December Housing Snapshot: A Forecast for the New Year

As we wrap up 2024, the U.S. housing market remains shaped by interest rate
fluctuations, inventory constraints, and persistent demand. These factors, familiar yet
evolving, continue to influence the market as we approach 2025. The recent election
and anticipated rate adjustments early next year may create new opportunities and
challenges for prospective buyers, sellers, and industry experts. Here’s a look at the
key factors that have driven recent market trends and insights into what the year
ahead may hold.

The Role of Interest Rates

Interest rates continue to play a pivotal role in shaping the housing market. After
fluctuating significantly throughout 2024, economists predict a gradual decline in
early 2025, with rates potentially settling around 6% or lower. This presents both
opportunities and challenges:

For buyers, lower rates mean improved affordability, as monthly mortgage payments
decrease. However, reduced rates may also spur increased competition as sidelined
buyers reenter the market, potentially driving prices higher in desirable areas. For
sellers, lower interest rates will undoubtedly increase buyer demand, which can
result in more leverage and favorable offers as a seller. Yet, for the last year, homes
have been taking longer to sell, underscoring the uncertainty in todays market and
in current buyer sentiment. Strategic planning and patience will remain a key step
for sellers in 2025, as we anticipate prices will remain steady.

Inventory Trends

Low inventory has been a defining feature of the housing market in recent years.
While 2024 showed modest improvement, overall supply remains below pre-
pandemic levels. This imbalance has kept prices elevated, creating challenges for
first-time buyers and those seeking affordable options.

Looking ahead, if inventory continues its gradual rise, the market may become more
balanced, with slower price appreciation and greater opportunities for buyers. Sellers
who price competitively and present their homes well will have the best chance of
standing out. Additionally, the “post-election bounce” could bring increased activity,
as political uncertainties fade and confidence grows among both buyers and sellers.

Demand Driven by Growth

Population growth and migration trends quietly continue to drive housing demand,
especially in regions undergoing rapid economic expansion, even if these factors
don't always dominate the headlines. Urban and suburban areas remain highly
competitive as they absorb new residents and adapt to increased housing needs.

On top of that, buyers may face heightened competition if lower interest rates
reignite investor activity, adding pressure to already tight markets. In high-demand
areas, limited new construction and regulatory challenges could exacerbate
affordability concerns despite declining rates.

The Challenges of New Construction

New construction offers hope for addressing inventory constraints, but the process
remains slow due to lingering challenges in the construction industry. High material
costs, labor shortages, and regulatory hurdles over the last 4 years have limited
builders’ ability to keep pace with demand. While 2025 may bring improvements in
supply chains and regulations, the broader impact will take time to materialize,
keeping competition high for existing homes in the short term.

What Buyers and Sellers Should Know in 2025

For buyers, it’s best to start early and act strategically. If you are planning to buy a
home in 2025, consider beginning your search in the early part of the year, before
warmer weather and increased competition kick in. Focus on finding value rather
than waiting for perfect conditions, knowing that refinancing may be an option later
if rates continue to drop.

For sellers, competitive pricing and home preparation are essential. More homes will
be available to buyers in 2025 as inventory levels continue to pick up, giving them
more options than in recent years. Standing out with a well-prepared and
competitively priced property will be crucial. While homes may take longer to sell
compared to the peak of the pandemic market, motivated buyers are still out there.

Looking Ahead to 2025

The housing market is expected to trend toward greater stability in the coming year,
and rising inventory levels are the biggest driver of this shift. This is an encouraging
sign for the market, as it signals a potential return to equilibrium after years of
unprecedented conditions. Over the past four years, historically low inventory has
created intense competition and driven rapid price increases, putting significant
pressure on buyers and sellers alike.

The gradual increase in available homes not only provides buyers with more options
but also helps temper price growth, making homeownership more attainable for a
broader audience. While challenges like affordability and localized supply constraints
remain, the improving inventory situation suggests a path forward where the market
can operate at a healthier, more sustainable pace.

As we leave behind the uncertainties of historically low inventory, 2025 holds the
promise of a more balanced housing landscape.

Written By

Sam Wurm, Executive Vice President of Nebraska Realty and Embarc Realty