2025 could be the last year of inventory shortage (2/24/25 Market Update)
Feb 25, 2025
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Get ready for a deep dive into the U.S. housing market as experts analyze the latest trends. Home prices are showing signs of slowing growth, which could change the game for buyers and sellers alike. Inventory levels are critical, with predictions suggesting 2025 might be a turning point. The dynamics between supply and demand are shifting, driven by economic conditions and interest rates. Stay tuned for insights that could help you navigate the evolving landscape of real estate.
Home prices are experiencing a limited growth of around 2% in 2025 due to ongoing inventory shortages and rising mortgage rates.
An increase in unsold single-family homes, particularly in states like California and Arizona, indicates a shift in market dynamics and future pricing.
Deep dives
Home Prices and Market Dynamics
Home prices in 2025 are slightly higher than the previous year, but this growth is limited to about 2%, reflecting a significant slowdown compared to the historical average of around 5% annually. A crucial factor in maintaining these elevated prices is the limited inventory of homes available on the market, which impacts the supply-demand balance. Even though buyer demand has decreased due to higher mortgage rates, the low supply means that properties don't need to be affordable for everyone, just for a select few buyers. However, as inventory is expected to normalize by next spring, there is potential for home prices to stabilize or even decline if the trends continue.
Increasing Inventory Trends
The U.S. housing market has seen an increase in unsold single-family homes, with inventory rising by nearly 29% compared to last year. Recent trends indicate that states such as California and Arizona are experiencing significant growth in unsold inventory, surpassing Texas and Florida, which had previously led in this area. The fluctuation of mortgage rates has influenced regional inventory levels, with California facing a steady increase, while Texas's rise has moderated. This ongoing expansion in inventory suggests a shift in the market dynamics and may influence future housing prices depending on buyer demand and economic factors.
Impact of Mortgage Rates on Buyer Demand
Mortgage rates have been a fundamental variable affecting buyer demand and, consequently, home prices in the market. Rates close to 6% have previously stimulated a notable increase in demand, leading to higher home sales and an uptick in prices, which is a threshold being closely monitored. While rates have recently eased from last year's highs, they remain near 7%, which keeps buyer enthusiasm subdued. If rates can continue to approach that 6% mark, there is potential for renewed buying activity that could stabilize home prices; conversely, sustained high rates could lead to further price cuts and declines in sales.
Welcome to How’s the Market, our weekly look at what’s happening in the US housing market, powered by data from Altos Research.
If you want to see all the inventory, pricing, and supply and demand charts we reference in the show, head on over to our YouTube channel at https://youtube.com/altosresearch.
Hosted by Mike Simonsen, President of Altos Research.A true data geek, Mike founded Altos Research in 2006 to bring data and insight on the U.S. housing market to those who need it most. Altos provides national and local real estate data to financial institutions, real estate professionals, and investors across the country, and the company is now part of HW Media, publisher of HousingWire and RealTrends. Mike uses Altos data to identify trends in the real estate market well before the headlines, and his work has been featured in the New York Times, The Atlantic, Fortune, Forbes and other publications.
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