Persistent affordability issues could potentially cap home sales throughout the year 2025
The ongoing affordability issues in the U.S. housing market in 2025 are primarily due to high home prices, elevated mortgage rates compared to pandemic lows, and tight inventory, as emphasized by the National Association of Realtors and Realtor.com.
Key factors contributing to affordability challenges include substantial home price appreciation, mortgage rate burden, tight and uneven housing inventory, rising costs beyond prices, and structural market challenges.
Home prices have risen significantly over the past few years. The median sales price for existing homes rose about 50% from 2019 to 2024, keeping prices high despite some periods of price deceleration and brief declines in 2023. Mortgage rates, while expected to decline, remain elevated compared to historical averages.
Many homeowners locked in lower rates during recent years, which disincentivizes these homeowners from selling, restricting inventory and exacerbating affordability for buyers facing much higher current rates. Regions like the Northeast and Rust Belt continue to experience housing shortages because they have not built enough new homes to meet demand.
In contrast, Sun Belt markets that boomed during the pandemic are now seeing cooling prices due to increased supply and slower population growth, but affordability remains strained in many hot markets with strong competition. Rising homeowner insurance costs, especially in Florida markets like Miami and Tampa, add to affordability pressures.
Efforts to improve affordability by building more homes face limitations because the housing finance system and market dynamics do not easily accommodate falling home prices. This fragility has led to mixed signals such as rising mortgage delinquencies and canceled sales, indicating that supply alone does not resolve affordability.
The law of supply and demand is not working as expected in the U.S. housing market. The existing home sales report from the National Association of Realtors shows a drop in sales in June 2022, representing the slowest pace of sales since 1995. In contrast, tighter markets like the Northeast and Midwest are seeing limited inventory growth.
The national months' supply of homes for sale has reached 4.6, reflecting a less seller-dominated environment. Regions like the South and West are experiencing more robust inventory increases. The median home price in June 2022 reached a record high.
Despite these signs of a more balanced market and an improving supply of homes for sale, buyer response remains muted. Buyers looking for homes near the national median price may find more room to negotiate. Realtor.com forecasts an average 30-year mortgage rate of 6.4% by December 2025, with existing-home sales projected to total around 4 million in 2025, slightly below the 2024 figure of 4.06 million.
However, without a decline in home prices or an increase in moderately-priced homes, affordability will remain an issue. The Realtor.com report predicts that affordability will continue to be a challenge for the housing market in 2025, setting the stage for what could be the most buyer-friendly market since 2016.
- Striving to alleviate the affordability challenges in the real-estate sector, particularly in 2025, is crucial. Given the substantial home price appreciation and the ongoing elevated mortgage rates, investors might seek alternative investment opportunities in housing-market sectors that offer more flexibility, such as financing startups or real-estate technology firms.
- Despite the increasing inventory and Vaseline home price decreases in some Sun Belt markets, the affordability issue persists due to rising costs beyond prices, like homeowner insurance costs and mortgage rate burdens. To address this, policymakers and industry leaders can focus on implementing strategies to lower costs and improve access to financing for potential home buyers, fostering a more balanced and sustainable housing market.
