As of November 2024, data from Realtor.com indicates a noticeable cooling in the existing home sales market, with homes averaging 62 days on the market—marking the slowest November for home sales in five years. This shift represents a stark contrast to the rapid listings and pending sales characteristic of the housing market’s high performance during 2021 and 2022. With the current trend pointing toward reduced activity in home sales, many aspiring buyers are questioning when home prices might finally drop, allowing them the opportunity to purchase a home. Experts have weighed in, suggesting that 2025 is unlikely to see a significant decline in housing prices, which remain elevated well above pre-pandemic levels. Understanding the dynamics of today’s residential real estate market is crucial for those looking to navigate buying or selling decisions moving forward.
The complexities driving the current housing market are evident in the recent stabilization of national house prices, which, according to Realtor.com, were down by a mere 0.07% year-over-year in November, with the median sale price currently at $416,880. Interestingly, although overall house prices show slight decreases, the median price per square foot has risen by 1.6%. The limited housing inventory largely stems from homeowners’ reluctance to part with the ultra-low mortgage rates they secured during the pandemic, particularly as current mortgage interest rates hover around 7%. High home prices combined with elevated mortgage rates continue to strain affordability, making the prospect of moving more daunting for many homeowners who are hesitant to face substantial cost increases.
Experts are forecasting that consumers should not expect meaningful drops in house prices throughout 2024. Instead, substantial price declines are likely contingent upon a combination of economic variables, primarily lower interest rates and a boost in housing supply. While the Federal Reserve has implemented rate cuts in late 2024, the impact on mortgage rates has been minimal thus far. Projections suggest that the Federal Reserve will remain conservative in its approach, potentially limiting further drops in rates through 2025. As mortgage rates stay elevated, homeowners may continue to balk at selling their properties, retaining their advantageous loan terms.
Current housing supply is influenced by two main groups: existing homeowners and builders. Many homeowners find it challenging to exchange their low-rate mortgages for new ones at significantly higher rates. Bob Smith, head of real estate at Advisor Credit Exchange, notes that supply may gradually increase as homeowners opt to move for lifestyle changes. Nevertheless, current builders are hesitant to ramp up new home starts significantly given the inventory surplus they faced during the pandemic. Recent reports reflect that new housing starts have decreased slightly (0.6%) from 2023 levels, as builders aim to avoid past overexposure to market vulnerabilities. Thus, the interplay between interest rates and housing supply remains crucial in determining future price trends.
While the outlook for falling home values in 2025 appears bleak, prospective buyers have viable strategies to consider. One approach is to enter the market now, potentially with an eye on refinancing when rates decrease. This allows buyers to start building equity on their homes now, even if they face limited choices in terms of size and type. Exploring smaller or alternative housing options, such as condominiums or modular homes, can also help buyers afford initial home ownership while contributing to financial growth over time. Modular homes, for instance, can be constructed off-site and are typically 10% to 20% cheaper than traditional houses, offering a practical alternative in a tight market.
Ultimately, while 2025 may feature a gradual decrease in interest rates, which could lead to increased housing prices and competition, buyers should prioritize their financial readiness. The best moment to invest in a home depends on individual circumstances—having solid finances, a stable job history, and a proven track record of responsibly managing debt will position buyers favorably. The broader market dynamics suggest that housing prices generally decline when there is an oversupply relative to buyer demand. As of the fourth quarter of 2024, while home supply is on the rise, it has not yet reached levels sufficient to surpass buyer interest, reinforcing the need for potential buyers to weigh their options carefully in a fluctuating housing landscape.
