The U.S. real estate market in 2024 was the slowest in three decades. The last time sales fell this much was in 1995, when the U.S. population was 22% smaller than it is today. Next year may not be much better. It will depend on how many new homes are built.
The story of the American real estate market in 2024 has been one of a frozen nation, with millions of people unable to move amid rising home prices, higher mortgage rates, and a drastic shortage in property inventory.
The real estate crisis has even surprised economists, who predicted that by spring 2024, mortgage rates would drop enough to lift sales out of stagnation. Instead, inflation remained stubbornly high, pushing interest rates up. By April, the average rate for a 30-year mortgage had surpassed 7%, paralyzing sales during what should have been the peak of the buying season. Buyers simply could not afford what was available, while sellers, reluctant to trade historically low pandemic-era mortgages for much higher ones, had little incentive to list their homes. Despite the lack of activity, prices continued to rise because there were very few homes available.
Government data released on Wednesday (10) showed that inflation increased last month compared to the previous year, although at a much slower pace, so the Federal Reserve is likely to make only a modest cut to interest rates at its meeting next week, as expected. Thus, mortgage rates are not expected to change based on this data.
This real estate crisis is largely a supply crisis, not just because people are not selling their homes. The country simply has not built enough new homes to keep pace with a growing population: Zillow estimates the shortage at 4.5 million homes, while Freddie Mac estimates it at 3.7 million. Builders have been struggling with higher costs for loans, materials, and labor — a legacy of the pandemic.
High interest rates are not helping. The days of 3.5% mortgage rates are over. Realtor.com is predicting that mortgage rates will hover around 6.3% until next year, while Redfin expects them to be closer to 7%, keeping many potential buyers on the sidelines.
With buyers, sellers, and renters all stuck, the outlook for 2025 remains uncertain. Some economists are hopeful that new inventory could create some momentum, while others doubt that the stalemate will be broken. Redfin, expecting demand to continue outpacing supply, predicts that prices will rise by 4% next year, while CoreLogic, anticipating that high interest rates will discourage more buyers, forecasts more modest growth of 1.9%.
But there is some optimism regarding supply. The National Association of Home Builders expects the construction of about one million single-family homes to take place next year. Additionally, there has been a construction boom in the rental market, which began during the pandemic, with one million new multifamily units hitting the market in 2024 and 2025, a 50-year high. This influx means that rents may at least remain stable in 2025, as they did in 2024.
Source: The New York Times