March 20, 2025
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Existing home sales rose 4.2% in February to 4,260 thousand after having fallen 4.7% in January. After rising for three straight months sales declined in January. Our expectation is that a steady increase in jobs will boost income, mortgage rates should fall in the months ahead, and prices should be about stable or perhaps decline. As a result we expect home sales to pick up somewhat during 2025.
Lawrence Yun, NAR chief economist said that, “Home buyers are slowly entering the market. Mortgage rates have not changed much, but more inventory and choices are releasing pent-up housing demand.”
Mortgage rates are currently 6.8%. However, the “real” mortgage rate is about a percentage point higher than its historical average. For that reason we believe that mortgage rates will decline to 6.2% by the end of the year.
The average home sat on the market for 42 days in February versus 41 days in January. It has been creeping upwards in recent months although 42days is still a relatively short time period by any historical standard. A decade ago homes would routinely sit on the market for 3 months or so. Having said that, the steady increase appears to represent some weakening of demand..
There are very few homes available for sale. For example there was a 3.5 month supply of homes available in February That is short of the 5.0 month supply that is required to balance the demand for and supply of homes. The actual number of homes available had been steadily rising in recent months and has increased 17.0% in the past year. Eventually it will get back to the desired 5.0 month supply which is the point at where demand is roughly in line with supply but it may not happen in 2025.
.The shortage of homes available for sale is preventing a sharp drop in home prices. Home prices rose 1.3% in February to $398,400 after having fallen 2.6% in January. The year-over-year change is now 3.8% but prices have fallen fairly steadily for the past eight months.
Housing affordability is currently at 100.7 which means that potential home buyers have 0.7% more income than required to purchase a median-priced home. Many first time home buyers have been priced out of the market. But if mortgage rates decline further, job gains boost consumer income, and home prices are fairly steady (or decline), housing affordability should climb and the median-income earning family will have about 15% more income than required to purchase a median-priced home by the end of 2025.
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Given all of the above we expect existing home sales to rise about 6.0% in 2025.
We expect GDP to rise 1.5% growth in the first quarter and 2.5% in 2025.
Stephen Slifer
NumberNomics
Charleston, S.C.
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