How homebuyers adapted to the 2024 market gives insights into upcoming trends
As we close the chapter on 2024, it’s clear this year was anything but predictable for the property market. From unexpected mortgage rate spikes to creative homeownership solutions emerging out of necessity, the housing landscape evolved in ways that even seasoned experts didn’t anticipate.
What’s striking about 2024 is not just the record-breaking highs in home values, but the stark contrast between optimistic housing market predictions and harsh economic realities.
Interest rates that were expected to decline instead hit new peaks, pushing affordability to the lowest level in decades.
Meanwhile, a new wave of innovation saw buyers banding together to purchase homes.
This wrap-up captures the defining moments of 2024’s property market and sets the stage for what’s next, offering a glimpse into the future of real estate as we head into 2025.
What Can You Expect From the Housing Market in 2025?
1. Interest Rates Were a Roller Coaster
Interest rates dominated the conversation throughout 2024, impacting every aspect of the property market. When the year started, housing market predictions indicated that 2024 would bring a gradual decline in mortgage rates. Instead, rates spiked during the spring home-buying season, to hit all-new highs and put homebuyers back on the sidelines.
The sudden spring in interest rates dampened buyer interest, slowed national home price appreciation, and created uncertainty in the market. It also worsened affordability, which has been an ongoing struggle since the outset of the pandemic. Despite a temporary rate cut in September, mortgage rate volatility persisted, making it challenging for both buyers and sellers to plan with confidence.
CoreLogic Chief Economist Selma Hepp highlighted that the mortgage rate fluctuations were largely influenced by the bond market’s response to economic and political factors. Concerns about deficit spending and potential inflation kept rates elevated, and the hoped-for decline never fully materialized.
“Mortgage rates came down and spurred a lot of optimism,” Hepp noted. “And we did see a lot of refinance activity. We also saw a little spike in pending sales indicating that buyers were back off the sidelines. But that really lasted for a really short period of time.”
Elevated interest rates have become a new, long-lasting reality in the housing market, affecting affordability and deterring many prospective buyers. As we look to 2025, the outlook remains uncertain, with rates expected to stabilize only after more clarity emerges after the transition to a new administration.
2. Affordability Challenges Reached New Heights
Buyers are struggling to keep pace with housing prices. The cost of owning a home now, when adjusted for inflation, is at its highest point in decades. This persistent increase in prices and interest rates has created a challenging environment for both first-time buyers and those looking to move up the property ladder.
Hepp emphasizes that it’s not just the record-setting home prices and elevated mortgage rates that are making it difficult for people to afford homes. Those concerns, combined with rising property taxes and increased insurance costs have left many homeowners stretched thin.
For perspective, the monthly mortgage payment today rivals the levels seen during the Great Financial Crisis. But when wage growth is considered, the percentage of income spent on housing has grown. The result is that it is difficult for buyers to keep pace with the market.
While a potential dip in mortgage rates could provide some relief, the ongoing rise in ancillary costs like insurance and taxes means the overall affordability outlook remains a concern.
3. Inventory Shortages Locked in Would-Be Buyers
A noteworthy trend throughout 2024 was the “lock-in effect.” Locked-in homeowners are those with ultra-low mortgage rates from previous refinancing waves who opt to stay put rather than sell and assume a higher mortgage interest rate. This behavior intensifies the inventory shortage by further limiting the supply of homes on the market.
However, as the year progressed, we started to see signs of change. More sellers began listing their homes, driven by life events or the need to tap into accumulated equity, a source of wealth that is especially pronounced among Baby Boomers.
Hepp points to a surprising increase in listings for typically tight markets in California as an indication that the lock-in effect may be loosening its grip. Factors such as high equity levels, increased investor activity, and the sales of second homes played a role in unlocking inventory. In states like Texas and Florida, where inventories of new construction are larger, inventory levels saw more substantial improvement, offering a glimmer of hope for a better-balanced market in 2025.
4. Affordability Struggles Led to House Hacking
This year witnessed a surge in creative homeownership solutions, particularly among younger buyers. Gen Z and millennial cohorts are finding innovative ways to enter the market, often through co-living arrangements or equity-sharing programs. House hacking — buying properties with multiple units and renting out portions to offset mortgage payments or using equity-share programs — is growing in popularity. However, Hepp explained that it’s not just buyers who need to get creative.
“I think it’s important for developers to also be as creative in terms of providing different options,” she said. “Providing more options like duplexes and multi-unit construction in very expensive markets is a way of allowing people to enter homeownership.”
Will the Housing Market Recover in 2025?
It is safe to say that 2024 was a challenging year for a traditionally cyclical market, but the trends that came to life over past 12 months underscore the adaptability of buyers. As we move into 2025, the landscape will continue to shift, driven by economic, political, and demographic changes. While mortgage rate predictions are showing signs of decline, the outlook for the larger housing market remains to be seen.
What Can You Expect From the Housing Market in 2025?
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