Cooling inflation, slowing home price growth, an expected rise in home sales, and growing home inventories are key trends to watch in the near future. High prices coupled with frothy borrowing costs have been challenging the sector, but there could be a light at the end of the tunnel.
Inflation, as measured by the Fed’s favorite gauge, the Core Personal Consumption Expenditures, just recently fell to a four-year low, due in part to eased supply chain issues, moderated demand from high interest rates, and declining financial services costs. This lower rate also reflects favorable base effects, meaning this year’s smaller price increases look even smaller when compared to last year’s unusually large spikes. For the consumer, the price of gas at the pump has declined, and while not an inflation problem, egg prices have fallen dramatically from the high prices seen in late January and early February.
Slowing inflation tends to boost bond prices and push home borrowing costs lower.
In its May Home Values and Sales Forecast Report, Zillow reports that home values are projected to fall by 1.4% this year, revised up from the previous expectation of a 1.9% decrease. Home values are declining in specific areas, particularly in the Sun Belt, but national prices are still trending upward, albeit more slowly, a positive for housing.
On the supply front, the National Association of REALTORS® (NAR) reports that total housing inventory registered at the end of April was 1.45 million units, up 9.0% from March and 20.8% from one year ago (1.2 million). Unsold inventory sits at a 4.4-month supply at the current sales pace, up from 4.0 months in March and 3.5 months in April 2024. With increased supply, buyers have more options and time to decide, though they have not been as active as they typically are during this time of year.
Bright Outlook for 2025: Existing home sales are expected to climb to 4.12 million units in 2025, marking a promising 1.4% increase from 2024, according to the NAR, even if slightly lower than the prior forecast of 4.2 million. Zillow highlights that a growing housing supply, reduced policy uncertainty, and gradual improvements in affordability are paving the way for a stronger, more vibrant home sales market, offering hope and opportunity for buyers and the housing sector alike.
Source: Mortgage Market Guide
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