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.

Despite a Cooling Real Estate Market, Billionaire Grant Cardone Predicts Investors Will Come to the Rescue

Billionaire Grant Cardone Predicts Investors Will Come to the Rescue

The real estate market is a key indicator of the health of the economy, and when it's in a slump, it can have a domino effect on other industries. The current market conditions have left many homeowners, buyers, and investors feeling uncertain and hesitant.

Buyers are looking for deals, not wanting to pay full price, and sellers have been, thus far, reluctant in taking less for their home than what they "feel" it's worth - especially after the big runup most local US housing markets saw during the pandemic.

Housing prices sticky on the way down

There's always an emotional component to buying or selling one's home, so prices are usually "sticky" on the way down.  It's a hard pill for most to swallow that you're going to get less for your home today than yesterday, so the natural tendency is to wait "in hopes" that the "perfect" offer comes in.

In an appreciating market, procrastination can be your friend.  In a depreciating housing market, price reductions may not even keep up with or get you out in front of falling prices.  There's always a lag between what's happening on the ground today and when the data is released, so we must use data, not our emotions, to project out future possibilities and probabilities to better guide our decisions.

Housing inventory supply and demand stalemate 

The emotional dynamic is even more in play today because housing inventory levels remain historically low which is strongly overshadowing the increasing headwinds in the residential housing market.  In particular, affordability continues to erode as the Fed remains steadfast in raising interest rates to fulfil their promise to do whatever it takes to curb inflation.

Watch what they do as it will clue us in and significantly impact the direction of the market.  As long as they remain restrictive in their policies, that will force a continued cooling of the housing market (again, with a lag effect when it comes to their policies actually impacting home prices).

Until then, there's a stalemate unique to this housing market that we didn't see back in 2008.  Since many potential sellers locked in 2-4% mortgage interest rates over the past few years and their home is worth substantially more today, they don't have to sell.  And, in most cases, they're not as they'd have to buy less of a home (due to the price appreciation over the last few years) and do so with mortgage interest rates now over 6% (resulting in a significantly higher monthly payment).

Ultimately, the erosion in price will come when this stalemate breaks.  For now, the bulk of the housing market is made up from "transactions of necessity" (people having to relocate for work, family circumstances, etc.), so most local housing markets are seeing falling prices, but they aren't dropping as quickly or as much as some expected.

What will the spring housing market bring us?

In fact, in many local housing markets, there's been an uptick in demand this early spring, but there hasn't been a flood of homes hitting the market.  With spring approaching, how this plays out will also give us a better feel for what's to come.

Will we see the typical seasonal trend of an increasing number of homes hitting the market this spring?  And, what will happen with buyer demand if interest rates keep rising?  Even though buyer demand has dried up considerably, the right home, in the right market, is still selling with multiple offers - the Sacramento real estate market is one such example highlighted by Ryan Lundquist a Sacramento appraiser and a great follow on Twitter - @SacAppraiser).

Inventory levels are key to 2023 home prices

Again, the key to 2023 home prices is seeing what unfolds with inventory levels and buyer demand.  As it sits today, these historically low inventory levels are keeping the housing market propped up to a large extent, so it will take time, but billionaire investor and entrepreneur Grant Cardone believes that investors will play a vital role in reviving this slowing real estate market when that time comes.

Economists have been calling for a housing crash for several months. Some even predicted that home prices would fall by as much as 30% in 2023. While these claims are understandable considering that rising mortgage rates have priced many would-be buyers out of the market, it appears that a different scenario is beginning to play out.

Best-selling author and real estate fund manager Grant Cardone agrees that the housing market is in trouble, but points out that investors will create enough demand to keep the market from crashing.

“Banks don’t trust borrowers, and those they do trust will have to pay. This will move homeowners to the sidelines and slowly reduce home prices,” Cardone said. “Investors will step in to pick up single-family homes at lower prices with less competition. That being said, there will be no housing crash! Investors, like myself, will save the day and step in to buy the homes, put renters in place and enjoy them for the cash flow, not the kitchens and cabinets.” - Yahoo! Finance