don’t care how a home is built as long as it’s high quality, at an affordable price and in a desirable area. The survey also revealed some misunderstandings about the nature of modular homes–44% believe they are synonymous with a mobile or manufactured home, which are installed on temporary foundations. In terms of why modular housing is appealing to people, 65% pointed to faster construction time. Gen Z respondents specifically pointed to less waste production during the construction process as attractive–per Amherst Group’s release, waste can be reduced by 40% while producing modular homes. With that in mind, 43% of Gen Z respondents identified that as a positive factor. The survey was conducted by Wakefield Research in July and August, querying 1,000 American adults. Source: Amherst Group

American homeowners poured $827 billion into home improvement projects during the two-year period ending in 2023, according to the latest U.S. Census Bureau American Housing Survey. This marks an increase of more than $200 billion compared to the previous survey period, with total projects rising by 4%. Average project costs also climbed, reflecting not only inflation in raw materials and labor, but also a shift toward professionally completed renovations. Pent-up savings, high equity levels, elevated mortgage rates, and a housing market that discouraged moves contributed to the spike in home improvement spending. Many homeowners opted to enhance their existing properties rather than face higher borrowing costs to move.  Holden Lewis, a mortgage expert at NerdWallet, attributed the trend to “rate lock-in,” where homeowners remain in their current homes to avoid losing favorable mortgage rates. The trend, according to Lewis, reveals that instead of moving, we’re fixing up our homes for comfort, enjoyment, and energy efficiency—while adding value for a future sale.  From 2021 to 2023, the average cost of a home improvement project rose from $4,800 to $6,200. Kitchen renovations topped the list of most expensive projects, averaging close to $43,000. Rising material and labor costs accounted for much of this increase, alongside a growing preference for hiring professionals.  Younger homeowners were more likely to take on DIY projects, with 62% of those under age 25 opting for a hands-on approach. This rate declined with age, reflecting both budget constraints and physical capabilities among younger homeowners.  Source: MortgagePoint