March 18, 2025
As we move through the early months of 2025, many homebuyers and sellers alike are questioning the state of the housing market. Despite traditional expectations of a winter slowdown, home prices continue hitting record highs. The median price for existing homes in January 2025 reached a historic $396,900, marking nearly a 5% increase year-over-year. Even more, the S&P CoreLogic Case-Shiller index echoes this trend, showing prices up 3.9% from the previous year.
Why do home prices keep climbing? It's straightforward economics: low inventory meets high demand. Although there's been a slight improvement, we're still seeing inventory significantly below the balanced market level of a 5-6 month supply. Currently, we're hovering around a 3.5-month supply.
Many current homeowners, locked into mortgages at historically low rates of about 3%, aren't eager to sell and face today's higher rates, currently averaging around 6.72%. This reluctance further constrains supply, keeping prices elevated.
While some buyers fear a repeat of the devastating crash from the Great Recession, experts are confident that today's conditions are fundamentally different. Lawrence Yun from the National Association of Realtors suggests the likelihood of a severe crash is minimal. The general consensus among economists is that any market correction will be mild and gradual rather than abrupt and dramatic.
Why? Here are several reasons:
First, builders simply can't meet the soaring demand quickly enough due to land and regulatory constraints. Secondly, demographic shifts continue driving demand, particularly among Millennials and the rapidly growing Hispanic homebuyer segment. Additionally, lending standards remain far stricter today compared to the risky lending practices preceding the 2007 crash. Finally, foreclosure rates, although slightly increased recently, remain significantly lower than during the Great Recession.
While the new presidential administration's economic policies could lead to slightly higher mortgage rates due to increased federal spending and resulting deficits, any impact is expected to be manageable. Policies aimed at increasing supply could offer some relief, though immigration restrictions might complicate labor availability for new construction.
Bottom line: despite high prices and ongoing affordability concerns, the housing market's foundation remains solid. Economists broadly agree this current boom is likely headed for a soft landing, not a crash.
Stay informed, stay prepared, but don’t anticipate another 2008-style crisis anytime soon.
Disclaimer: This content is not intended to be construed as financial, tax, legal, or insurance advice.
