All the data for 2024 is in, and it’s fair to say the housing market surprised again. There are two big trends that stand out to me as we launch into 2025.
The first is affordability. Home prices finished 2024 up another few percent nationally, and mortgage rates are at their highest level in seven months - back over 7% as we head into January. In fact, at $2,290, the typical mortgage payment for home buyers is starting 2025 at the highest level ever for the start of the year. There are a few markets in the South where home prices have inched down recently, and every bit helps buyers, but those prices have not adjusted very much, and there’s no sign of any major correction in the works. In 2025, housing affordability in the US remains at its worst levels in decades.
In the last few months, the market finally saw some sales growth over the previous year. But that growth is in jeopardy if we stay at the high end of the mortgage rate range for very long into Q1. Homes are already staying on the market 20% longer than a year ago. Affordability really hits hard. The fastest path to changing affordability is a change in interest rates.
The other trend to watch is whether we finally have more sellers entering the market in 2025. The past three years post-pandemic have been marked by very few sellers: 60,000 new listings in a given week vs 80,000 in years past. But, there are some signals that seller volume is starting to creep back to normal levels.
Let’s look at this week’s data and see if we can tease out the signals for the 2025 housing market.
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I’m Mike Simonsen, I’m the founder of Altos Research. Let’s look at the data for the week of December 30, 2024. Please refer to the video below for all the charts I mention in this transcript!
There are now 651,000 single family homes unsold on the market across the US. That’s 2.5% fewer than a week prior. It’s the holidays of course. We’ll see another week of inventory contraction this week with New Year’s mid week.
Some years, when demand is stronger, the available inventory of unsold homes keeps shrinking until February or March. But demand is not strong, nationally, so we expect inventory to bounce along under 650,000 homes in January and start ticking up by February.
Inventory is increasing in basically every market around the country. The Sun Belt markets have led inventory growth with the northern markets much tighter, but we see that north/south disparity evening out a bit in 2025.
In this chart you can see 10 years of inventory trends. We’re now with three full years of higher mortgage rates and three full years of inventory gains. There’s no sign of this post-pandemic era changing in 2025, which means mortgage rates stay elevated, in the 6s for most of the year, with inventory rising another 15% or so, getting very close at the end of the year to where 2019 finished. We’re almost back to the old normal levels of unsold homes. That’s good news for buyers as it means improved selection, fewer competitive situations, and less upward pressure on home prices.
As we look deeper into the supply side of the market, there were 32,500 new listings unsold this week. That’s of course very low over the holidays. But it is notable that for this last week of the year, there were more new listings this week than the same week in 6 or 7 years.
It’s hard to measure precisely with the holiday, but 32,000 is 33% more than hit the market in the 52 weeks of the year in 2023. This is probably related to when the holiday hits on the day of the week. But the thing to keep an eye on is each week in December we had much more “normal” levels of new listings each week. In the chart here the gray lines are previous years. The year “normally” starts in the 20-30,000 range, we’re at 32,500 this week. This is at the left end of the chart. In the post-pandemic era the last three years, the most notable trend has been very few sellers each week. That trend has kept a lid on total inventory growth. But it seems to me that there are some early signals that trend is changing - loosening up with gradually more sellers. Not a lot of sellers, it’s not a flood. But 2025 looks less restricted than 2024 and certainly less tight than 2023. Each year brings more sellers as the world adjusts to higher mortgage rates.
When we look at this chart, these are unsold new listings. There’s another set of sellers that we call “immediate sales”. These are the houses that get listed and take offers essentially immediately after listing. They don’t ever add to the active inventory, they’re already sold. When we include these new listings that are already in contract this week there were 21% more sellers than a year ago.
We’ve been averaging 8% more sellers each week. There were only 5,000 immediate sales this week. That’s the fewest since we started measuring this phenomenon during the pandemic. Again, it’s the holidays, there’s a lot of noise around the day of the week that Christmas and New Years fall so, just keep an eye on the new listings counts as we round into Q1 2025. It could be that the shortage of sellers is finally abating a bit.
In this chart, at the left hand edge, see we’re starting 2025 with 32,500 new listings of single family homes, it’s more than the other gray lines from previous years. We’re going to watch if the red line jumps in January like it did in 2019 and 2020 just before the pandemic.
When we look at sales volumes, there are 269,000 single family homes in contract. That’s 4.25% more than where we ended 2023. It’s the end of the year, so there are 8% fewer homes in contract now than from the week before Christmas. This is New Year’s holiday week so we’ll have one more week of declining home sales before the January uptick begins.
This chart is of the total count of single family homes in contract. Each line is a year. The red lines are 2024 and 2023, which had very few home sales, and that’s just starting to increase. At the left end of the chart you can see that 2025 is starting just above the previous years. These are contracts pending, so these are sales that will close in January.
There are of course 30% fewer home sales in process than at the start of 2022 when the pandemic frenzy was still underway. Still you can see why we’re forecasting 2025 to have 5% sales growth over 2024
It’s going to be fascinating watching home sales next month. How sensitive are home buyers to 7% mortgage rates and this latest affordability punch? Do we lose all of the sales momentum that we’ve seen lately? It was never a lot of sales momentum, but it has been growing. But man, it hurts to start the year with mortgage rates over 7%.
The new pendings average is down to 44,000, the recent four weeks includes both Christmas week and the late Thanksgiving week this year. Still the week new pendings average is only 1.3% above last year. Keep your eyes on the pendings data. I remain optimistic that we’ll see some sales growth in 2025.
Let’s move on to home prices and the affordability challenge. Nationally, home prices are starting 2025 at $395,000 which is 4% higher than a year ago. If you follow the Altos Research data each week this won’t surprise you. But if you don’t you might be surprised to learn that even when home sales are very low, when inventory of unsold homes is building around the country, and when unaffordability is at a crisis level, home prices have not fallen. In fact they’re inching up.
In this view we have the median price of all the homes in contract. The red line from 2024 across the top shows how prices cluster right at the big round numbers, in this case, $400,000 for most of the year.
It turns out that due to a huge number of factors, including seller psychology and legal and tax reasons, it’s very rare that home prices fall year over year. But this view shows us 2022 when after the pandemic mortgage rates spiked way up, higher and faster than anyone anticipated. The gray line here and the gray zones I’ve marked in 2022 when home prices actually fell. Prices recovered in 2023, but it looked for a while like home prices would have a down year.
The important lesson from the data is that while unaffordability is the paramount issue for home buyers, we haven’t seen any signal that the price of homes will correct down. There are many people who assume that home prices must fall from here. Unaffordability is just too dire. But here’s the thing: If that’s going to happen in 2025, you’ll see it first in the pending sales data, like we saw in 2022 here. It’s not in the data yet. So you have to watch this line each week. At the left end of the chart, we’re starting 2025 at record levels for January 1. At HousingWire we’re expecting a slightly positive year for home prices. Starting the year at 4% home price appreciation and ending the year at maybe 3.5%. Barely positive, but that’s how the market works.
Finally we’ll look at the leading indicators for home prices as we start 2025. There are currently 36% of the homes on the market that have taken a price cut from the original list price. That’s more than we started 2024, which indicates slightly weaker supply/demand balance than a year ago. There are 27% more homes on the market, and only 4% more sales so you can see why slightly more sellers are trying a price reduction than a year ago.
Still this number is not tremendously high. It’ll keep falling this spring with fresh inventory and new buyers for the next few months. But if mortgage rates stay over 7% that’ll keep a lid on buyer demand and some of those sellers won’t get the offers they were hoping for. Buyers are perfectly happy to wait, while sellers have to act. So in this chart, you can see at the left end where 2025 is starting. We expect weekly declines in the proportion of sellers with price reductions, but the steepness of the curve and when it starts to turn up will tell us a lot about the year’s home buyer demand.
In the first quarter of 2023 home prices were below a year earlier, I just showed that home prices fell in the second half of 2022. But price reductions at the same time, that’s the light red line here were growing fewer. What that told us at the time is while the headlines were really negative - home prices are down! We could already see a floor on those prices and 2023 ended the year with home prices up again.
So these price reductions are a leading indicator for future sales prices. The number is elevated now, and with 7% mortgage rates to start 2025, we’re going to see right here how much home buyers care about this affordability hit. Stay tuned.
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