As we enter 2025, the housing market stands at an interesting crossroads. The past few years have been turbulent, to say the least, with rising mortgage rates and affordability challenges reshaping the real estate landscape. Like many of you, I’ve been following these changes closely, and the recently released HousingWire Forecast 2025 provides a clearer picture of where we’re headed. Let me share my perspective on the key takeaways and how they connect to what we do at Funded Capital.
Home Sales: A Slow but Promising Recovery
We all know the pandemic boom gave way to a dramatic slowdown in home sales. In 2024, we saw only 4 million existing home transactions, the lowest in two decades. HousingWire’s forecast for 2025 offers some relief, projecting a 5% growth in sales to 4.2 million units. While this is a step in the right direction, it’s still well below the pre-pandemic average of 5.15 million annual home sales.
The uptick in transactions will largely depend on mortgage rates. If rates hover between 5.75% and 7.25%—as predicted—we might see buyers regain some confidence. Still, the “mortgage lock-in effect” is a significant barrier. Nearly 75% of U.S. homeowners are locked into rates below 5%, making it less appealing to sell and refinance. This lack of movement keeps inventory tight, capping how much the market can recover.
Mortgage Rates: The Key to Unlocking Demand
Mortgage rates are the cornerstone of the housing market forecast for 2025, acting as a critical driver of buyer activity and market sentiment. HousingWire projects rates to stabilize within the 5.75% to 7.25% range for most of the year. However, significant reductions, particularly rates dipping into the low 5% range, appear unlikely under current economic conditions. Mortgage rates are closely tied to the 10-year Treasury yield, a benchmark that reflects broader economic indicators such as GDP growth, inflation, and Federal Reserve policies. Without a substantial economic slowdown or a pronounced shift in the Fed’s monetary stance toward lower interest rates, mortgage rates are expected to remain elevated.
These higher rates are not merely a financial consideration but also a psychological barrier for many potential buyers. When mortgage rates peaked at 7.5% in early 2024, the market experienced 14 consecutive weeks of declining mortgage applications—a clear indicator of diminished buyer confidence. Conversely, when rates fell closer to 6% by mid-2024, the market saw a notable resurgence, with 12 weeks of positive growth in mortgage applications. This dramatic shift underscores the sensitivity of buyer demand to even modest changes in financing costs, making mortgage rates a pivotal factor in shaping market activity.
Understanding these dynamics is essential for anyone planning to engage with the real estate market in 2025, whether as an investor, developer, or buyer. The volatility in mortgage rates creates both challenges and opportunities, as even small fluctuations can significantly influence demand, affordability, and transaction volumes. For investors, this means keeping a close eye on rate trends and their interplay with the 10-year Treasury yield to anticipate shifts in buyer behavior and market momentum. For those positioned to act strategically, periods of rate moderation could unlock valuable opportunities in a still-constrained but evolving market.
Inventory: A Balancing Act in Progress
Inventory is a crucial piece of the housing market puzzle, and 2025 shows promising signs of improvement. According to HousingWire, unsold inventory is projected to increase by 13% during the year, peaking at approximately 800,000 units in October before stabilizing around 720,000 by year-end. While this growth marks progress, it’s important to note that these levels remain significantly lower than pre-pandemic norms when inventory frequently exceeded 1 million units. The constrained inventory levels over the past three years have driven fierce competition among buyers, bidding wars, and upward pressure on home prices. This gradual recovery in inventory, while a welcome development, is unlikely to fully restore balance to the market in the short term.
What’s particularly notable about inventory growth in 2025 is that it is far from uniform across the country. Sun Belt cities such as Austin and Tampa, which experienced rapid population growth and migration during the pandemic, are now seeing higher inventory levels as demand has cooled. This shift reflects changing migration patterns, with fewer people moving into these regions compared to the peak years of 2020 and 2021. On the other hand, historically outbound migration markets like New York and Massachusetts are facing much tighter inventory levels, leading to continued upward pressure on prices. The variations are driven by several factors, including regional economic conditions, job market trends, and housing affordability, which play significant roles in shaping supply and demand dynamics.
This regional disparity highlights opportunities for those looking to invest or develop in the housing market. Markets with growing inventory but sustained buyer interest present potential for value-driven investments. For example, areas where supply is increasing may offer lower competition for buyers, providing better opportunities for those pursuing fix-and-flip projects or long-term rental developments. Conversely, regions with tight inventory and robust demand could be more suitable for higher-end developments or long-term appreciation plays. Understanding the regional and local nuances of inventory growth will be key for anyone navigating the real estate landscape in 2025.
Affordability: The Elephant in the Room
One of the most critical issues in today’s housing market is affordability—or, increasingly, the lack of it. HousingWire highlights that mortgage payments are now 80% higher than they were just three years ago. This dramatic increase, driven by rising home prices and elevated interest rates, has priced many potential buyers out of the market, particularly first-time homebuyers. The affordability crisis is not just a personal challenge for individuals and families—it has profound implications for the entire housing market, from sales volumes to long-term economic stability.
Affordability challenges are further underscored by declining purchasing power. While wages have increased modestly in recent years, they have failed to keep pace with the surging costs of homeownership. For example, the Housing Affordability Index—produced by the National Association of Realtors (NAR)—recently hit its lowest level since 1989, signaling that housing has become less accessible than at any point in the last three decades.
This affordability crisis is particularly acute for first-time buyers. According to NAR data, first-time homebuyers accounted for only 26% of transactions in 2024, down from the historical average of 40%. This is a stark indication of how rising mortgage rates and home prices have created significant barriers to entry. Additionally, median home prices in many regions are now over six times the median household income, further compounding affordability issues.
The issue isn’t confined to buyers; it also impacts the rental market. Many would-be homeowners have shifted to renting, increasing demand and pushing rental prices higher. As a result, both renters and potential buyers are facing economic pressures, further delaying pathways to homeownership for millions.
The solution to the affordability crisis lies in addressing the supply-demand imbalance. Increasing housing inventory, especially in price ranges that cater to middle-income households, could help alleviate some of these pressures. According to data from the U.S. Census Bureau, new residential construction has been steadily increasing, but the gap between demand and supply remains significant. Adding more affordable housing units is critical to stabilizing prices and making homeownership attainable for a larger segment of the population.
Additionally, zoning reforms and incentives for developers to build affordable housing could play a vital role in tackling this issue. Expanding housing programs and policies at the federal, state, and local levels, aimed at reducing costs and increasing the availability of entry-level homes, may be necessary to address this systemic problem effectively.
Home Prices: Stability with Regional Nuances
Despite ongoing affordability challenges and a marked slowdown in sales volume, home prices have shown remarkable resilience across most markets. HousingWire projects a 3.5% increase in home prices for 2025, reflecting a modest slowdown from the typical 5% annual growth seen in previous years. This stability, however, is not accidental. It’s largely driven by a combination of limited housing supply and what economists refer to as “downside stickiness,” where homeowners are reluctant to sell at lower prices, keeping asking prices elevated even in softer markets.
Interestingly, the resilience of home prices is not uniform across the nation. In Sun Belt cities like Austin and Tampa, where inventory has been increasing due to shifting migration trends and cooling demand, prices are likely to stagnate or even see slight declines. Conversely, regions with tighter supply, such as New York and Massachusetts, continue to experience upward pressure on prices, supported by limited listings and sustained buyer interest.
It’s worth noting that the broader economic context plays a role here. Despite mortgage rates remaining elevated, strong homeowner equity and historically low foreclosure rates have bolstered price stability. According to recent data, Americans hold an average of over 47% equity in their homes, a significant buffer that limits distressed sales and contributes to price resistance. Additionally, with new listings averaging only about 60,000 per week in 2024—well below pre-pandemic norms—supply constraints are unlikely to ease dramatically in the near term.
For me, these trends highlight the critical importance of adopting a localized approach to real estate investment. The housing market is never monolithic, and understanding regional nuances is essential for success. Sun Belt markets might present opportunities for value-driven investments as prices cool, while high-demand areas in the Northeast could be ideal for development or long-term holds.
Macroeconomic Trends and Their Impact
Zooming out, several macroeconomic factors will shape the housing market in 2025, and none more so than the 10-year Treasury yield—a key indicator that closely influences mortgage rates and borrowing costs. Here’s a breakdown of critical macroeconomic elements and how the 10-year yield will guide market movements:
1. Inflation Moderation: Inflation levels are expected to stabilize, allowing the Federal Reserve to maintain its current policy stance. This stability could anchor the 10-year Treasury yield, keeping borrowing costs relatively stable. If inflation flares up unexpectedly, yields could rise, pushing mortgage rates higher and further constraining affordability.
2. Labor Market Shifts: Rising unemployment could weaken consumer confidence and housing demand, potentially lowering the 10-year yield as investors seek safer assets. This would likely bring mortgage rates down, stimulating demand. Conversely, strong job growth could keep yields elevated, maintaining pressure on homebuyers and dampening sales growth.
3. Global Economic Conditions: Geopolitical uncertainties and shifts in global trade could impact U.S. economic growth, driving volatility in the 10-year Treasury yield. For example, heightened uncertainty might lower yields, while stronger global economic data could push them higher, influencing mortgage rates in tandem.
Guide to the 10-Year Treasury Yield’s Impact:
• Above 4%: Mortgage rates would likely stay above 7%, significantly limiting buyer demand and transaction volumes. Affordability challenges would deepen, and home sales could remain stagnant.
• Between 3.5% and 4%: This range would likely keep mortgage rates between 6.5% and 7%. While this is slightly more favorable, it would still strain affordability, slowing recovery and limiting sales growth to modest levels.
• Below 3.5%: If the yield drops below this threshold, mortgage rates could fall closer to 6%, sparking renewed buyer interest. This scenario could lead to a stronger-than-expected rebound in home sales, with transaction volumes potentially reaching or exceeding 4.5 million units.
For us at Funded Capital, the 10-year yield is more than a data point—it’s a critical barometer for forecasting market conditions and tailoring our loan products. Whether yields rise or fall, we’re ready with innovative financing options to help our clients adapt and succeed.
By closely monitoring these trends, Funded Capital ensures our clients are equipped to navigate challenges and seize opportunities. From identifying favorable borrowing windows to adjusting strategies for shifting economic conditions, our team is dedicated to helping you thrive in any market
Why Funded Capital is Your Partner for 2025
As we look ahead, it’s clear that the housing market requires a nuanced and proactive approach. That’s where Funded Capital comes in. We specialize in helping investors, developers, and homebuyers navigate challenging markets with confidence. From fix-and-flip loans to DSCR financing, our loan programs are designed to empower you to take action.
But we don’t just stop at financing. Our team offers market insights, strategic guidance, and a commitment to your success. Whether you’re expanding your portfolio, developing new properties, or securing your first investment, we’re here to help you thrive.
Let’s make 2025 a year of growth and opportunity. Reach out to Funded Capital today, and let’s turn your real estate goals into reality. Together, we can navigate this dynamic market and achieve great things.
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