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NerdWallet's Smart Money Podcast
2025 Real Estate Trends: What Homebuyers and Sellers Need to Know
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- [00:01]
Sean Pyles
So you want to buy a house this year or maybe sell the one you're in and trade up or downsize? We've got the episode for you. Welcome to NerdWallet's Smart Money podcast. I'm Sean Pyles.
- [00:19]
Sarah Rathner
And I'm Sarah Rathner.
- [00:21]
Sean Pyles
With this episode, we continue our January series, you, money in 2025. And today, Sarah, we are checking in on the housing market, specifically the house market. It's been a rocky couple of years for folks looking to buy their first house or move out of one and into another.
- [00:38]
Sarah Rathner
Yeah, buyers have been facing the headwinds of both high mortgage interest rates and high home prices. Lose, lose. The market is tight because people who bought before rates started to go up don't want to leave those rates. And just in general, more people want to buy houses than the number of houses that are actually available. So it's all been a little bit stuck for a little while.
- [00:59]
Sean Pyles
Last year it looked like things were maybe going to loosen up as interest rates started to come down, but then that trend reversed itself for a bit. Who knows what's coming this year? We're going to try to look into the crystal ball and at the very least give you some helpful tips for navigating the process and getting ready for when you do decide you want to jump into the market.
- [01:18]
Sarah Rathner
That's right. There are a lot of steps you can take now in anticipation of what you might want to do later in the year.
- [01:24]
Sean Pyles
Well, we want to hear what you think. What are you working on in your financial life as we start the new year? Leave us a voicemail or text the Nerd hotline at 901-730-6373. That's 901730, nerd. Or email a voice memo to podcasterdwallet.com Sarah let's get into your conversation with our fellow nerd Holden Lewis and get a sense of what the housing market might look like in 2025.
- [01:55]
Sarah Rathner
Holden Lewis, so glad to have you with us again on Smart Money.
- [01:59]
Holden Lewis
It's great to be here.
- [02:00]
Sarah Rathner
All right, Holden, let's start with an overview of last year and where we stand with the basics of the housing market as we begin 2025. I'd venture an educated guess that interest rates were the big story last year because they influence mortgage rates so many other kinds of loans. It doesn't really seem like there's been much relief price wise in most housing markets. So what's the 10,000 foot view at the moment?
- [02:26]
Holden Lewis
Well, the 10,000 foot view is that home Affordability. It really did take a hit. In 2024, home prices were higher than in 2023. Mortgage rates went up until May, then they went down from June to September, and then they went back up again. You know, when you look at that, it's like there was a real hurdle in home affordability. From April through July, which are the prime home buying season, home prices were higher and so were rates. That was kind of the main thing that happened. And then home prices fell in the fall and then rates started rising again. All of that took a big whack at affordability.
- [03:02]
Sarah Rathner
Could you talk a little bit about the relationship between interest rates that are determined by the Federal Reserve and mortgage rates? Because last year mortgage rates were slowly coming down for a good part of the year, as you said, and then the Fed started to bring overall interest rates down, and then mortgages ticked back up. So walk us through what happened there and what potential home buyers should be paying attention to this year.
- [03:27]
Holden Lewis
The Fed sets the rate for an overnight loan among banks. Look, a one night loan, it doesn't really have much of a relationship with a 30 year mortgage which lasts 11,000 nights. Mortgage rates respond to broader, longer term economic signals, especially concerning inflation. They tend to go up and down. I'm talking about mortgage rates. They tend to go up and down with the 10 year treasury yield. And those yields have been going up because markets believe that we might have a resurgence of inflation, especially if tariffs are increased during the Trump administration.
- [04:03]
Sarah Rathner
So what are some of the primary factors that potential home buyers are looking at and facing if they're hoping to either buy a house for the first time this year or sell one house to buy another?
- [04:17]
Holden Lewis
It's same as always. Home buyers focus on three things. Home prices, mortgage rates and home availability. And that last one, that's what's holding the market back? Well, I mean, all three of them are holding the market back, but really, home availability is really an issue. There's not enough homes for sale to meet the demand. When most people look for a home nowadays, they basically wish that there were more homes to choose from. On the other hand, more houses are on the market now than at this time of year in 2023 and 2024. That helps people have more choice, but the reason there's more homes is that homes are lingering longer on the market. And that is because prices and interest rates are making it hard for people to afford homes. I mean, I think buyers are becoming accustomed to a new normal in which mortgage rates are going to stay above 6% and home prices are going to keep rising, but not by much. That's pretty much what people are facing in 2025.
- [05:16]
Sarah Rathner
Let's look at this from the perspective of a group of people who are important when it comes to housing inventory, and that's people who are willing to sell their houses because without them, you have no inventory. Right. Unless you build new. There was a lot of talk last year about how the market was stuck because people didn't want to leave their homes. When they had these really low interest rate mortgages from, say, 2020 or 2021, their mortgage rates were 3% or lower. Has that factor changed at all? What are sellers considering as we start this new year?
- [05:46]
Holden Lewis
The factor that you're talking about is called rate lock in, and it is still a big deal in the housing market. And here's why. When you think of homeowners with mortgages, about half of them have loans with a rate of three and a half percent or lower. Those homeowners are saying, I'm not going to sell my home and give up this ultra low mortgage rate to buy a house with like twice the interest rate. You know, that's a major reason that not enough homes are on the market. Rate lock in is an issue faced by a lot of homeowners who would like to move either because their family is growing or the nest is empty. They're divorcing. They want to relocate for a job, but they really, really hesitate because they just don't want to buy another house that maybe is about the same size but has much higher monthly payments because of the higher mortgage rate.
- [06:37]
Sarah Rathner
Or if you choose to downsize your home for any reason, you're paying the same amount or more for less space and fewer amenities.
- [06:44]
Holden Lewis
That's exactly right. People just look at that and say, no way. I think I'll just fly to see my grandchildren.
- [06:50]
Sarah Rathner
Holden, what other factors are grinding the gears right now? And what would it take to get the housing market moving again?
- [06:58]
Holden Lewis
So we've named the main factors. Low inventory, high prices, high mortgage rates. The best way to get out of this situation and kind of unfreeze the market would be for mortgage rates to drop. We can look back at 2024 and we can see the buyers jumped into the market whenever rates fell to like six and a quarter percent or lower. That's what happened in September, and home sales jumped. It's different on what I'll call the supply side. How low must rates go to entice homeowners to list their homes for sale? Let's say you have a 3 1/2% mortgage rate. Where do mortgage rates have to go to get you to sell your house? And we just don't know. My guess is you're going to start seeing more people sell their houses if mortgage rates fall to 5 and a half percent or lower. Unfortunately, I just don't think rates are going to fall that far this year and probably not next year either. It's going to be a while for mortgage rates to get down below 6%. And then there's one other factor which is there's not enough dwellings. We need more houses and apartments. We need those things to be constructed. But local governments, they put these land use restrictions into place that hinder home construction. And that's one of the main reasons we have a housing shortage.
- [08:12]
Sarah Rathner
We will be back in a moment with more of our conversation, so stay with us. What do we know about any plans the new administration might have for coming up with some sort of relief for wannabe homebuyers?
- [08:30]
Holden Lewis
One of the things that people talk about, especially, you know, Trump's political allies, is they say that undocumented immigrants worsen the housing shortage because they're occupying dwellings that otherwise would be available to native born people or immigrants who have documentation. The evidence of that is mixed, and I really mean truly mixed. It's not something to just dismiss as hysteria, but there just might not be enough immigrants to really affect home prices. On the other front, Trump talked about opening up federal lands for housing development. If that happens, we won't see new housing in 2025. It takes longer than that to build a bunch of houses, but maybe in later years there actually would be an effect that we can measure.
- [09:16]
Sarah Rathner
Let's review some basics for those who think they might have some involvement with the housing market this year. Buying, selling, I don't know, shopping around. So let's start with folks who might be looking to buy. What are the main steps home buyers should be taking right now if they have any sort of inkling that they're going to get into the market in 2025? Maybe some steps for first timers and then some steps for people who are veteran home buyers and sellers.
- [09:41]
Holden Lewis
I have this term that maybe I'm the only one who uses it. I call it Zillow stalking. I spent a lot of time looking at houses in western North Carolina in the mountains, but I'm not ready yet to actually look at houses. Let's say you have been Zillow stocking and now you really are ready to start touring houses, getting ready to make offers and that kind of thing. Your first step should be to go to a mortgage lender and get a pre approval. And that means the lender will collect information about your income, expenses, assets, and your credit score. They'll let you know how much you can realistically qualify to borrow at today's rates. And then when you know how much you can borrow and you know how much you've saved up for a down payment, you know what price range to look at. Having a pre approval in your pocket really does let sellers know that you're serious, and they will take your offer more seriously than from someone who doesn't have a pre approval. On top of that, I gotta say, have a relationship with a homeowner's insurance agent. Have their phone number in your favorites. Homeowners insurance premiums, they've been rising really fast in a lot of the country. Talking about the Gulf coast, the east coast, the Great Plains, from like Nebraska to North Texas, where there's a lot of hail and tornadoes, places that are vulnerable to wildfire on the west Coast, Colorado, Arizona, these places. Sometimes it's hard to get insurance at all. If you do get a policy, it costs more than you would ever expect. You know, some people have actually had their offers accepted. They're going through underwriting, and then they discover that they can't afford the monthly payments on that house because of homeowner's insurance. That's something you really want to find out early. And then the bottom line really is if you find a suitable place that you can afford at today's rates, just go ahead and make an offer. I mean, you might be tempted to wait for rates to drop, but rates are unpredictable. And at Nerdweil, we urge people to not try to time the mortgage market.
- [11:36]
Sarah Rathner
It's funny, you use the phrase Zillow stocking that. I definitely use that phrase too. But not to look for houses for me, but really just to look up friends houses to see how much they paid. Or if I'm like walking through my neighborhood and I see a house I really like, I'll look it up on Zillow because I just want to see pictures of the inside of the house.
- [11:53]
Holden Lewis
That is so fun to do. Yeah.
- [11:55]
Sarah Rathner
On the other side, let's look at sellers. So what are some things sellers should be preparing for? If they are looking to get out of their home and maybe rent, or if they are looking to sell their existing home and buy a different one?
- [12:09]
Holden Lewis
The main thing is to have the right outlook. If you're selling a home, you might be tempted to sell it as is because you live in a seller's market and you just figure buyers will just have to take it or leave it. That's really probably not the way to go. Today's buyers are patient. They don't like the low inventory, but they're not eager to buy something that's outdated or poorly maintained. If you want to sell that house, give your landscape and the front of your house curb appeal. Also document recent repairs and improvements.
- [12:38]
Sarah Rathner
Yeah, I will say somebody on my blog sold their house a couple years ago and they tried to sell it as is, and they did not take good care of this house. I remember them having their first open house and they're like, we're just going to sell it the way it is, and we're going to get what we're asking because the market is great. And then they didn't get what they wanted. People were not putting in offers. And then the next thing I know, they'd hired painters and they were hiring other repair professionals to come through the house. And so they had to give up that dream of selling this house in its current condition. And they had to put a couple grand of extra work into it first, and they still sold it for under asking. And then the new buyers had to put in a ton of work on the house. Anyway, here's the deal.
- [13:15]
Holden Lewis
The things that really give you the best bang for the buck are those cosmetic things. The landscaping. If you have to pay like $3,000 to put down new turf, you're probably going to get more than $3,000 back. And it's really rare to invest money in a house and actually get more than the money that you put into it. But the lawn, the landscaping, the front door, like freshly painting the front door, those are big bang for the buck a items.
- [13:43]
Sarah Rathner
Well, that's good to know because those are all some fun weekend projects if you're handy enough, can do yourself. But if not, you can always hire out and hopefully get some of that money back when you sell your house. Paint your front doors, everyone. So we talked with you about this a couple times last year, but I'm hoping you can give us some historical context for the current mortgage rate environment. Many people got used to these really low rates, and now they're hesitating to jump in because rates are higher, but they're still not historically high. Right. You hear these horror stories from the 80s. Walk us through this a bit.
- [14:14]
Holden Lewis
Oh, boy. Mortgage rates back in like 81 or 82, they topped out at something like 18% for the 30 year fixed rate mortgage. I bought my first house in 1997 and I paid eight and a quarter percent and I thought, hey, that's a pretty good deal. But when you look at people who are buying, especially buying their first home nowadays, their history that they're looking back is much more recent. We had an 11 year period, 11 years, February 2011 to April 2022, when the 30 year fixed mortgage stayed below 5% for 550 something consecutive weeks. A lot of people who were buying houses nowadays grew up during that period and rates below 5% were normal to them. So now we've entered this new normal in which rates are probably going to stay above 6%. That's the consensus that's emerging among forecasters. I think that we're seeing signs that today's buyers are just, they're accepting it. They're like, okay, here's what it is. Now how much can I afford to pay for the house?
- [15:17]
Sarah Rathner
Let's talk about some significant changes that happened not a couple decades ago, but just last year in the real estate industry and how that's shaken out for home buyers and sellers. So remind us about what changed and then give us a sense of how that's affecting the home buying and selling process.
- [15:32]
Holden Lewis
The big change that we're talking about is a rule that went into effect last, last August and it says that home buyers are responsible for setting their own agents commissions. Now that might make total sense. That is kind of commonsensical, right, that you would figure out how much to pay your agent. But the rule previously was that sellers decided how much the buyer's real estate agent would be paid. This change was made and it seems to have paid off. Preliminary study by RIS Media indicates that total commissions have gone down from about 5.6% to 5% nationwide. People are paying less in commissions, which is good. Real estate agents tell me that they think the policy puts first time buyers at a disadvantage because first timers tend to have less savings and wealth. You know, when you're a buyer, you can ask the seller to pay some or all of your agents. Commission sellers usually do, but sometimes the buyers end up being told they have to pay out of pocket and if they can't afford it, they can't buy the house. I don't think that that's a terribly common thing. I think sellers want to sell and so most sellers are going to be willing to pay that agent.
- [16:44]
Sarah Rathner
All right, so Holden, as we sit here in January, is it at all possible to say whether 2025 will be a Buyer's market or a seller's market.
- [16:53]
Holden Lewis
Okay, well, sellers, they're going to continue to have the negotiating advantage because they own homes during a shortage of homes. If sellers want to succeed, they really do need to price their homes reasonably, fix them up so they look good and they're in moving condition, and make sure that their agent hires a professional photographer to market the home effectively online. One agent said to me, I don't want to see pictures of your messy closet. I don't want to see the toilet seat up.
- [17:24]
Sarah Rathner
I mean, sometimes you see those non professional photos where it forgets staging the house with rental furniture. You can absolutely stage a home with your own furniture, but you could just tell that the sellers do not give one iota of a hoot because there's like unmade beds in these pictures and it's like messy bookshelves and laundry and it's just like, just clean up and make your bed before you take these pictures.
- [17:49]
Holden Lewis
Make your bed, vacuum the floor, and do not use an iPhone. I mean, look, one of my favorite movies in recent years, Tangerine, was filmed on iPhones. But iPhones really are just not really good instruments for real estate photography. Come on, hire a professional who has a really good camera setup.
- [18:09]
Sarah Rathner
I will say, last time I rented, we left our lease to buy our house. And so my landlord was like, if you list the apartment and find a new tenant, I'll let you out of your lease with no penalty. And I'm like, great. So I took great photos of the inside of the apartment, and when I showed it, I lit scented candles and opened all the curtains and fluffed the pillows on the couches and all that stuff. And it only took two viewings to get rid of that apartment. And I was really happy to do it because then we got to vacate the apartment and move into our house without having to pay, you know, an extra fee. I had a pretty chill landlord at the time.
- [18:38]
Holden Lewis
And that's the power of staging.
- [18:40]
Sarah Rathner
Light some candles, create some ambiance, bake some cookies, you know, do it up.
- [18:44]
Holden Lewis
Exactly.
- [18:44]
Sarah Rathner
Holden Lewis, thank you so much for helping us out today. And even though we are already a couple weeks into it, Happy New Year.
- [18:51]
Holden Lewis
Ah, you're welcome. Thank you.
- [18:57]
Sean Pyles
Sarah. I know it's been a rough few years for home buyers, but as someone looking to sell their home this year, I'm selfishly a little relieved that it continues to be a seller's market. And I'll be curious to see how the whole new commission structure plays out too.
- [19:11]
Sarah Rathner
I am too. But the thing about needing to move is that you're going to do it no matter what else is going on, right?
- [19:17]
Sean Pyles
Just remember that no matter what the noise is in the economy, the best thing you can do for your housing or any other financial plans is focus on what's best for you and design your budget and your spending and your savings plans around that. If you spend all of your time and energy, say, waiting for interest rates to come down, you might never reach the goal of homeownership. If that is a goal.
- [19:38]
Sarah Rathner
Yeah, it really is true that you need to plan around what you know, not what you think might or might not happen. So, Sean, we have one more episode of this yous money in 2025 series coming up. What's next?
- [19:49]
Sean Pyles
Next time, we're going to talk about what you can do. If you've decided that maybe this is the year you want to make a.
- [19:54]
Sarah Rathner
Career change, whether you're in a job search now, whether you're going to be in a job search soon, you bring a lot of value to the market. And don't forget that, because confidence breeds confidence. You have a lot to offer. So when you show up, remember that. For now, that's all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-N E R D. You can also email us@podcasterdwallet.com and remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.
- [20:34]
Sean Pyles
This episode was produced by Tess Viglund. I helped with editing, Amanda Darangowski helped with fact checking, Megan Maurer, Mixer Audio and a big thank you to NerdWallet's editors for all their help.
- [20:44]
Sarah Rathner
And here's our brief. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
- [20:55]
Sean Pyles
And with that said, until next time, turn to the Nerds.