Rising mortgage rates and stretched affordability are causing potential buyers to hesitate, opting to rent instead of purchasing homes.
Regional market conditions vary significantly, with some areas facing sharp price declines while others may still experience minimal growth.
Deep dives
Major Shift in Home Price Forecasts
Recent predictions from influential figures in the real estate sector signal a notable downturn in anticipated home price growth. Mark Zandi of Moody's Analytics has reduced his forecast for 2025 growth to just 1.8%, the lowest rate in over a decade, suggesting the market is more unpredictable than previously thought. Meanwhile, Mark Fleming of First American Financial has ceased making forecasts altogether, citing the economic landscape's volatility, particularly due to tariffs and trade policies. This significant shift indicates a stark departure from the earlier belief that the housing market would remain stable amid wider economic challenges.
Impact of Rising Mortgage Rates and Affordability Challenges
Rising mortgage rates are fundamentally altering buyer sentiment and market dynamics, with the average 30-year fixed rate recently hitting 6.81%. This increase means that mortgage payments now consume 35.3% of the median household income, well above the 30% threshold considered affordable. As a result, many potential buyers are hesitating to enter the market, opting instead to rent as housing prices and down payment requirements create financial barriers. The situation is exacerbated by buyers’ desire to avoid overpaying in an uncertain market, leading them to delay home purchases amid fears of possible valuation drops.
Regional Variability in Housing Market Trends
While some regions are projected to experience declines in home prices, others may still see minimal growth, indicating a patchwork of market conditions across the country. Zillow forecasts that certain Gulf Coast cities will struggle significantly, with notable declines expected in places like New Orleans and Lake Charles. In contrast, areas in the Northeast, such as Atlantic City and Rochester, are anticipated to see slight gains despite a general backdrop of lower affordability. This regional variability underscores the importance of localized investment strategies, as opportunities still exist for investors in areas with steady job growth and limited inventory.
America’s top housing forecasters just dropped a bombshell. Zillow, Moody’s, and First American are now signaling serious weakness ahead for home prices in 2025. With mortgage rates rising again, affordability still stretched, and recession risks mounting, this episode unpacks what the new bearish forecasts mean for investors—and which regional markets could see the sharpest declines.
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