LOS ANGELES (AP) — Elevated mortgage rates and rising home prices are freezing out many would-be buyers, keeping the U.S. housing market in a sales slump dating back to 2022.
While home sales are off to a soft start this year, it hasn’t been all bad news for home shoppers.
The average rate on a 30-year mortgage, while still near 7%, has been easing in recent weeks. And the inventory of homes for sale is up sharply from a year ago, which makes for a more buyer-friendly market than in recent years.
Still, after years of skyrocketing home prices, these trends may not make much of a difference for many prospective home shoppers, especially first-time buyers who don’t have equity in a property that they can use toward a new home purchase.
What does this mean for the spring homebuying season?
Leo Pareja, CEO of real estate brokerage eXp Realty, recently spoke to The Associated Press about his expectations for the housing market, the trajectory of mortgage rates and how home shoppers in places like Florida, Texas and other states where home listings have risen sharply are likely to have more leverage when it comes time to negotiate with sellers. The interview has been edited for length and clarity.
Q: How do you see U.S. home sales shaping up this year?
A: In 2024, we ended the year roughly around 4 million resales with about 700,000 new construction. Going into the year, we feel based on the data from multiple sources, that we’ll probably be up year-over-year from ’24 to ‘25, so we’re hopeful that resales end up somewhere between 4.2 million to 4.3 million, with new construction maybe increasing from 700,000 to 750,000. So, the term for us would be cautiously optimistic. That’s kind of the reading of the tea leaves based on the economic data we have. But I will tell you that going into like the first 50 days of the year, the anecdotal boots on the ground feedback is kind of lining up with that thesis.
Q: Do you also expect the spring homebuying season to be better than last year’s?
A: We are hopeful that it will be slightly better than ’24 or ‘23, because we just had this kind of constant decrease in activity starting with 2021. So, we’re cautiously optimistic it’s going to be a little bit better.
Q: Does the pickup in homes for sale, such as in parts of Texas and Florida, signal that the market is tipping more in buyers’ favor?
A: I think that’s a fair assessment. Economics are quite simple in the supply and demand relationship of product to opportunities. I think of the buying opportunity as a three-legged stool between affordability, inventory availability and then finance ability. So one, there’s more inventory to choose from, which creates more opportunity. Then the last one being the tough one, right? We don’t see rates dropping by any significant levels.
Q: Should buyers in these markets expect that sellers will be more flexible than they’ve been in recent years and offer concessions like helping with closing costs or to buy down their mortgage rate?
A: I do hear across the board that builders are being aggressive and creative in order to move their inventory. Historically speaking, the more inventory, the more flexible a seller gets and willing to contribute to concessions, which can be used for any multitude of things.
Q: How low would the average rate on a 30-year mortgage need to come down to drive a strong increase in home sales this year?
A: I think the Goldilocks range is in the low 5% to really spur both buyers and sellers because they’re mutually tied together on the sell side. But I don’t think, based on the economic data we’ve been looking at, that rates really get much of a reprieve. I’ll be as bold to say in 18-to-24 months. I don’t see it definitely happening in 2025. I’m not betting on a big improvement in rates. But the fact that we’ve kind of been in this new normal for a while, I think we no longer have the folks who are sitting on the sidelines kind of holding their breath for it to come back down to 3%.