2025 Projections & Guidance for Home Buyers & Sellers
| Where is the housing market going in 2025? Are mortgage rates going up? Will inventory increase? Will prices increase? Will sales increase? The events of Hurricane Helene and Milton crushed October sales. Only 285 existing single-family homes went under contract in October, 26.7% less than September 2024, 31% less year-over-year. Likewise, there were only 312 closings, down 23.5% month-over-month, 22.8% year-over- year. It pushed the number of homes for sale higher, 2,409 existing homes for sale, 11.4% more than a month ago, 18.2% more than November of last year. But the Helene/Milton October sales crush was an isolated, temporary event. In November, sales rebounded. Pended sales ballooned to 436 homes under contract, 53% more than October, 17.8% higher year-over-year. At the commencement of 2024, prices began to weaken about 10% from the drastic acceleration in prices, flamed in 2000 – 2022 from the COVID lockdowns. In September 2024, and as foretold on these pages’, prices were showing signs of stabilizing, a floor reached. Over the ensuing months, Sarasota County beget a slow assent in prices. Since August, the average sold price per square foot and the median sold price have gingerly crept higher, never going lower. In November, the average sold price was $359/square foot, a year ago it was $350/square foot; the median sold price was $500,000 in November, one year ago it was $505,000. The housing market in Sarasota County is healthy. Inventory, the number of homes for sale are at 2019 levels. In 2019, mortgage rates averaged 4% and prices in Sarasota County increased 12%. Today, there is no data indicating a 4% interest rate environment nor a 12% rate of appreciation. What I think is more probable is sometime in 2025, mortgage rates will be at 6%, as low as 5.75%; home prices increasing 3-4%. Mortgage Rates. As a young attorney in Rhode Island, I bought my first home in 1980 for $80,000. I got a 13.5% interest rate through RI Housing & Mortgage Finance Corporation (“RIHMFC”), a quasi-public corporation created for first time homebuyers. It was a time when mortgage interest rates approached 20%. RIHMFC floated its securities through the issuance of bonds. Incidentally, a decade later, as an attorney, RIHMFC became a client. Although that was a long time ago, since then, for over 40 years, interest rates have been on a downward trend. The average mortgage interest rate for the past 40 years has been 7%. Why is this important? Because nothing affects home sales and prices like mortgage rates. As mortgage rates go, so go sales and prices. Higher rates, slow sales, and lower prices. Lower rates, sales increase with higher prices. The fact is, notwithstanding the recent ¾% and an expectant ¼% drop in the Federal Reserve’s funds rate, the Fed, bond, and mortgage securities markets remain cautious as to inflation. Further, independent of Fed action, the yield on the 10-year Treasury and mortgage rates, over the next few months, are likely to remain elevated. Why? Follow the data. To know where mortgage rates are going, look at the yield on the 10-year Treasury. Since 2022, the Federal Reserve has been fighting to steer inflation down, by driving interest rates up. The 10-year yield has fluctuated in a 4.10% range, between 3.88% – 4.25%. Mortgage rates have been in a 7% range, currently mid to high 6%, momentarily as low as 6.08% when the 10-year yield touched 3.88%. At 6%, mortgage rates trigger a bump in sales and prices. I call it the sweet spot, not too high, not too low. The Fed’s goal is a 2% inflation rate. Currently, the rate is 2.6%. In November, the unemployment rate moved slightly, from 4.1% to 4.2%, stubbornly below the Fed’s 4.5% target. Although weekly US jobless claims rose slightly to 225,000, they remain far below the projected target of 300,000 plus weekly US jobless claims. Upon the confluence of these data points, the 10-year yield should break below 3.88%, mortgage rates 5.75% – 6%. As I write this commentary, the spread between the 10-year Treasury and mortgage rate is 2.55%: Treasury yield is 4.25%, 30-year conventional mortgage is 6.8%. Customarily the spread between mortgage rates and the 10-year yield is 1.5% – 2%. That suggests if we were no longer in an unacceptable inflationary risk environment, mortgage rates would be around 6%. As my data points converge, which I believe is more probable than not, I expect mortgage rate prints of 5.75% – 6%, homes appreciating 3-4%. A sometime in 2025 event. If your goal is to buy, consider entering the market now. Inventory is up, there are more choices, less buyers, and sellers are more flexible. Lock in your home price now, prior to prices increasing. If you get a mortgage, borrow today at 6.8%, with the expectation that you should be able to refinance at a future date. When selling your home there are many things to consider. Timing, coordination, your cost basis, tax implications, carrying costs. One thing is certain, quality of life choices must be a priority. Once you decide to sell your home, the faster you do so the better off you will be. Choose a professional who can help you navigate the process and make your decision the right one. Wishing you and yours a Joyful Christmas and a Good New Year. |
Wishing you and yours a Joyful Christmas and a Good New Year.
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