Residential Real Estate Market Update: February 2025

The real estate market in early 2025 is shaping up to be a mix of opportunities and challenges. With mortgage rates still elevated, home prices continuing their gradual rise, and inventory levels shifting, both buyers and sellers need to stay informed. Let’s dive into the latest trends and what they mean for you.

Home Prices: Slow but Steady Growth

National home prices have seen steady appreciation, with an annual growth rate of 3.4% at the end of 2024. CoreLogic predicts a modest dip of 0.2% from December 2024 to January 2025, followed by a 4.1% increase by the end of this year. This suggests a market that’s stabilizing rather than experiencing extreme highs or lows.

For buyers, this means home values aren’t skyrocketing like they did during the pandemic, but affordability remains an issue. Sellers, on the other hand, can still expect their property values to hold firm, though pricing competitively will be key.

Mortgage Rates and Affordability

The average 30-year fixed mortgage rate is still hovering above 6%, making homeownership more expensive compared to the historically low rates seen in previous years. However, experts anticipate a gradual decline in rates throughout 2025, which could provide some relief to buyers on the fence.

Higher borrowing costs mean first-time buyers need to budget carefully, considering not just the mortgage payment but also rising insurance and property tax costs. Those looking to refinance may find better opportunities later in the year if rates trend downward as predicted.

Housing Inventory and Market Activity

One significant shift in 2025 is the increase in available homes. Inventory levels are projected to rise by 11.7% compared to last year, offering buyers more choices. However, demand has softened in some regions. In the Tri-Cities area, for example, home sales were down 25% in January compared to the previous month.

More inventory is generally good news for buyers, as it can reduce bidding wars and stabilize home prices. Sellers should be aware that with more competition, pricing their homes appropriately and ensuring they’re in top condition will be crucial for attracting offers.

Regional Spotlight: California and the Bay Area

The California housing market remains a mixed bag. While some counties are seeing price gains, others are stabilizing or experiencing slight declines. The Bay Area, in particular, continues to be a high-cost market, but with mortgage rates still high, some areas are seeing longer days on market and more price adjustments.

For potential buyers in California, this could be a window of opportunity to negotiate better deals. Sellers, meanwhile, need to be strategic with pricing and marketing to stand out in a more competitive environment.

Policy Changes Affecting Real Estate

Federal and local policies are playing an increasingly important role in shaping the housing market. The Federal Reserve recently introduced stress test scenarios for major banks, assessing their ability to withstand downturns in both residential and commercial real estate. While this doesn’t directly impact homebuyers, it signals the government’s concern about economic stability and housing affordability.

On a local level, zoning reforms are gaining traction. Cambridge, Massachusetts, recently ended single-family-only zoning, allowing for higher-density housing developments. Similar initiatives in other cities could increase housing supply and improve affordability over time.

Looking Ahead: What to Expect in 2025

• Gradual mortgage rate declines – This could make homeownership slightly more affordable later in the year.
• More inventory on the market – Giving buyers more choices and potentially moderating price growth.
• Policy changes impacting housing development – Which could affect affordability and market accessibility.
• Regional variability – Some markets will remain competitive, while others may see cooling trends.

Final Thoughts

The residential real estate market in February 2025 presents both challenges and opportunities. Buyers should keep an eye on interest rates and explore markets with increasing inventory. Sellers need to be strategic with pricing and marketing as competition rises.

Whether you’re buying, selling, or investing, staying informed on market trends is crucial. As always, working with a knowledgeable real estate professional can help you navigate the shifting landscape and make the best decisions for your situation.