Nick Gerli

1) It's truly shocking just how much demand has dropped. Through the first week of January 2025, mortgage apps were down: -14% from same week last year -19% from 2023 -54% from 2022 -59% from 2021 -52% from 2020

2) Mind you - this is coming four months after the Fed cut rates for the first time. With another 2 rate cuts thrown in. Plus the presidential election being settled. Despite all those seeming tailwinds for the housing market, demand is still in the basement.

3) Existing home sales more or less mirror this drop, although they haven't declined by quite as much as mortgage applications because cash buyer demand has held up a bit better. According to NAR, about 25% of all transactions at close of 2024 were cash deals. This is up from a norm of around 20% prior to pandemic.

4) All of this sets the stage for an interesting start to 2025 housing market. The buyer demand is still very depressed, coming at a time when sellers have been told the market would be improving due to rate cuts and the election being over. Could we see a raft of price cuts to start 2025?

5) The principal issue right now for buyers is a lack of affordability. With the typical US homebuyer facing a mortgage payment that takes up nearly 40% of their gross income if they buy right now. That lack of affordability has only existed in two prior housing market in recent US history - 1981 and 2006.

6) You can see that after each previous peak in homebuyer cost, things became more affordable in subsequent years. In the 1980s it was because mortgage rates plummeted from a high of 18% down to 10%. While in the 2000s it was because home prices crashed.

7) Right now mortgage rates are being held up by skyrocketing treasury yields—and recurring inflation expectations. Meanwhile, prices are still up nationally on a YoY basis due a continuing inventory shortage in some parts of the US.

8) However, some major softness is now revealing it self in certain US Housing Markets, where prices are beginning to drop. They include Texas and Florida, and might soon also include states like Tennessee, Colorado, Arizona, Utah, Alabama, and Georgia. These are the areas where price growth was lowest to close out 2024.

9) Don't be surprised if home price growth slows significantly in 2025 on a national level. Potentially settling around 0-1% YoY for the nation. While values drop in about 10-12 different sun belt and mountain west states.

10) To access my home price forecasts for 2025, head to http://www.reventure.app. Where we have developed a Home Price Forecast Score for each state, city, and ZIP code in the US, based on the underlying demand/supply fundamentals in each market. This score is ranked from 0 to 100 and gives you a good current sense of the trajectory of your market, and the potential for increasing or declining prices over the next 12 months.