2024 Real Estate Recap & 2025 Projections

Welcome to our in-depth analysis of the real estate market as we transition from 2024 into 2025. This year has been marked by significant fluctuations in buyer activity, inventory levels, and mortgage rates. In this blog, we’ll unpack what has transpired in 2024 and provide insights into what we can expect in 2025.

2024 Market Overview

The year 2024 kicked off with a surge in buyer activity. In the early months, we witnessed an impressive appreciation rate of 15% in the Bay Area. This spike can be attributed to a strong demand from buyers eager to enter the market. However, as inventory levels increased, buyer activity began to decline. This shift was largely due to rising interest rates, which peaked during the year.

From June to September, we experienced a retraction in home values. The market then stabilized, ending the year with a modest appreciation rate of about 7 to 8%. This was consistent with the projections made at the beginning of the year, where we anticipated a 5 to 7% appreciation. The demand from buyers remained pent-up, especially as many chose not to enter the market during the summer months.

Interest Rates and Their Impact

Throughout 2024, the mortgage market saw various fluctuations. The lowest recorded rates were around 5.75% for jumbo loans, which prompted a wave of buyer activity. However, the overall trend was a gradual increase in rates, which contributed to the dip in buyer participation from June to September.

As we look forward to 2025, projections for mortgage rates suggest that they will remain in the low to mid-six percent range. According to Fannie Mae and the Mortgage Bankers Association, we can expect rates around 6.6% in the first quarter, dropping slightly to 6.3% by the third and fourth quarters. It’s important to note that while these rates are similar to those seen in 2024, there is little evidence to suggest that we will see a return to the fives.

Home Sales and Inventory Trends

In 2024, approximately 4 million homes were sold in the U.S. This figure is a slight increase from the 3.8 million homes sold in 2023. The inventory landscape is expected to shift significantly in 2025, with predictions of a 15 to 20% increase in available homes for sale. This uptick in inventory is crucial, as it will likely influence price stability moving forward.

Historically, the housing market has seen a drastic change in sales numbers, from 6 million homes sold in 2021 to a gradual decline over the past few years. The projections for 2025 suggest that we may see around 4.2 million homes sold, indicating a slow but steady recovery.

Understanding Absorption Rates

Absorption rates are critical to understanding the market dynamics. For 2025, we are likely to observe two to three months' worth of inventory. This means that the number of active listings will be comparable to pending sales, suggesting a balanced market. This balance is essential for both buyers and sellers, as it can prevent extreme fluctuations in home prices.

Price Projections for 2025

When discussing price projections for 2025, it’s essential to consider various forecasts. On average, national projections suggest a 2.6% increase in home prices. However, there are varying estimates from different organizations. For instance, Goldman Sachs predicts a 4.4% increase, while Wells Fargo is slightly lower at 4.3%. Fannie Mae stands at 3.6%, and the Mortgage Bankers Association suggests a modest 2.7% increase.

For the Bay Area specifically, I anticipate a price appreciation of 3 to 5% in 2025. This expectation stems from the pent-up demand among buyers, particularly those looking to upgrade their living situations. Many potential buyers are ready to make a move, especially as they seek larger homes or better school districts.

The Role of Millennial Buyers

Millennials, now averaging between 34 to 36 years old, are entering the real estate market in greater numbers. Despite having healthy financial portfolios, many remain renters. The trigger for their entry into homeownership will not be driven solely by interest rates but rather by the availability of inventory. As they find suitable homes that meet their needs, we can expect a significant influx of buyers in 2025.

Conclusion

If you are considering selling your home, now is the time to gather information and strategize. The upcoming months could present excellent opportunities for sellers as inventory levels rise. Conversely, if you're a buyer looking to enter the market, we encourage you to reach out for guidance. Our team is here to provide you with the local data and insights necessary to make informed decisions.

Feel free to contact us at 408-515-1613 for personalized advice, whether you're looking to buy or sell. We’re committed to supporting you through every step of the process. Let’s make 2025 a successful year in real estate together!