Will 2025 Finally Be a “Normal” Housing Market?

We’ve now been in the post-pandemic housing market recession market as long as we were in the pandemic boom: two and a half years. Is this the moment when the housing market will finally get back to normal?

We know inventory has been climbing all year. The number of unsold homes on the market is finally getting closer to 2019 levels. 

We know sales are inching up too. Anecdotally I’m hearing about home sales picking up in November, and the MBA’s mortgage applications data has been surprisingly strong.

Our home price data is still trending higher than last year too. Home prices nationally are up 5% over last year - a pretty "normal" amount of price change. 

In this week's video, I'll look at what the data can tell us today about what to expect in the new year.

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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 9, 2024. Please refer to the video below for all the charts I mention in this transcript!

Inventory

Let’s start with supply today. There are 690,000 single family homes unsold on the market around the US. That’s 26% more homes on the market than last year at this time. It’s now only 17% fewer homes on the market than at the end of 2019. We use 2019 as a sort of proxy for “normal” times before the pandemic craziness hit - even though the unsold inventory in 2019 had been declining for most of the previous decade. In the 2010s, interest rates were very low for basically the whole decade and that encouraged Americans to buy and hoard real estate. Inventory shrank every year for most of the decade.

This is the 10-year view of inventory in the US. Notice how basically every year over the last decade we had fewer and fewer homes for sale. During that time, mortgage rates continually moved lower. We continually bought and hoarded more and more homes. That shortage reached its crisis peak in January of 2022. Then in the last three years, at the right end of the chart you can see that with each year with more expensive money, we’re slowly emerging from the crisis and growing the amount of unsold inventory. Now just under 700,000 homes unsold on the market. In 2019, there were 850,000 unsold single family homes on the market in December.

Interestingly the growth in available supply of homes for sale in the last three years came from weaker demand. When demand slows, inventory grows. 

Supply growth could also come from more sellers. Maybe this would be from investors unloading, or maybe distressed borrowers who need to unload like in 2008. This cycle though, in most of the country, we have none of that growth from the seller side. In Florida and Texas we see the rising costs of insurance and taxes and climate risk driving some more sellers. So in those markets we see reduced buyers and slightly increased sellers. I’ll show this in the webinar Thursday but you can see a city like Dallas has the new listings each week getting back to “normal” levels, and we can contrast that with a city like Chicago which has still very few new listings each week, just barely more than the pandemic record lows. In 2025 we expect that to even out a bit. “Normalize” just a bit more. 

New Listings

Nationally, there were just 31,000 new listings for single family homes from the last week which included Thanksgiving weekend. We’ve been averaging about 8% more sellers each week than a year ago. Thanksgiving week came in on  the same trend with 8.7% more sellers than the same week a year ago. Sellers are growing by 5-10% per week. We expect that growth to continue in 2025.

The new listings data is the purely supply side of the supply / demand equation.  In this view I’m showing the three recent eras of the housing market as told by the new listings data. Each bar is a week over the last 9 years. The taller the bar, the more sellers - newly listed homes for sale - in a given week. Each year forms its own bump. More sellers in April, May, June, July each year with fewer sellers in the fall and winter.

At the left half of the chart is the pre-pandemic era, which ended in March 2020 - that era was characterized by roughly 90,000 new listings for single family homes each week at the peak of the spring season. The bars were the tallest back then, indicating how many more sellers each week we used to get. 

The pandemic boom took off in April 2020, came to a crescendo in Q1 2022 after a two year buying frenzy, and then hit an abrupt halt in July 2022. During this period there were fewer sellers and many more buyers. As money became super cheap, we bought more homes and sold fewer. That’s the light colored section in the middle. Rather than 90,000 sellers in a given week, during the pandemic that dropped to 80,000. Meanwhile we were buying far more homes than that each week. The unsold inventory fell down to those crazy record lows. 

Now we’re in the post-pandemic era, which we’ve colored here in blue. Each week has very few sellers, but lower demand means longer time on market and growing inventory of unsold homes. During the post-pandemic era, the supply of new listings each week has been around 70,000. If you look closely at the right end of the chart, you can see that 2024 had seller growth - about 8-10% more sellers each week than a year ago. We’re looking to 2025 for that growth to continue. I don’t see getting back to pre-pandemic levels like 90,000 but hopefully we’re at 80,000 sellers per week in the peak spring/summer 2025. 

This growth in the number of sellers each week is generally healthy for the US housing market, because more sellers implies more sales can happen. It implies that there is less upward pressure on home prices which helps improve affordability as incomes grow to catch up to home prices over time. It gives buyers more selection and less pressure.  As we start the new year, the number we’re looking for is 50 or 55 thousand new listings of single family homes per week by the end of January 2025. That would be a good sign for a growing market for the year. 

Pending Home Sales

As there are slightly more sellers than a year ago, we can also see home sales growing, just a bit. Home sales are running ahead of last years’ pace by approximately 10% each week. In fact, the headlines are starting to catch up to the data. There are a few data points like NAR’s latest estimates of home sales and the MBA’s mortgage applications that are starting to corroborate our data indicating that home sales have some growth over 2023 and that has not abated in December. 

The market has been averaging 51,000 new sales pending each week over the last four weeks, including the holiday. That’s down from 54,000 and it’s totally normal of course to have fewer offers and sales happening in December. Like I said, by our count home sales are running maybe even 10% above December of 2023. That’s not a lot of home sales, but it is an improvement. The fourth quarter of 2022 and 2023 were very disappointing. 

As we’re looking at 2025, it seems like there has been some late year momentum, maybe it’s from buyers who waited until after the election and are now ready to act? Will that momentum continue into the spring? Hard to say, but like the slight growth in new listings, seeing a slight growth in home sales is an optimistic view of the housing market.

I want to point out that there are no signals of a big surge in home buyers. Even though there are lots of potential home buyers who have put their moves on hold for the last three years, some of them are starting to move now, but there’s no sign that a lot of them will dramatically change the trend of the post pandemic era. Slight growth, not explosive growth for home sales in 2025. This is why we’re talking about “normalization.”

Home Prices

Home prices nationally continue to hold up over last year. The median price of single family homes in the US is $384,900 now. This is the median price of the homes going into contract each week. This is what people are buying. Even though the price ticked down in the latest data with the low volume over Thanksgiving weekend, home prices continue to be up about 5% over last year, on average in recent weeks. 

I like tracking this number - the price of the newly pending sales - because it’s the easiest proxy for sales. These are the sales that are started, they’ll close later in December or in January.  Home prices by this measure have appreciated by about 5% this year, that’s more than I expected given how weak demand was earlier this year. As we look at 2025, we’re forecasting that home prices will grow less next year than they did this year - our expectations are for 3.5% home price gains in 2025.

It’s kind of fascinating how it’s easier to temper price expectations lower than it is to predict big home price gains. In this last year we expected essentially no home price gains and the market surprised higher. In 2025 we’re expecting some price gains but less than this year, so we’ll see if the market surprises again. 

But essentially, we expect softer price appreciation in 2025 because we have more inventory of unsold homes. Some markets have a lot more. And the cost of money hasn’t shown any signs of significant improvement. 

If you’re in the camp of people waiting for home prices to crash before you swoop in for a bargain, you should be aware that there’s no signs anywhere in the data of home prices crashing. There are some of the southern markets like Tampa which definitely have challenges ahead for the year, and probably some bargains to be found, but those are slight price declines overall and not market crashes.

Price Reductions

When we look at the leading indicators of future sales prices, we see stability, and not much negative pressure. Again if you’re waiting for a big price correction before you finally pull the trigger to buy a home, there’s just no signal in the data of that price correction imminent. As of now in the middle of December, 38.4% of the homes on the market have had price reductions from the original list price. That’s easing lower as we end the year. After the new year, fresh new inventory gets listed so the percent of homes with price cuts falls. 

In this view the red lines are the most recent three years. This year’s curve is shaping up like 2023 ended. At the right end of the chart you can see the two lines converging on the same curve. With just under 40% of the homes on the market this is consistent with the expectations for the holiday season. Every market has price cuts. It's normal for about a third of home sellers to cut their asking price before they get an offer. 

The level of price cuts now reflects the slow demand we’ve had all year. Price cuts have been stable for several months, which indicates that even after the hurricanes, for example, there is no signal of significant softening of home prices. This curve here, the dark line is 2024, and it’s easing down as you’d expect for the end of the year. 

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