US Mortgage rates have climbed back above the 7% threshold, stalling the U.S. housing market at the start of 2025. The average rate for a 30-year fixed mortgage reached 7.04% last week, marking the highest level since May 2024, according to Freddie Mac. This increase has contributed to a 10% decline in home sales during January compared to the same period last year, as reported by Mike Simonsen, founder of Altos Research.
Simonsen’s analysis highlights a stagnating housing market, driven by elevated borrowing costs that discourage potential buyers. He noted that single-family home inventory has risen 25% year-over-year, while unsold new listings are up nearly 4%. Simonsen attributed the inventory growth to a lack of buyer demand rather than increased supply. “About one-third of homes have undergone price reductions from their original listing price,” Simonsen stated, indicating some relief for prospective buyers.
However, he added that newly pending sales have increased only marginally by 0.5% compared to the previous year, defying seasonal trends that usually push prices higher in early spring. Industry forecasts suggest mortgage rates will stabilize in the 6% range by the end of 2025. Bankrate predicts rates will hover around 6.5%, while Realtor projects an average of 6.3% throughout the year. The National Association of Realtors (NAR) and the Mortgage Bankers Association share similar outlooks, expecting rates to stabilize near 6% in what they term a “new normal.”
Meanwhile, Fannie Mae forecasts rates will remain above 6% but decline modestly as 2025 progresses. The rising rates and constrained inventory have compounded affordability challenges for many buyers. Last year, U.S. home sales fell to 4.06 million, a 0.7% drop from 2023, marking the weakest sales figures since 1995. According to NAR, this decline reflects both higher mortgage rates and persistently high home prices. At the same time, the median national home price rose to a record $407,500 in 2024, up 4.7% from the prior year.
Experts attribute these trends to structural issues, including limited inventory, which remains well below historical averages. At the end of December, the U.S. housing market had just 1.15 million homes available, representing a 3.3-month supply at the current sales pace. Balanced market conditions typically require a 4- to 6-month supply. First-time buyers have faced particular challenges amid these conditions, accounting for 24% of all buyers in 2024, significantly below the historical average of 40%.
While their market share edged up slightly in December, high prices and elevated rates continue to price out many prospective homeowners, particularly in the lower price tiers. Despite modest signs of resilience, such as a 2.2% monthly increase in home sales in December, the outlook for the housing market remains uncertain, with affordability and rate stabilization remaining critical to a potential recovery. – By MENA Newswire News Desk.