Ralph McLaughlin, Senior Economist at Realtor.com, joins TheStreet to reveal the silver lining of the 2025 housing market.
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00:00So, the housing market in 2024, the slowest in decades.
00:05Do you expect the real estate market to pick up at all in the new year?
00:09If you squint really closely and you look at the data, it looks like 2025 will bring
00:15a little bit more life into the housing market than 2024.
00:18And I emphasize a little bit more.
00:21We are expecting home sales to increase by just about one and a half percent.
00:26So not much improvement over 2024.
00:29We are expecting, however, prices to continue to rise.
00:33They're going to rise by about 3.7 percent.
00:37And we do expect new construction to actually tick up a lot.
00:42The somewhat unfortunate news for those looking to buy a house is that our forecast for mortgage
00:50rates isn't really much improved from where they are at now.
00:55We do expect them to average at about 6.3 to 6.5 percent for the year for 2025 and to
01:02end around the 6.3 mark.
01:04So not much improvement on that front, but there's still a lot, still is a lot of pent-up
01:09demand in the market.
01:12And we do think time will erode some of the lock-in effect of the high mortgage rate environments
01:18that we've seen over the past couple of years.
01:20So your firm recently released their 2025 housing forecast report.
01:25So give me some of the key takeaways from your outlook.
01:29Yeah, I think the biggest takeaway is, like I just mentioned, mortgage rates are going
01:35to continue to be high.
01:37They're not necessarily going to make the market any less of a desirable place than
01:43it was in 2024.
01:45But the bar is pretty, pretty, pretty low for that.
01:47We do expect sales to increase by about a percentage and a half.
01:54We do expect prices to continue to rise.
01:57But consumers are still under a lot of pressure.
02:03In particular, they're under pressure from high mortgage rates and prices that really
02:11have not come back down.
02:12Typically, what we've seen in the past when mortgage rates go up is that prices adjust
02:16and you get sort of some built-in affordability.
02:19But we haven't seen that this time around.
02:22One of the biggest things I think to look forward to, the silver lining in all of this,
02:28is that we do expect buying power of consumers to increase slightly.
02:35And that's going to be the first time in many, many years that homebuyers actually will have
02:39felt an increase in buying power.
02:42And that's due to a combination of mortgage rates that are going to fall, again, down
02:47to maybe the 6.2, 6.3 mark.
02:50So they'll get some help from falling mortgage rates.
02:53But I think most importantly, they're going to get help from growing incomes.
02:57We do expect incomes to grow by about 3.3 to 3.5%.
03:02So the combination of those two is going to increase buying power.
03:06And then on the flip side of the market, we do expect inventory to continue to rise.
03:13We are at the highest levels of inventory now that we have been since before the pandemic.
03:17We expect that to continue into 2025.
03:21We expect inventory to go up by 11.7, 11.8%.
03:25So the overall impact on sales, we expect it to be fairly muted.
03:29For homebuyers, it could be a particularly good time to get out into the market because
03:33you are going to have slightly better buying power as your incomes go up and mortgage rates
03:37come down.
03:38And three, you're going to have more inventory on the market.
03:42So you're going to have more choice.
03:44And that's not something that buyers have really had much over the past several years.