Tag: Incentive

CNN
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This year, America’s once-in-a-generation housing slump deepened — but 2025 may not see much improvement. That’s partly because Americans who locked in ultra-low mortgage rates during the pandemic have little incentive to move into new homes and take on higher borrowing costs.

“We’re coming into 2025 with a strong sense of déjà vu,” said Skylar Olsen, Zillow’s chief economist. “I think the difficulties of next year are going to be pretty similar to the difficulties of last year.”

In 2024, Americans who bought homes were older and richer than ever. That’s because buying a home has grown more difficult amid a lack of affordable options. The median existing-home sales price was $406,100 in November, the 17th consecutive month of year-over-year price increases, according to the National Association of Realtors. In November 2019, before the Covid-19 pandemic, the median sales price was $274,000, according to NAR. The significant jump in home prices made homeowners richer on paper.

Meanwhile, rents have also risen, making it increasingly difficult for renters to save money for a down payment. Nearly half of all renters paid more than 30% of their income toward housing costs, according to the US Census Bureau. Homelessness also hit a record high in 2024, driven in part by a lack of affordable housing, according to the Department of Housing and Urban Development.

Homeowners have faced financial pressures of their own this year. Those who live in areas vulnerable to natural disasters have seen their home insurance premiums skyrocket, and inflation has caused the cost of home repairs to rise.

Borrowing costs play a major role in housing affordability, as well. A few months ago, economists had predicted that mortgage rates would fall below 6% by the end of the year. But this month, the Federal Reserve signaled that it may only cut interest rates twice next year, fewer times than expected. That has caused mortgage rates, which track the 10-year US Treasury yield, to climb higher: The average 30-year fixed mortgage rate was 6.85% last week, up from 6.61% this time last year, according to data from Freddie Mac.

Olsen said Zillow expects mortgage rates to stay above 6% for all of 2025, ending the year at around 6.2%.

It may be mixed news for house hunters next year. Here’s what economists expect of the housing market in 2025:

The US housing market is on track for its worst sales year in nearly three decades, according to NAR data.

A September report from the Consumer Financial Protection Bureau estimated that nearly 60% of the 50.8 million active mortgages had interest rates below 4%. The difference between a 4% mortgage rate and a 6% rate could equate to thousands of dollars a year in savings for the median homebuyer.

Still, Chen Zhao, an economist at Redfin, said she expects a slow easing of rate pressures in 2025.

“I think it’s mostly still going to be a trend in 2025,” she said. “But as time goes on, people’s reasons for moving accumulate and they get unlocked by necessity.”

Major life events like having children or getting a job in a new city will require more people to put their homes for sale and move, even if it means giving up a sub-4% mortgage rate, she said.

This year, existing-home sale prices continually hit record highs, according to NAR data.

That has padded the pockets of Americans who already own homes, adding $5 trillion in household equity since the pandemic, said Lawrence Yun, NAR’s chief economist.

More than a decade of chronic underbuilding — combined with more millennials, America’s largest generation, reaching the average age of homeownership — has caused demand to greatly outstrip supply. Those trends will likely persist in 2025, meaning that home prices will likely continue their upward ascent.

However, home price growth may slow, said Olsen.

“There have been more homes lingering on the market, and those homes will likely need price cuts,” she said. “It’s become more of a buyer’s market this year than the past two or three home-shopping seasons, when we were experiencing crazy home demand.”

Location also matters, Olsen said, with homebuyers in Southern states likely to see steeper home price cuts than in other markets.

A new set of rules governing how NAR members do business in the US officially took effect in August. Many experts predicted the rules would eventually do away with the 5% to 6% standard commission paid out by a home’s seller. NAR has said its commissions were always negotiable, but critics argued that these commissions had been baked into home listing prices, artificially inflating them.

Home prices have continued climbing since the new rules have taken effect, though next year will see the first spring buying season with the new rules in place. It isn’t clear how much will change for homebuyers, Zhao said.

“So far there hasn’t been a ton of evidence that commissions have come down,” Zhao said.

Any commission change would most likely occur in the higher-end luxury home space, where Realtors get paid a percentage of a home’s sale and can command hundreds of thousands of dollars in commission, Zhao said.

The US government can also pass legislation to help ease the burden of housing costs, something both Democrats and Republicans discussed on the 2024 campaign trail.

Jaret Seiberg, a financial policy analyst at TD Cowen, has argued that Republican lawmakers may try to increase the availability of affordable housing through tax credits during President-elect Donald Trump’s upcoming administration.

“We expect housing to be a top political issue over the next two years,” Seiberg wrote in a note to clients earlier this month. “Our view is the GOP will need to address entry-level housing inflation in order to win future elections. This is why tax credit programs to boost construction are in play”

However, Trump’s threats to place hefty tariffs on some of America’s largest trading partners, including China, Canada, Mexico and the European Union, could backfire on the housing market, Zhao said.

“If he does implement broad based tariffs, that means (mortgage) rates will have to stay high for one main reason, which is that you would expect some inflationary pressure,” she said.