PARTNERS VOICE | MARKET FORECAST
January 2025

While the real estate market took many twists and turns throughout 2024, the coming year is predicted to be one of incremental growth. Mortgage rates peaked at 7.22% nearly eight months ago, the Fed made its first rate cut in four years in the fall, and inventory has been growing, slowly but surely, for the past 12 months. While the market is still recovering to its pre-pandemic strength, there are solid indicators that things are holding steady and even headed in a positive direction. Let's take a deeper look at three of them.

Fed Rate Cuts

In December, the Fed cut its federal funds rate — the interest rate banks charge each other for short-term loans — by 25 basis points. It was the central bank's third consecutive and final interest rate cut of 2024, following cuts of 25 and 50 basis points in September and November. The Fed signaled it will hold rates steady moving forward, and have penciled in two rate cuts next year, with their first 2025 meeting being held January 28-29.

So why haven't interest rate cuts brought mortgage rates down further? Low inventory, high home prices, and high inflation have kept mortgage rates in the high 6% range. The Consumer Price Index (CPI) - a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services - came in at 2.7% in November. However, inventory is rising, and when inventory goes up, competition increases and rates become more competitive.

Rising Inventory

At the National Association of Realtors (NAR) Real Estate Forecast Summit in December, the Mortgage Bankers Association chief economist stated, “I’m optimistic about the spring of 2025. All the factors are lining up that we could really see increases, with the increase in inventory really being one to focus on." In fact, active home listings surged 26.2% annually in November, up to the highest level since December 2019. It was the 13th straight month of inventory growth, with eight states (Arizona, Colorado, Florida, Idaho, Oklahoma, Tennessee, Texas, and Utah) now back to pre-pandemic housing inventory levels. Other states moving toward those levels point to recovery underway, a great sign for potential buyers and sellers.

Forecast for 2025 and Beyond

Economists are predicting that the housing market could open up more opportunities to home buyers in 2025, leading to a market rebound after two years of sluggish sales. Lawrence Yun, NAR’s chief economist, sees improvement in the near future. “Home buyers will have more success next year,” he said. “The worst of the affordability challenges are over as more inventory, stable mortgage rates, and continued job and income growth pave the way for more Americans to achieve homeownership.”

NAR predicts that mortgage rates will level out in the 6% range in 2025 and into 2026, making  homeownership more affordable to nearly 6.2 million more prospective buyers than when rates were near 7%. Yun continued, “The lock-in effect is likely waning, and will be less impactful for the housing market. Life changes—marriages, growing families, job changes, retirements, deaths and more—may take precedence over keeping a lower mortgage rate."

So many things are shifting and changing in these "unprecedented" times we live in, yet life continues on and we find creative ways to shift and change with them. We are truly optimistic about the year ahead. In fact, the Phoenix-Mesa-Chandler market, one of the largest regions we serve, was just included in Realtor Magazine's "10 Housing Hot Spots for 2025". Whether you're looking to buy or sell a home this year, know that we're always here to answer any questions you have and help you navigate the market.

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