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Over the past few years, we’ve experienced a historic deterioration in housing affordability.
The 51% surge in U.S. home prices since March 2020, combined with mortgage rates rising from 3% to 7%, has resulted in the fastest-ever decline in housing affordability. By most measures, the early 1980s housing market (when mortgage rates peaked at 18% in 1981) was slightly more unaffordable overall. However, in terms of housing cycles, the pace of change matters—which explains why homebuyers and industry professionals are feeling a bit dizzy.
Despite strained affordability, this year marked the 13th-consecutive calendar year of rising national home prices, with many areas in the Midwest and Northeast experiencing elevated price growth. However, in some Mountain West and Gulf markets, affordability pressures helped see home prices plateau or even outright decline.
Heading into 2024, ResiClub expected significant bifurcation in the housing market—a prediction that still holds for 2025.
Housing analyst Nick Gerli, founder and CEO of Reventure App—a real estate analytics platform that lets buyers and sellers forecast market trends—also anticipated regional bifurcation this year. ResiClub recently spoke with Gerli about his thoughts on the 2025 housing market and whether he expects this trend to continue.
During the pandemic housing boom, Florida’s housing market was among the hottest in the nation. However, the market has since cooled, with active inventory now back above pre-pandemic levels and falling home prices in areas like Southwest Florida’s Punta Gorda and Cape Coral. Additionally, condo prices are down year over year in nearly every Florida market. What’s actually driving this shift, and do you think this trend will continue into 2025?
Florida is getting hit by three main headwinds entering 2025: a structural slowdown in inbound migration, excess supply hitting the market from home builders, and an affordability crisis for existing homeowners related to HOA and insurance costs. The combination of these factors is pushing more inventory onto the market and reducing buyer demand.
Florida’s housing market will likely continue to struggle in 2025 due to these factors, and I wouldn’t be surprised if home values in certain markets in Florida drop by as much as 10% next year. Cities such as Tampa, St. Petersburg, Sarasota, Punta Gorda, and Naples are most in the crosshairs of this slowdown.
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Let’s turn to Texas. Housing markets like Austin and San Antonio have been experiencing falling home prices, and even Dallas has cooled significantly. What are the key factors contributing to this recent weakness in Texas, and do you see any signs of stabilization or further declines ahead?
Texas’s housing market was always very affordable, and significantly undervalued before the pandemic. However, from 2020 to 2022, home values spiked so much that many local buyers in Texas could no longer afford to participate in the market. The result was a slowdown in home sales. At the same time, home builders permitted a massive pipeline of new homes and apartments, which started to hit the market in 2024 and will continue in 2025. The result is higher inventory and declining prices.
I think Austin will be the first market to bottom. Prices there are already down 20% from the peak, and according to Reventure App’s data, they’re now only 12% overvalued. Dallas is a market that might take longer to correct. Prices there are still very high compared to long-term norms, and they’ve only dropped a couple of percentage points to date, indicating a large affordability gap in the market.
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In contrast to Florida and Texas, the Midwest and Northeast housing markets have shown remarkable resilience. Active inventory remains well below pre-pandemic levels, and home prices are still rising. In Buffalo, New York; Hartford, Connecticut; and Milwaukee, prices are even rising at elevated rates. What factors are supporting this resilience, and do you think these regions can maintain their upward momentum?
The true tailwind behind Midwest and Northeast markets is affordability. Home values in Buffalo, Hartford, and Milwaukee are still cheap enough in relative terms for local buyers to afford the prices and mortgage payments. At the same time, there is very little home building in these areas, which suppresses new listings and supply. Reventure App is forecasting continued price growth in 2025 for these regions.
In October, U.S. homebuilders reported having 113,000 unsold new homes. While this is still below the 2007 peak of 117,000, it’s above the pre-pandemic October 2019 level of 77,000, and marks the highest level since 2009. Does this signal that some builders may need to implement discounts to maintain sales momentum in spring 2025? How might this affect the broader housing market?
Builders are starting to get a bit desperate to move their inventory, particularly down here in Florida. I just toured a home builder site east of Tampa where the builder offered me a 4.7% mortgage rate for a 30-year term, with the house priced at $150 [per square foot], which is a pretty good deal. Builders are getting this aggressive in Florida and other parts of [the U.S.] because they have a pileup of unsold inventory sitting on their lots. As you pointed out, completed unsold spec inventory is at the highest level since 2009 nationally. And in states like Florida and Texas, the unsold inventory is even higher.
Looking ahead to 2025, what is your overall outlook for the U.S. housing market? Are there specific areas of uncertainty or potential headwinds that buyers, sellers, and investors should be paying close attention to?
On a national level, we expect home prices to remain flat in 2025, with prices declining in the Southeast, Texas, and Mountain states. Values are expected to continue to increase in the Northeast and Midwest, but by less than they did in 2024. One macro-level trend we’re tracking with large uncertainty is mortgage defaults and foreclosures. There has been an increase in early-stage mortgage delinquencies in 2024, especially among FHA and VA borrowers. Many of these delinquencies are currently blocked from foreclosure by pandemic-era programs like loss mitigation and forbearance.
Will the incoming presidential administration remove these foreclosure protections and return the government mortgage market to pre-pandemic norms? If so, there could be an increase in distressed selling in the housing market in 2025 and higher inventory. On the demand side, we expect a moderate bounce in existing-home sales 10% above their levels in 2024. This will be due to rising wages and falling prices in some markets, thereby improving affordability.
