T
he real estate market appears to be stuck in neutral as high mortgage rates, scarce inventory, and dismal affordability persist into 2025. While there were some signs of improvement late last year, with pending home sales rising for four months through November, the overall outlook remains bleak. Industry experts say buyers are adjusting their expectations, no longer waiting for lower mortgage rates to buy a home.

    In some markets, particularly in the South where inventory is more available and jobs are plentiful, pending home sales have increased. However, mortgage rates remain at decades-long highs, averaging above 6% over the past 24 months. This has led to a decline in mortgage applications, with a nearly 22% drop in December.

    Economists warn that broader economic uncertainties, including inflationary risks from President-elect Donald Trump's economic agenda, are weighing on the housing market. Tariffs, tax cuts, and restricted immigration could raise consumer prices, further exacerbating affordability issues. Homebuilders have expressed concerns about the impact of mass deportations on their workforce and construction costs.

    The bond market is already factoring in these policy uncertainties, which may keep mortgage rates high for the next two years. A survey found that 56% of prospective buyers want a mortgage rate between 5.5% and 5.75%, a range that seems out of reach. Elevated mortgage rates have contributed to the worst home affordability in decades, with many middle-income new homeowners stretching their budgets to afford properties.

    Newly built homes are coming onto the market in some areas, offering a glimmer of hope for a better-balanced market in 2025. However, existing homeowners who secured ultra-low mortgage rates may feel locked in, limiting the supply of homes on the market and intensifying the inventory shortage.