2025 Housing Market Surprise Buyer's Advantage?

OK, now here’s the big one—the National Housing Association’s home builders index. Now, everybody is talking about how 2025 will be the year of the seller. More importantly, I’m still not sold. In fact, I don’t think it’s too far-fetched to say that there’s a solid chance it swings the other way and turns to favor buyers.

So why am I departing from the conventional wisdom here? It comes down to interest rates. We've been living in a world of relatively low rates for a long time, and that's fueled a lot of the seller's market we've seen. What if those rates remain persistently elevated?

Industry experts predict that mortgage rates will only briefly dip over the rest of this year. Projections show that by late 2024, they’ll likely find a floor in the mid-6 percent range, with just a slight decrease to 6.7% at the end of 2025. That’s still a large dollar amount for any aspiring homebuyer.

Picture this. With higher interest rates, monthly payments are even more burdensome. Increased monthly payments make it such that more Americans simply cannot afford to purchase a home. That’s one heck of an equation, right there. When fewer people can afford to buy, demand decreases, and buyers have more negotiating power.

I think back to when I was first shopping to find my own home. Access to credit was a huge issue, namely interest rates. Each fraction of a percent was crucial in determining what I could realistically afford to make a commitment to. And I know that I’m not alone in that. As a result, millions of potential homebuyers have been sidelined, waiting for mortgage rates to settle before making their first move into the market.

Now, I know what you’re thinking—this all sounds great, but “But inventory is still so low!” And honestly, that’s fair. The absence of that supply has been among the biggest factors pushing prices sky-high. We're dealing with what some are calling a "lock-in" issue, where homeowners are hesitant to sell because they don't want to give up their existing low mortgage rates.

The number of single-family existing homes for sale are down approximately 20% nationally on a year-over-year basis. Today’s figures still remain close to all-time lows, about 20-30% under prior troughs. That’s a big chasm to bridge.

Even with this low inventory, high interest rates continue to bring the mood down. If potential buyers — and renters — are priced out of the market, it does little good no matter how limited housing stock is. Sellers are going to have to recalibrate their expectations and be willing to take price cuts to meet buyers where they are.

The real estate market is going through a tectonic shift, with tech-driven consumer transactions quickly becoming the industry standard. We’re speaking about virtual tours, AI-driven technologies, and digital marketplaces that are revolutionizing how properties are listed and sold.

VR home tours, just to pick one example, are coming into their own as an essential feature to showcase a property virtually. Third, they improve buyers’ convenience by enabling them to tour homes from anywhere in the world. AI is helping to make these VR tours more personalized and data-driven, enhancing the customer experience and increasing sales opportunities.

These technological innovations have the potential to make buyers even more powerful than they currently are. Picture this—virtually touring dozens of homes without setting foot in your car. Most importantly, it provides you with a far greater breadth of choice and allows you to be pickier.

I think widespread use of blockchain technology will make real estate transactions more secure, transparent, and efficient. This new innovation will encourage more buyers and sellers to transact, creating a faster, safer and more efficient marketplace for all buyers and sellers.

One technology that’s been pushed to the forefront is artificial intelligence (AI), specifically AI-powered property management software. And digital twins, like the one unveiled in Las Vegas, are creating virtual replicas of properties for marketing and sales. All of these developments help make the home-buying experience easier and arm buyers with greater knowledge and power.

Now, I'm not saying that 2025 will definitely be a buyer's market. We know it’s impossible to predict the future with 100 percent certainty. I believe the conventional wisdom is underestimating the negative effects of sustained high interest rates.

Based on the Fed’s projections, these aggressive tariff policies will go into effect in 2025. Combined, these policies would be extremely inflationary and anti-growth, likely containing upward pressure on interest rates. If margins stay high, or even just above average ROE, a different dynamic is possible. This change will come as a surprise to nearly everyone.

Despite the ongoing pandemic, buyer demand has been unflinchingly strong for over two years. This is why we are forecasting a continued recessionary growth of 2025, though at a more crawl like 3% or below. Talk about your depressed market.

The Mortgage Bankers Association (MBA) recently released a forecast predicting that 30-year mortgage rates will settle in the 6.5% range over the long term. This change will likely change the balance of buyer demand and impact buyer affordability. This indicates that we aren’t going to see a massive rate decrease in coming months.

So, what do all of these changes mean for you? For any prospective homebuyers who might be getting discouraged by all this chatter about a seller’s market, fear not. Monitor interest rates, be sure to shop around and know your value, and be ready to haggle. You may be surprised to discover that 2025 has a lot more in store for you than you expected.

And if you’re on the selling side—don’t rest on your laurels. Don’t price yourself out of the ballpark, and expect true buyers to shop around. The housing market isn’t as booming as you’d expect.

Of course, at the end of the day, the housing market is a fickle and capricious animal. Subscribe and get yourself ready. This forward-thinking stance will place you in the superior position to thrive, regardless of where the market moves. As with others who have made it this far, don’t follow the herd blindly – do your own thinking and make informed decisions based on YOUR own unique situation.