January 2025 – Real Estate Market Update

by | Jan 24, 2025 | Market Update

We now have a highly unpredictable new (old) President and a number of recent economic reports that provide contrasting data on the state of the economy. How will the Federal Reserve Board respond to these economic reports and the possibility of tariffs on some of our biggest trading partners? My January 2025 Real Estate Market Update dives into the new year morass and attempts to offer some clarity on what the local housing market will look like in the months ahead.

Current Market Conditions

The December 2024 Consumer Price Index report was released last week and showed a very small increase of 0.4% from the month before and 2.9% for the trailing 12 months, in line with analyst expectations. The core index however, excluding food and energy, moved up to 3.2% annually, slightly better than forecast. Shelter costs rose by 0.3% and were up 4.6% from a year ago, but this was the smallest one-year gain since January 2022.

These better than expected numbers were met with a stock market surge as investors warmed to the idea that the Fed would now have the data to support further rate cuts early in 2025.

Dec 2024 CPI Chart

A few days later came the December jobs report which saw the economy add 256,000 new jobs. This was up from 212,000 new jobs in November and well above forecasts of 155,000. The unemployment rate also dropped to 4.1% slightly below expectations.

Wage growth also increased a modest 0.3% from the prior month and 3.9% for the year, slightly less than forecasted. This means that real wages continue to grow modestly, but not enough to create additional inflationary pressure.

This was basically a blockbusting jobs report in contrast to the CPI report. Treasury yields jumped as markets bet that the jobs report would put a damper on interest rate decreases later in the year.

Dec 2024 Jobs Report

What’s Next for the Fed?

Taken together, these two reports paint a picture of gradually declining inflation and a healthy job market. It’s difficult to imagine the Fed making any aggressive moves on interest rates when all signs are pointing to nearly full employment and moderating price growth. Fed watchers expect interest rates to be held steady at the upcoming board of governors meeting this coming week.

That said, recent policy proposals from President Donald Trump, including calls for lower borrowing costs, stricter immigration rules, and higher import taxes, have introduced additional uncertainties. The Fed aims to navigate these developments carefully to avoid appearing politically influenced while striving to maintain economic stability. The new president gave a virtual address to the World Economic Forum in Davos earlier this week where he stated his intention to “demand that interest rates drop immediately.” This is likely to be a symbolic statement as the President does not currently have any direct control over monetary policy decisions by the Federal Reserve. That could possibly change in the future, however, and is something to keep an eye on.

Impact on the Real Estate Market

Mortgage interest rates have been hovering around 7% for the past couple of months, and while they dipped slightly this week, recent trends are holding steady. I generally look at 30-year fixed rates which track closely with 10-year Treasury Bond yields. Shorter term or adjustable rate mortgages will often have slightly lower rates, while jumbo loans are typically a bit higher. If you ever need support shopping for a mortgage provider, don’t hesitate to contact me for a referral.

Mortgage Interest Rates - January 2025

Both home buyers and sellers appear to be adapting to the “new normal” of higher interest rates, leaving behind the era of ultra-low mortgage rates that dominated much of the past decade. Several key factors highlight this shift:

  • With mortgage rates currently hovering around 6-7%, monthly payments are significantly higher than during the ultra-low rate period (2-4%).
  • Buyers are recalibrating their expectations, opting for less expensive homes or smaller properties to accommodate the higher costs.
  • Adjustable-rate mortgages (ARMs), rate buydowns, and lender incentives have become more popular as buyers seek ways to reduce their upfront costs.
  • Sellers are being more cautious with pricing, understanding that buyers’ affordability has been constrained by higher rates.
  • Many potential sellers are “locked in” by their low-rate mortgages, choosing to stay put rather than sell and finance a new home at higher rates. This phenomenon contributes to ongoing tight inventory levels.
  • While rates around 6-7% feel high compared to the ultra-low rates of 2020-2021, they are closer to historical averages. This normalization is helping both buyers and sellers recalibrate their expectations.
  • Homeowners are refinancing less frequently, given that current rates are often higher than their existing loans. They are, however looking to unlock equity from home improvement projects in the form of Home Equity Lines of Credit.

It appears that buyers and sellers are adapting to the idea that rates may remain elevated for the foreseeable future, especially as the Federal Reserve maintains a cautious stance on inflation.

Conclusion

So, for the most part, it’s business as usual. My general advice holds which is to buy or sell as your personal circumstances dictate, not based on market trends or mortgage interest rate levels.

The one thing I am keeping a close eye on is how new policy choices by the new administration may impact inflation and thus future interest rates. If the Trump administration does move forward with higher tariffs or substantial tax cuts that lead to more deficit spending it will be interesting to see how the Fed responds. I’m not aware of any proposed policies from the Trump administration to address the housing shortage or housing prices, so I don’t expect any substantial relief to come from the federal government in the foreseeable future.

I am always available to support your real estate journey, discuss your budget and timing, and help develop a strategy that works for your personal circumstance.

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