After weeks of steady declines, mortgage rates are finally within a range that brings the possibility of homeownership closer to reality for many hopeful buyers.

Although home prices continue to break records, price growth is slowing due to loosening inventory and sluggish demand. At the same time, buyers are gaining purchasing power and leverage when negotiating with sellers.

Still, in the wake of the Federal Reserve’s jumbo-sized interest rate cut in September, many buyers are opting to remain on the sidelines in the hopes that further Fed cuts later this year will lead to more mortgage rate declines.

However, many experts say that now is the best time to take advantage of improved market conditions and get ahead of a potential demand surge that could put upward pressure on home prices and leave many would-be buyers out in the cold.

 

Housing Market Forecast for 2024 and 2025

U.S. home prices posted a 5% annual gain, according to the latest S&P CoreLogic Case-Shiller Home Price Index three-month running average that ended in July.

Although home prices have decelerated—the July gain reflects a slowdown from the 5.5% annual gain in June—the index still reached another record high, indicating that home prices remain out of reach for many would-be buyers.

“Now that mortgage rates are falling and buyers seem to be jumping back into the market, where will home prices go this fall?” Lisa Sturtevant, chief economist at Bright MLS, posed in an emailed statement. “It is possible that lower rates this fall could actually come along with slower home price growth as more sellers get into the market and inventory continues to rise.”

Ralph McLaughlin, senior economist at Realtor.com, agrees that home price growth will slow—but then rebound.

“[W]ith mortgage rates falling to 24-month lows and a high probability of further rate reductions, there is a significant chance that the rate of home price growth will bottom out over the next months and then reaccelerate at the end of the year or at the beginning of next as the purchasing power of homebuyers begins to reflect a more favorable rate environment,” McLaughlin said in an emailed statement.

Given these expectations, experts warn would-be buyers against waiting for more mortgage rate drops to avoid getting caught in a demand wave that reignites home price growth and puts homeownership out of reach.

 

Can We Expect a Housing Market Recovery in 2025?

For a housing recovery to occur, several conditions must unfold.

“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”

To be sure, the recent decline in mortgage rates is beginning to help loosen this much-needed inventory. Lower rates are also fueling mortgage originations—albeit gradually.

After peaking at 7.79% in October 2023, the average 30-year fixed mortgage rate has been below 6.5% since mid-August, landing at 6.44% the week ending October 17.

Meanwhile, the Fed finally cut the federal funds rate in September, and more cuts are likely in store. However, the size of those cuts will depend on inflation and unemployment data. Mortgage rates indirectly track this key interest rate banks use as an overnight lending guide.

With the fed funds rate at its highest level in over two decades, would-be borrowers have felt the added impact on their ability to afford a home.

However, as mortgage rates continue their descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.

He adds that returning mortgage rates to a more “normal” upper 4% to lower 5% range would also help the housing market, but he predicts it could be a while before we return to those rates.

As far as 2025 is concerned, Gumbinger says it’s a little too early to tell whether the housing market will be in better balance considering all the variables, such as whether or not mortgage rates decline and by how much, and how home prices react amid the unleashing of pent-up demand.

“I would think 2025 will be a better year for housing, but not a great year,” Gumbinger says. “[A]ffordability would only be improved somewhat, even with lower mortgage rates in place.”

 

NAR Practice Changes Are Underway: What Buyers and Sellers Need To Know

Following years of litigation, the National Association of Realtors (NAR) agreed to pay $418 million to settle a series of high-profile antitrust lawsuits filed in 2019 on behalf of home sellers. The settlement also requires new rules to support a more transparent home-buying process.

The real estate industry trade group expects the practice changes to benefit “both consumers and agents by clarifying the financial aspects of real estate transactions.”

Though the final settlement approval hearing is scheduled for November, NAR implemented the new requirements on August 17.

Key Changes That Impact Buyers and Sellers

For decades, it was standard practice for the home seller to cover the buyer’s broker commission and include commission offers on the multiple listing services (MLS)–the private databases where local real estate brokers publish and share information about residential property listings.

However, the plaintiffs argued that this practice was a collusion scheme, contending that NAR and several real estate brokerages required sellers listing homes on the MLS to cover buyer broker commissions.

Consequently, the central settlement rule change prohibits broker compensation offers on the MLS.

Here are other changes buyers can expect:

• Buyers must enter into a written agreement with any agent that uses an MLS that follows NAR’s rules before touring homes.
• Buyers can negotiate how much commission to pay their agent or broker and for what services.
• The buyer/broker written agreement must identify three elements:
  • How much compensation the buyer will pay their professional representative
  • This compensation specified in a dollar amount or as a percentage
  • Language confirming that the buyer’s representative cannot receive compensation exceeding the amount in the agreement

Here are other changes sellers can expect:

• Sellers can negotiate with their listing broker how much to pay in commissions and for what services.
• Sellers are free to have their listing broker offer cooperative compensation to buyer brokers off the MLS through other means, such as via social media, fliers, websites, phone calls and emails.
• Sellers are free to offer buyer concessions on the MLS as long as the concessions are unrelated to compensating the buyer’s representative.

Despite the reforms, home shoppers can still attend open houses on their own, contact listing brokers and request information on properties, according to an NAR spokesperson.

How Will the New Rules Impact Affordability?

Now that buyers are more likely to be responsible for paying broker commissions, how concerned should hopeful homeowners be about home affordability in the wake of these changes?

“The greatest impact is going to be buyers that have fewer resources for down payment, closing costs and now the potential of buyer broker compensation,” Matt Side, director of broker development/owner at Realty ONE Group Eclipse in Spokane tells Forbes Advisor.

But the news rules may not only impact a buyer’s budget. Joel Hess, co-owner and managing broker of Realty ONE Group Professionals in Boise, notes that home shoppers, especially first-time buyers, may be shut out from segments of inventory they could have previously afforded.

“A buyer may not look at a home that’s otherwise perfect for them if they don’t have the cash available in their budget to pay compensation,” Hess tells Forbes Advisor.

Nonetheless, Side says buyers should know that sellers will continue offering compensation to the buyer representatives to increase accessibility and boost demand for their homes. Side also advises buyers to have upfront conversations with their lender and real estate agent to help them optimize the terms when negotiating a home purchase.

“Understanding what their limitations may be in purchasing will prepare them for a successful real estate transaction,” Side says.

Housing Inventory Forecast: When Will There Be Sufficient Supply To Reduce Prices?

Despite more resale and new homes entering the market, for-sale inventory remains well below pre-Covid averages, according to a Freddie Mac report. Thanks to multiple headwinds, a severe inventory deficit will likely remain for some time.

For one, many homeowners remain “locked in” at ultra-low mortgage rates, unwilling to exchange for a higher rate in a high-priced housing market. Consequently, demand continues to outpace housing supply—and likely will for the remainder of this year.

“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.

In the meantime, in addition to new home construction offering some relief, steeper mortgage rate declines could loosen the lock-in effect and provide some much-needed housing supply.

Still, it will take far more supply than these sources can provide to fill the vast inventory deficit that a Pew Charitable Trusts report estimates at four to seven million homes.

Here’s what the latest home values look like around the country.

 

Home Builder Sentiment Ticks Down Again

Builder sentiment continues to wilt with the summer heat.

After months of cooling, builder sentiment saw a slight warm-up at the end of the summer.

Thanks to the steady decline in mortgage rates, the gloomy outlook for new construction saw a small break in the clouds, with builder confidence rising from 39 to 41 in August, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This reading marks the first upward movement since March. The April reading was flat.

Despite the brightened outlook, builder sentiment remains negative. A reading of 50 or above means more builders see good conditions ahead for new construction.

“Thanks to lower interest rates, builders now have a positive view for future new home sales for the first time since May 2024,” said Carl Harris, chairman of NAHB, in a press statement. “However, the cost of construction remains elevated relative to household budgets, holding back some enthusiasm for current housing market conditions.

Otherwise, there are mixed signals in the new home construction realm following a weak July.

New single-family home permits in August increased by 2.8% compared to July, and housing starts for single-family homes were up 15.8% month-over-month, according to the latest data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).

Meanwhile, new home completions were down 5.6% month-over-month.

However, experts say a turnaround is in store thanks to improving builder sentiment amid declining interest rates, which will inject much-needed inventory into the market.

“[I]t is likely that we will see an uptick in new housing starts over the coming months,” said Sturtevant in an emailed statement.

 

Residential Real Estate Stats: Existing, New and Pending Home Sales

Mortgage rates slid steadily in August, but not enough to lure home buyers who seem to be hedging their bets that rates will recede further.

Here’s what the latest home sales data has to say.

Existing-Home Sales

Following what many hoped was the start of a turnaround, existing-home sales reversed course, dropping 2.5% in August, according to the latest report from NAR. Sales fell 4.2% compared to August last year.

The dips come as the national median home price rose 3.1% to $416,700 compared to a year ago, marking the 14th straight month of year-over-year price growth.

Meanwhile, hopeful buyers await further rate declines, keeping housing market activity in a holding pattern.

“Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” said Lawrence Yun, chief economist at NAR, in the report.

However, a silver lining to sluggish home sales is rising inventory, which has been loosening since December.

The latest NAR data shows inventory ticked up slightly month-over-month by 0.7%, logging  1.35 million unsold homes at the end of August to settle at 4.2 of inventory available at the current monthly sales pace. Most experts consider a balanced market between four and six months.

“The rise in inventory—and, more technically, the accompanying months’ supply—implies home buyers are in a much-improved position to find the right home and at more favorable prices,” Yun said.

New Home Sales

Meanwhile, new home sales delivered mixed results.

Despite declining mortgage rates, August sales of newly constructed single-family houses dropped 4.7% compared to July sales, according to the latest U.S. Census Bureau and HUD data. However, sales increased 9.8% from a year ago.

“As the market shifts, home builders are increasingly having to drop prices to attract buyers who are up against affordability challenges,” said Sturtevant in an emailed statement.

Sturtevant projects that the anticipated further decline in mortgage rates should bring more buyers to the market this fall. However, ongoing affordability challenges and increased resale inventory, providing prospective buyers more options, may require home builders to continue offering incentives to lure buyers.

Pending Home Sales

Despite mortgage rates steadily receding, data suggests home sales will be sluggish this fall.

NAR’s Pending Homes Sales Index rose a mere 0.6% in August compared to July and was down 3% from a year ago. Regional differences prevented the index from rising much above cyclical lows. The West was the only region that recorded annualized and monthly transaction increases, with the Northeast, Midwest and South posting negative or mixed results.

A pending home sale marks the point in the purchase transaction when the buyer and seller agree on price and terms and is considered a leading indicator of a closed existing-home sale within the next one to two months.

Anemic pending sales are likely due to buyers holding out for more Fed rate cuts to potentially influence mortgage rates and improve home affordability.

“The Federal Reserve does not directly control mortgage rates, but the anticipation of more short-term interest rate cuts has pushed long-term mortgage rates down to near 6% in late September,” said Yun in a press statement.“On a typical $300,000 mortgage, that translates to approximately $300 per month in mortgage payment savings compared to a few months ago.”

Nonetheless, despite lower mortgage rates increasing purchasing power, Hannah Jones, senior economic research analyst at Realtor.com, noted in an emailed statement that many buyers may still be intimidated by a still-pricey housing market.

“Savvy buyers hoping to save a buck can get creative and look specifically for homes that utilize value phrases, such as ‘priced to sell,’ in their listing description, an inclusion that translates to an average discount of 8.5%,” Jones said.

As Rates and Home Prices Cool, Fall May Offer Some Affordability Relief for Hopeful Buyers

Along with the falling leaves, falling mortgage rates are beginning to sweep in a fresh breeze of affordability for would-be home buyers.

Monthly mortgage payments took a welcome dip in the four weeks leading up to mid-September. The median mortgage payment was $2,534, a 2.7% decline from the year before and the most significant drop since 2020, according to a Redfin report.

By the end of September, home affordability continued to improve, with the average 30-year mortgage rates landing at a two-year low of 6.08%.

“With mortgage rates dropping, prices declining, inventory increasing and homes staying on the market longer, a sense of optimism is emerging this fall,” said Jiayi Xu, economist at Realtor.com, in an emailed statement. “This period offers a favorable mix of market conditions more advantageous to buyers compared to the rest of the year.”

Nonetheless, according to a First American Financial Corporation housing market trends report, finances remain too stretched for many buyers to commit to homeownership. Indeed, Redfin data shows that buyers still need an income of $115,000 to afford the typical home.

Yet, there are other clear signs that the affordability terrain is slowly improving. For instance, the latest NAR Housing Affordability Index rose to a preliminary reading of 95 in July, up from 93.3 in June. A national index reading below 100 indicates that a median-priced home is unaffordable for the typical family earning a median income.

If you’re a first-time home buyer, Danielle Hale, chief economist at Realtor.com, says you’ll likely find more options in your price range.

“We’re seeing an increase in the number of homes on the market and the increase is actually even larger in lower price points,” Hale tells Forbes Advisor. “Builders have actually shrunk the size of new construction homes that they’ve been building trying to address some of these affordability challenges … so that might be an avenue for first-time home buyers to consider.”

Pro Tips for Buyers and Sellers

Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.

Pro Tips for Buying in Today’s Real Estate Market

Hannah Jones, a senior economic research analyst at Realtor.com, offers this expert advice to aspiring buyers:

• Know your budget. Instead of focusing on price, figure out how much you can afford as a monthly payment. Your monthly housing payment is influenced by the price of the home, your down payment, mortgage rate, loan term, home insurance and property taxes.
• Be flexible about home size and location. Perhaps your budget is sufficient for a small home in your perfect neighborhood, or a larger, newer home further out. Understanding your priorities and having some flexibility can help you move quickly when a suitable home enters the market.
• Keep an eye on the market where you hope to buy. Determine the area’s available inventory and price levels. Also, pay attention to how quickly homes sell. Not only will you be tuned in when something great hits the market, you can feel more confident moving forward with purchasing a well-priced home. A real estate agent can help with this.
• Don’t be discouraged. Purchasing a home is one of the largest financial decisions you’ll ever make. Approaching the market confidently, armed with good information and grounded expectations will take you far. Don’t let the hustle of the market convince you to buy something that’s not in your budget, or not right for your lifestyle.

Pro Tips for Selling in Today’s Real Estate Market

Gary Ashton, founder of The Ashton Real Estate Group of RE/MAX Advantage, has this expert advice for sellers:

• Research comparable home prices in your area. Sellers need to have the most up-to-date pricing intel on comparable homes selling in their market. Know the market competition and price the home competitively. In addition, understand that in some price points it’s a buyer’s market—you’ll need to be prepared to make some concessions.
• Make sure your home is in top-notch shape. Homes need to be in great condition to compete and create a strong “online curb appeal.” Well-maintained homes and attractive front yards are major features that buyers look for.
• Work with a local real estate agent. A real estate agent or team with a strong local marketing presence and access to major real estate portals can offer significant value and help you land a great deal.
• Don’t put off issues that require attention. Prepare the home by making any repairs or improvements. Removing any objections that buyers may see helps focus the buyer on the positive attributes of the home.

Will the Housing Market Crash in 2025?

With record-high home prices still trending upward in many markets, you may be concerned that we’re in a bubble that’s prime to pop, as it did in the 2008 financial crisis. However, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low as we look ahead to 2025.

“[T]he record low supply of houses on the market protects against a market crash,” says Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a non-QM lender.

Experts are also quick to point out that today’s homeowners are on much more secure footing than those coming out of the 2008 financial crisis, with many having substantial home equity. What’s more, a record number of homeowners today are mortgage-free.

“The 2008 housing market crash was a result of a unique set of circumstances that aren’t present in today’s market,” Amy Lessinger, president at RE/MAX, LLC, tells Forbes Advisor.

“Back then, widespread risky lending practices, subprime mortgages and an oversupply of homes contributed to the collapse.”

Lessinger explains that enormous pent-up demand could provide a cushion in the event of a downturn.

“While there are certainly considerations around affordability and inventory now and in recent years, these issues are different from the problems that led to the 2008 crash,” Lessinger says.

Lessinger emphasizes that housing continues to be a reliable long-term investment, with trusted real estate agents playing a key role in navigating changing market dynamics and helping clients make well-informed decisions based on their individual financial situations and timing.

Jess Schulman, president and COO at Bluebird Lending, agrees with the unlikelihood of a housing market crash in 2025, noting that all indicators suggest a more robust economy and further Fed rate cuts are in store.

“Mortgage rate reductions should create more transactions and could result in home price increases because of pent-up demand,” Schulman says.

Will 2024 End With a Foreclosure Surge? Here’s What Experts Say

Lenders began foreclosures on 20,747 properties nationwide in August, down 5.1% from the previous month and 9.4% from a year ago, according to real estate data firm Attom.

Completed foreclosures also decreased, with real estate-owned properties, or REOs, dropping by 12% compared to the previous month and down 13.9% from a year ago. REOs are homes that didn’t sell at foreclosure auctions, with mortgage lenders ultimately taking possession.

The first half of 2024 saw a decline in foreclosure activity compared to the first six months of 2023. While this latest data suggests a potential downward trend may also be in store for the second half of the year, experts remain vigilant, monitoring multiple economic variables that could introduce stress in the housing market.

“Foreclosure activity has remained relatively steady in recent months,” said Rob Barber, CEO at Attom, in the report. “While overall activity is significantly lower than the peaks seen during the 2008 financial crisis, when filings exceeded 300,000 per month, the current economic environment, coupled with rising interest rates and affordability challenges, suggests a continued focus on potential housing market instability.”

Regardless of how trends develop in the coming months, experts generally don’t expect a foreclosure surge to be on the horizon.

“Foreclosure activity continues to lag behind pre-pandemic levels and is still at about 70% of 2019 numbers,” says Sharga.

Sharga explains that a significant factor contributing to today’s comparatively low levels of foreclosure activity is that homeowners—including those in foreclosure—possess an unprecedented amount of home equity.

Homeowners with mortgages saw a collective increase of $1.5 trillion in home equity, lifting total net homeowner equity to over $17 trillion in Q1 2024, the highest figure since late 2022, according to the latest CoreLogic home equity report.

Meanwhile, more homeowners are getting richer as home price growth surges. The percentage of equity-rich mortgages rose in 48 out of 50 states between Q1 and Q2 this year, according to Attom.

“For a homeowner in the early stage of foreclosure, that equity helps them avoid a foreclosure sale, either by leveraging the equity to pay down past due mortgage bills, or by selling their property in order to protect the equity they’d otherwise lose at the auction,” Sharga says.

 

Why Experts Advise Against Postponing Your Home Purchase Until 2025

Should hopeful buyers wait until 2025 to climb the ladder?

Divounguy says if you’re ready to buy a home, now is the best time.

“Competition for homes is a lot less frenzied than it has been—buyers today have more time to review their options, more leverage in negotiations and sellers are cutting prices at record-setting levels,” Divounguy says. “I think waiting for lower rates would be a mistake.”

Gumbinger agrees that waiting until 2025 for market conditions to improve may not be the best home-buying game plan since there are no guarantees.

“If 30-year mortgage rates should fall back to the mid-5% range by mid-year [2025], they will be the lowest in about three years at that point,” Gumbinger says. However, he cautions that lower mortgage rates in 2025 do not equate to a buyer’s market.

“Mortgage rates coming down an appreciable amount over a short time window might incite (or loosen pent-up) demand, and competition for properties would heat back up again.”

 

 

Original Article by Robin Rothstein, Forbes