Real estate experts foresee a slight easing in the US housing market by 2025, potentially making home buying more accessible. However, this shift is unlikely to benefit first-time buyers significantly.
The US housing market, characterized by high home prices, elevated mortgage rates, and limited supply, may see conditions improve in 2025. Experts from Redfin and Goldman Sachs project that the rapid rise in home prices will slow, with median home-sale prices expected to increase by around 4% in 2025. This moderation aligns with median wage growth, offering some relief to potential homebuyers.
Current mortgage rates, which have soared to approximately 7% from below 3% in 2021, might stabilize or decline. Redfin anticipates these rates might either hold steady or decrease by the end of 2025. Realtor.com predicts they could decrease to 6.2%, signaling a possible improvement from the 7.8% peak in October 2023.
Increased housing inventory is another factor likely to impact the market. The construction industry is expected to benefit from reduced regulations following a Republican win in Congress, facilitating more housing starts. According to Realtor.com, new single-family home constructions might reach 1.1 million in 2025, marking a 13.8% increase. This rise in supply could enhance the housing market dynamics over the next few years, with home sales projected to grow between 2% and 9% in 2025.
Despite these potentially positive changes, younger and first-time homebuyers still face significant hurdles. Reports indicate that new housing will largely cater to older generations. According to Redfin, older buyers, priced out of higher price tiers, are likely to dominate the market for affordable homes.
The challenges for first-time buyers are intensified by stagnant wages that haven’t kept pace with rising home prices over the past five years. The cost of starter homes has grown at twice the rate of incomes, compounded by student loans and credit card debt, making mortgage qualification difficult. As a result, the median age of first-time homebuyers has reached a record 38 years, with their market representation shrinking to 24% in June 2024, down from 32% the previous year.
In contrast, older generations hold substantial net worth and homeowner equity, offering them a distinct advantage in the housing market. As they look to downsize or relocate, they can capitalize on their home equity accrued over many years. Meanwhile, younger generations, particularly Gen Z, continue renting or living with family, delaying their foray into homeownership.
While 2025 may bring some relief to the housing market with stabilized prices, lower mortgage rates, and increased inventory, these benefits are not predicted to extend significantly to first-time buyers. Older generations are expected to continue benefiting from their accrued wealth and real estate holdings, while younger buyers face ongoing financial challenges that delay homeownership.
Source: BusinessInsider
