Will there finally be a “normal” housing market in 2025?

We are now in the post-pandemic housing market recession for as long as we were in the pandemic boom. Two and a half years. As we look to 2025, everyone is asking themselves: Is a new era beginning? Is the real estate market starting to return to normal?

What can today’s data tell us about signs of growth or weakness after the new year? We know that inventory levels have increased throughout the year. The number of unsold homes on the market is finally approaching 2019 levels.

We know that sales are also slowly increasing. Anecdotally, I hear that home sales pick up in November. The MBA mortgage applications data was surprisingly strong. Our property price data is still trending higher than last year.

Property prices nationwide have increased by 5% compared to the previous year. That’s normal. However, the market change is not evenly distributed. Northern cities are experiencing tight inventory and rising prices, some of the Sunbelt cities are experiencing the highest inventory levels in many years, and in some markets prices are even falling.

Let’s take a look at the dates as we are now in December 2024.

Let’s start with supply. There are 690,000 unsold single-family homes on the market in the United States. That’s 26% more homes on the market than this time last year. There are now only 17% fewer homes on the market than at the end of 2019. We use 2019 as a proxy for “normal” times before the pandemic hit – even though unsold inventory in 2019 had been declining for most of the previous decade . In the 2010s, interest rates were very low for virtually the entire decade, encouraging Americans to buy and hoard real estate. For most of the decade, inventory shrank every year.

Above is the 10-year view of inventory in the US. Note that over the last decade we have had fewer and fewer homes for sale basically every year. During this time, mortgage rates continued to decline. We bought and hoarded more and more houses. This shortage reached its crisis peak in January 2022. Then over the last three years you can see at the right end of the graph that with each year we slowly come out of the crisis with more expensive money and the amount of unsold inventory increases. There are now almost 700,000 unsold houses on the market. In 2019, there were 850,000 unsold single-family homes on the market in December.

Interestingly, the growth in the available supply of homes for sale over the past three years has been driven by weaker demand. When demand decreases, inventory increases.

Supply growth could also come from more sellers, such as investors or distressed borrowers handing over their money. However, in most parts of the country, we are not seeing growth on the sell side. In Florida and Texas, we are seeing rising insurance costs, taxes and climate risks driving some sellers.

Nationally, there were just 31,000 new listings for single-family homes last week, including Thanksgiving weekend. We average about 8% more sellers each week than we did a year ago. Thanksgiving week showed the same trend with 8.7% more sellers than the same week a year ago. The number of sellers is growing by 5 to 10% every week. We expect this growth to continue in 2025.

The pandemic boom began in April 2020, peaked in the first quarter of 2022 after a two-year buying spree, and came to an abrupt end in July 2022. During this period there were fewer sellers and many more buyers. When money became extremely cheap, we bought more houses and sold fewer.

Now we are in the post-pandemic era, which we have colored here in blue. There are very few sellers each week, but lower demand means longer time on the market and a growing inventory of unsold homes. This weekly growth in the number of sellers is generally positive for the US real estate market, as more sellers means more sales can be made.

Since there are slightly more sellers than a year ago, we are also seeing slight growth in home sales. Home sales are exceeding last year’s pace by about 10% each week. In fact, the headlines are starting to catch up with the data. There are some data points, such as the NAR’s latest home sales estimates and MBA mortgage applications, that are starting to confirm our data and indicate that home sales are seeing some growth in 2023, and this did not slow down in December.

The market averaged 51,000 new sales per week over the past four weeks, including the holidays. That’s a decrease of 54,000 and it’s normal for there to be fewer offers and sales in December. As I said, by our count, home sales are perhaps even 10% higher than December 2023. That’s not a lot of home sales, but it’s an improvement.

As we look ahead to 2025, there appears to be momentum towards the end of the year, perhaps coming from buyers who waited until after the election and are now ready to act? Will this momentum continue into spring? It’s hard to say, but like the slight growth in new listings, a slight growth in home sales is an optimistic view of the real estate market.

There is no sign of a major increase in homebuyers, although there are many potential homebuyers who have put their move on hold over the past three years. Some are starting to act now, but there is no sign that many of them will dramatically change the post-pandemic trend. We see modest growth – not explosive growth – in home sales in 2025.

Property prices nationally continue to hold up compared to last year. The average price of single-family homes in the United States is currently $384,900. This is the average price of homes that go under contract each week. That’s what people buy. Even though prices fell in the latest data due to low volume over Thanksgiving weekend, home prices have continued to rise about 5% year-over-year on average over the past few weeks.

I like to track this number – the price of new pending sales – because it is the simplest indicator of sales. These are the sales that have started. They will be completed later in December or January. According to this metric, property prices have increased by around 5% this year. This is more than expected given how weak demand was at the start of the year. Looking ahead to 2025, we forecast that house prices will rise less next year than they did this year – we expect house prices to rise by 3.5% in 2025.

When we look at leading indicators of future sales prices, we see stability and no major negative pressure. If you wait for a big price correction before finally pulling the trigger on buying a home, there is simply no signal in the data that a price correction is imminent. As of mid-December, 38.4% of homes on the market had price reductions from their original list price. The value drops towards the end of the year. After the new year, fresh new inventory is listed, so the percentage of homes with price drops drops.

The extent of the price reductions now reflects the weak demand we have had throughout the year. Price reductions have been stable for several months, suggesting that there are no signs of a significant weakening in real estate prices even after the hurricanes, for example. This curve here, the dark line, is 2024 and it is tapering off as you would expect towards the end of the year.

Mike Simonsen is the founder of Altos Research.

The HousingWire Economic Summit will take place in Dallas in February. It will bring together an impressive line-up of talented speakers for an inspiring day. You can register for this transformative event using the link below. In addition to Mike Simonsen and me, here are just a few notable speakers who will share their insights:

Jessica Lautzdeputy chief economist and vice president for research at NAR
Barry HabibCEO MBS Highway
Selma HeppChief Economist for CoreLogic

You can find the registration link with my discount code here.

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