500,000 new homes are now hitting the market. The last time we saw this level of inventory was in December 2007. The real question is—how long will it last? Despite the surge in available homes, the median price remains a record $407k. With mortgage rates around 7%, the highest since 2001, buyers are still feeling the pinch. Yet, the supply crunch is continuing to keep prices high, but there’s a bigger shift on the horizon.
Bank of America is predicting a significant slowdown in the housing market. They expect home prices to increase by only 2% in 2025, a stark contrast to the rollercoaster growth we’ve seen in recent years. So, what’s behind this more muted forecast? A few factors are driving this shift, including the increase in housing inventory and still-high mortgage rates.
The increase in housing inventory is one of the primary reasons for the slowdown. As more homes become available, the pressure on rising prices should ease. Jeana Curro from Bank of America pointed out that the tight supply has been a key driver behind the rapid price appreciation we’ve seen. With more options available, buyers have more leverage, meaning prices won’t continue to skyrocket the way they have in the past few years.
The other major factor influencing the market is the persistently high mortgage rates. Although Bank of America expects a slight drop to 6.5% in 2025, it’s still a far cry from the historically low rates we saw before 2020. This higher borrowing cost is keeping many buyers on the sidelines and making it harder for those who do enter the market to afford homes. On top of that, many homeowners who locked in lower rates over the past few years are “stuck” in their current homes. They’re reluctant to sell, further limiting the flow of new inventory into the market.
While 500,000 new homes are now on the market, the reality is that prices may not fall as much as we expect. We’re looking at a slower market with higher costs, and that’s going to reshape the housing landscape for the next couple of years. It’s still a far cry from the boom of 2020-2021, but don’t expect a massive crash either.
Sources:
https://x.com/leadlagreport/status/1904292179813740582
https://x.com/zerohedge/status/1904542824395153534