Call it our “Way Too Early Look at the 2025 Real Estate Market,” but the new year will be here before we know it, and our goal is to make sure our clients are the most prepared and educated buyers and sellers they can be. So, let’s dive in.
Based on recent indicators, we expect that the economy will have a soft landing in 2025. This will encourage market inventory to continue to recover, and in effect, will put downward pressure on interest rates. This should all set the stage for homebuyers to have a far less stressful 2025 than they have in years past.
With inflation easing and the job market cooling, the Fed has cut the Fed Fund rate, which strongly suggests a continued drop in interest rates in the coming months and into 2025. While most economists suggest a drop in rates based on Fed Chair Powell’s comments, we don’t expect this to happen overnight. In April of this year, rates were at 7.5%, and now they are in the low 6% range.
While this is hard to predict, we wanted to highlight the recent projections from major lenders in the market. The Wells Fargo column is highlighted because their projection came out in September, while the others came out in August. This following graph illustrates the projections as well…
We expect there will be a massive shift in mindset when we get into the upper to mid 5% range. At that point, homeowners will be more likely to give up their post-pandemic, low interest rates and be more willing to jump back into the market. This will free up much needed inventory as sellers can more comfortably make moves for themselves and their families.
With this change, we expect buyers who are crunched on affordability to reenter the market. While we expect this to influence prices, we don’t expect that it will be as exaggerated as the past few years. Here are the expectations from major players for the increase in home prices in 2025.
This would be far more in line with a neutral market, which is what would be best for both buyers and sellers. For this to happen, we do need more inventory, and the projections for next year show marked improvement.
Now for the disclaimer, these predictions show the national averages. The markets in the Greater Birmingham Area tend to show a lag from these national trends. While we do expect next year to be substantially better in terms of buying power and inventory, that can be hyper localized. If you’d like a deep dive into your specific neighborhood, we’d be happy to pull the current market data.
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