Collins: Predictions for the 2025 housing market

With the election in the rearview mirror, speculation abounds about what next year’s housing market will look like.

“We’ve seen after presidential elections — and it doesn’t matter who wins —that there’s usually a slight boost in home sales,” Lawrence Yun, chief economist of the National Association of Realtors, said. He is predicting a 9% increase in year-over-year sales nationally. Lower mortgage rates, in addition to increased available inventory and the hope of rising household income, are expected to be the main factors driving growth next year.

Speculation on where mortgage rates will end up has been all over the board. Some economists speculate the Federal Reserve will continue to make cuts and mortgage rates will follow. Others are concerned the new administration’s policies could make inflation even more sticky and that rates will remain unchanged next year.

Redfin Real Estate is predicting mortgage rates will remain volatile and stay in the high 6% range, but will average around 6.8%. Realtor.com is forecasting mortgage rates to be in the low 6% and finish the year around 6.2%. Jordan Levine, senior vice president and chief economist for the California Association of Realtors, is the most bullish — predicting mortgage rates could fall to as low as 5.9% by the end of 2025. The long-run average for mortgage rates over the last 50 years is nearly 8%. There is consensus among all leading housing economists that we will be in a much more favorable position moving forward.

Sales prices are predicted to moderate next year. Levine predicts homes in California have appreciated 6.8% this year and next year he is expecting a 4.6% appreciation increase. The lower mortgage rates will create some movement in the resale market, bringing more inventory to market. According to Realtor.com, the share of outstanding mortgages with a sub 6% rate has fallen to 84% from 89% one year ago.

However, even with the additional turnover of units, inventory levels will remain constrained. We have not built enough housing to meet demand. While the new administration has proposed lowering fees and providing federal land for new housing, it will take years for that inventory to be built and hit the market.

So, what do our members feel the local market will look like?

“Well if today’s market is any indication of what could go on next year, one word comes to mind ‘busy,'” Michelle Perry, 2024 president of the Santa Clara County Association of Realtors, said. “Just in the last couple of weeks I have seen a surge in first-time homebuyers jumping into this market. The unfortunate part is first-time buyers who can come in with large down payments are still having difficulty competing with all cash buyers that can close quickly. Entry-level homes are selling for well over list price with multiple offers in some areas.”

Michael Gordon, 2025 president-elect of the Santa Clara County Association of Realtors, has seen an increase in buyer activity since the election.

“I’m also seeing an increase in people wanting to list their homes for sale, so it’s already looking like the increased activity has begun,” he said. “With the increase in listings expected, it will give buyers more choices, and if interest rates continue to remain in the high sixes I think it will give buyers more opportunities with slightly less competition. If interest rates do in fact dip down to the low sixes, especially sub 6%, I think the market will light up with activity.”

Joe Brown has been in the profession for more than 40 years and will be the president of the Santa Clara County Association of Realtors in 2025. He does not see inventory increasing much at all and believes Silicon Valley homes will still outpace much of the nation in appreciation.

“Buyers should buy when they find a home that fits their needs,” he said. “Waiting for interest rates to fall is a losing proposition, because of the appreciating housing costs in our market.”

San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. Contact Neil at [email protected].