National Real Estate Market Update: January 2025

As we enter 2025, the U.S. real estate market presents a complex landscape shaped by evolving economic conditions, policy changes, and shifting buyer and seller behaviors. Staying informed about these national trends is crucial for making strategic decisions in the current housing environment.

Home Prices and Market Activity

In November 2024, U.S. home prices experienced a 3.8% year-over-year increase, up from a 3.6% rise in October, as reported by the S&P CoreLogic Case-Shiller index. This growth occurred despite rising mortgage rates, which hovered around 7% at the end of 2024. Looking ahead, forecasts for 2025 suggest a deceleration in price growth, with the Mortgage Bankers Association anticipating a 1.3% increase and Fannie Mae projecting a 3.5% rise.

The housing market faced significant challenges in 2024, with existing home sales dropping to 4.06 million—the lowest since 1995. High median home prices, reaching $407,500, and elevated mortgage rates contributed to this decline. However, December 2024 showed signs of recovery, with a seasonally adjusted rate of 4.24 million homes sold, marking the fastest pace since February. Economists express cautious optimism for 2025, citing increased home inventories and a strong job market as potential drivers for a rebound in home sales.

Inventory Challenges and the 'Lock-In' Effect

A significant obstacle in the current housing market is the shortage of available homes. Many homeowners are reluctant to sell due to the "lock-in" effect, where existing low mortgage rates discourage them from entering a market with higher prevailing rates. Approximately 60% of active mortgages have interest rates below 4%, making homeowners hesitant to sell and subsequently finance new homes at higher rates. This trend is expected to persist into 2025, potentially limiting the number of homes available for sale.

Impact of Climate Events on Housing

Recent climate-related disasters have significantly impacted the housing market, particularly in vulnerable communities. For instance, the 2025 Los Angeles wildfires caused estimated insured losses of at least $28 billion, exacerbating California's existing housing and insurance crises. These events highlight the increasing importance of considering environmental risks in real estate decisions and the need for resilient housing solutions.

Commercial Real Estate Developments

The commercial real estate sector is showing signs of recovery. Investment activity in office buildings increased in 2024, with $63.6 billion in sales—a 20% rise from the previous year. Investors are capitalizing on opportunities to acquire premium properties at discounted prices or repurpose outdated office spaces into residential units. This trend reflects a strategic adaptation to changing work patterns and urban dynamics.

Looking Ahead

The outlook for 2025 suggests a cautiously optimistic trajectory for the U.S. housing market. While challenges such as limited inventory and affordability persist, factors like a strong labor market and potential stabilization of mortgage rates may contribute to gradual improvements. Staying informed and adaptable will be key for stakeholders navigating this evolving landscape.