In this episode of The REconomy Podcast™ from First American, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi share their thoughts on the outlook for the 2025 spring home-buying season.

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Listen to the REconomy Podcast™ Episode 111:

“And here's one reason to be cautiously optimistic. The purchase market has shown resilience despite mortgage rates breaching the 7% threshold in January. That's not to say activity has been strong or really anywhere close to strong, but we haven't seen demand disappear either. The housing market's resilience may in part be due to higher inventory levels, with both active and new inventory up 17% and 4% respectively from a year ago. Inventory is expected to continue trending higher into the spring, potentially giving buyers more choices and negotiating power.” – Odeta Kushi, deputy chief economist at First American

Transcript:

Odeta Kushi - Hello, and welcome to episode 111 of The Reconomy Podcast, where we discuss economic issues that impact real estate, housing, and affordability. I am Odeta Kushi, deputy chief economist at First American, and here with me is Mark Fleming, chief economist at First American. Hi, Mark. It's the most wonderful time of the year.

Mark Fleming - Hey Odeta, well I used to reference this at the end of summer as my young children were getting ready to go back to school, their forlorn faces, summer with young children at home, absolutely exhausting, but that's not now, so how do you mean this reference?

Odeta Kushi - Well, for the housing market, it's the most wonderful time of the year. It's almost spring home-buying season, or at least the green shoots of spring home-buying season.

Mark Fleming - Now that makes a lot more sense. That's right, winter's nearly officially over, the days are getting longer, the birds are chirping, and the buyers are cautiously emerging from hibernation.

Odeta Kushi - More like cautiously checking mortgage rates before deciding if they even want to emerge. Well, if you haven't guessed it by now, in this episode, we're talking about why spring is such a critical time for the housing market and what we expect to see in the 2025 spring market. So, let's start with the timing. Why is spring such a big deal in real estate?

Mark Fleming - Fair point. Well, to just set the stage here, according to analysis of data from our friends in First American Data & Analytics, historically, existing-home sales have increased by an average of 45% from the seasonal lows of December through February to the peak months of April through June. During these months, both supply and demand increase, the entire market comes out of hibernation. Home sales tend to peak in June and trough in January. During the same period, home sale prices follow a similar seasonal pattern, higher on average during the annual seasonal peak compared with the trough, although home prices are certainly less seasonal in terms of magnitude than sales.

Odeta Kushi - Housing market seasonality also shows up in housing market velocity data as measured by median days on market and in housing supply data as measured by the number of active listings of homes for sale. The peak and trough months won't be identical, but in the fall and winter, the market cools down as home sales slow and the median home sale price declines relative to the summer peak, resulting in fewer homes available for sale and those that are available tend to stay on the market for longer. But, in short, supply and demand increase in the spring and summer months. It's really all about timing. Spring is prime home-buying season because it lines up with the school calendar, the weather gets better, and sellers finally list homes they've been holding back during those winter months.

Mark Fleming - Right, and if you're a family with children, you want to move in the summer so that you're settled in before the new school year starts. I guess that’s now the second most wonderful time of the year. That means buying in the spring or early summer to close and move in time.

Odeta Kushi - And, even if you don't have children, who wants to move in the dead of winter? Lugging boxes through a snowstorm is not a good time. I'm having flashbacks of when I was a student in Boston.

Mark Fleming - Been there, done that too. Well, not everyone though has to deal with such harsh weather. Seasonality may not be quite as severe in areas where it's warm and mostly sunny all year long.

Odeta Kushi - Maybe I should have gone to school in Florida. But, you know, even for those areas, longer daylight hours means more time for house hunting and better curb appeal, which makes everything look a little nicer.

Mark Fleming - Indeed. Very true. So, the housing market spring season is almost here, but the question remains whether it will roar like a lion or pass meekly like a lamb. Affordability challenges remain high with national home prices remaining historically high alongside now elevated mortgage rates. Despite the difficult conditions, real estate is, of course, local and there are signs of resilient demand and pockets of activity that may emerge as rising inventory in some areas could ease price pressures and offer more options for buyers and sellers.

Odeta Kushi - And here's one reason to be cautiously optimistic. The purchase market has shown resilience despite mortgage rates breaching the 7% threshold in January. That's not to say activity has been strong or really anywhere close to strong, but we haven't seen demand disappear either. The housing market's resilience may in part be due to higher inventory levels, with both active and new inventory up 17% and 4% respectively from a year ago. Inventory is expected to continue trending higher into the spring, potentially giving buyers more choices and negotiating power. Markets with more new home construction and inventory will likely see greater affordability relief and increased sales, conditions that have been prevalent in Sunbelt markets.

Mark Fleming - That's right. And we found a statistically significant relationship between the yearly growth in housing permits per household and yearly growth in annual price growth. In other words, in areas where more housing units are permitted relative to the number of households in the market, there is downward pressure on prices. Surprise, surprise.

Odeta Kushi - And where are we permitting the most residential units?

Mark Fleming - Aha, well this may come as little surprise to the markets with the largest year-over-year growth, places like Austin, Texas. Other top markets include Raleigh and Charlotte, North Carolina, Houston, Jacksonville, Phoenix. These are also markets with low or even slightly declining annual house price growth.

Odeta Kushi - And on the opposite end, you have areas where maybe it's a little bit more difficult to build due to land constraints and regulatory challenges, like in the Northeast, places like Boston, for example, and a place or close to home for me, Buffalo, New York. These are markets facing more upward pressure on prices. So, when you look ahead to this year's spring buy-in season, what is your crystal ball telling us?

Mark Fleming - Okay, so let's see, how many hands does this economist have? I'm gonna need two, maybe three. We'll see. At least two. On the one hand, mortgage rates have stabilized, albeit at elevated levels, and mortgage purchase applications are higher than one year ago, as buyers are beginning to enter the early spring market. Additionally, new- and existing-home inventory has been trending higher and is expected to continue to trend in that direction, which could put more power...

Odeta Kushi - Yeah, at least two, I think.

Mark Fleming - …in the hands of buyers, certainly in some of the markets we were just talking about. Those markets with more building and inventory will see greater affordability relief and increased sales. They've been concentrated in the Sun Belt. Most of the ones we listed were. But, on the other hand, mortgage rates are expected to remain elevated and in a narrow range as the Fed basically waits to see what happens to the economy and with inflation for most of the rest of this year, probably at least through the summer, missing the spring home-buying season. Combined with historically high house prices nationally, this means the affordability environment will remain challenging for most buyers. It may be a slower spring than we had all hoped for. We do see though that many listings are staying on the market longer. Average days from listed to pending, according to Zillow data, was up to 61 days in January, higher than the same month one year ago at 49, and the highest level since March of 2020.

Odeta Kushi - Consensus forecasts are not necessarily expecting rates to come down much. To your earlier point about the Fed being sort of on pause right now and likely through the summer, not really making any changes to that fed funds rate. The forecast for Q2 2025 for the 30-year, fixed-rate mortgage is 6.86. You know I like my decimal points.

Mark Fleming - You're so good at it. That's an important one. Isn't that roughly about where we are now within a tenth or so?

Odeta Kushi - Yes, but that tenth is very important, I think. It's not 6.9, it's 6.86. But, do we even need rates to fall to get the market moving? That's the question.

Mark Fleming - That might make a difference. Right. Well, no brainer, I'm sure all of the listeners to REconomy would know, it would certainly help. Lower rates are always better for us. But I think, more importantly, mortgage rate stability is the key. And, where necessary, prices will need to adjust to meet the reality of these now high mortgage rates. If we look back at the housing market of the 1980s...

Odeta Kushi - All right, here we go. You're always ready to spring into an ‘80s reference. Get it?

Mark Fleming - That was very good, very good. But it just happens to be the time period that actually best reflects our current environment. As the saying goes, history doesn't always repeat itself, but it sure does often rhyme. When we compare the current housing cycle to those of the past, we see similarities in demographic trends, inflation trends, higher interest rates. These all echo the housing market of the 1980s. That market did rebound from the 1980s lows, but it took some time and the key there was inflation and mortgage rate stability.

Odeta Kushi - So, mortgage rate stability, even if stabilization occurs with rates at a higher level, which I think is our baseline expectation, that's really the key to the eventual housing recovery. Now, I want to go back to your point about prices adjusting to the reality of higher rates. When we think about affordability, we really should be thinking about the monthly payment. So, let's go through a simple exercise here.

The monthly principal and interest of a $200,000 home, assuming a 20% down payment and 7% mortgage rate, maybe I should have made it 6.86. But I went to 7 for you, Mark, since you're so anti-decimal point here. But let's just…we do like to round. Let's assume 7% mortgage rate, that monthly mortgage payment principal and interest is about $1,000. But let's say you can only afford a payment below $1,000.

Mark Fleming - The math would have been harder, yeah. We like to round. Yeah.

Odeta Kushi - Well, you can get that with a lower mortgage rate. Let's say a rate of 6%. That'll get you a monthly payment down to about $960, or exactly $960 actually. It worked out in my favor. Or keeping the rate the same at 7%. You can get the monthly payment down to this one's a little bit more approximately $960, if the price of the home falls from 200,000 to about 180,000.

Mark Fleming - About $960 or exactly $960? Okay, but that's a pretty steep price cut. I mean, $200,000 to $180,000, that's $20,000, 10%. And, according to Zillow data, the average price cut on a typical home these days is only about 3% of the list price. So, you know, there's a little bit of issue of willingness to drop enough to make the difference. Yeah. You can make the payment-to-paycheck calculation work through lower rates, lower prices, or higher incomes, and maybe that might be the way we solve it.

Odeta Kushi - Right. And that's really the point here, it's not just about mortgage rate declines. You can also sort of make that calculation work through higher incomes, which we are seeing higher wage growth in this economy, or through price cuts, which we're seeing in very specific markets. There are some markets that we're seeing more price cuts than others. And, if you can't afford or find an existing home to buy, you can always consider a new home. New construction homes offer several advantages over existing homes in today's market. According to Fannie Mae, the price premium between new and existing homes decreased to about 4% in 2024 compared to an average of 28% between 2015 and 2019. That makes new homes more accessible to potential first-time buyers because remember, new homes were traditionally really geared towards that repeat buyer, not necessarily your first-time buyer, but that price premium has declined.

Additionally, in this ‘higher-for-longer’ rate environment, builders can offer mortgage rate buy downs to make monthly payments more manageable and, of course, offer upgrades on interior quality features in that home.

Mark Fleming - That's a good point. Of course, all of the existing homeowners who would have usually bought that more expensive new home, they're staying put. So the market is really that first-time home buyer. 

Odeta Kushi - That's right. Yeah. Their rate locked in. All right. Now, while we don't typically give advice, I think we can offer a few tips for those navigating the spring market this year. So, Mark, if you're a buyer in spring 2025, what should you do?

Mark Fleming - So, first thing is, I'd say know your numbers. And what I mean by that is with rates fluctuating around, your buying power can change quite quickly from day to day. Get pre-approved and run the numbers at a bunch of different levels for that interest rate so you're not caught off guard, if there is a change, both above and below. And, if you find a home you love and can afford, this is important, don't wait around hoping prices will drop. Trying to time the market, that's a fool's errand.

Odeta Kushi - That's right, but don't overextend yourself either. If you have to waive every contingency and stretch your budget to the max, it's probably not the right move.

Mark Fleming - The risk averse, no debt are coming out right there. I'm thinking of the first house, the first house I bought. I stretched, I stretched. But this is important. Housing should be a long-term decision, not an impulse buy. Buying a home is the largest financial decision you will ever make and it's not to be taken lightly. If you're priced out of your desired market, sitting on the sidelines may allow you to continue to pay down your debt, build up your credit, save more for the down payment and closing costs.

Odeta Kushi - Always the risk averse. You'll always get that perspective from me.

Mark Fleming - And in the meantime, especially in today's market, you might find that more inventory as it comes to market aligns better with your preferences. Sometimes it pays to wait, so you can find something better to buy.

Odeta Kushi - And another tip for potential buyers is to shop around for your mortgage rate. Interest rates can vary dramatically between lenders, so failure to shop is money lost. Research shows that it's possible to save between half a percentage to a full percentage point on your rate by shopping around. And then, of course, if you find yourself in a highly competitive market with multiple offer bidding wars, I'm no stranger to this by the way, as someone who was house hunting in the height of the pandemic frenzied market. Make sure you structure your offer to say you will pay a certain amount over the next highest bid up to a maximum amount. This allows you to win the bidding war without paying too much more than the next highest and also assures you don't end up offering more than you're willing to pay. You may not win the war, but this is the safest way to fight it.

Mark Fleming - That's a good point. A good escalation clause is pretty much essential in a sellers’ market. And if you're selling, remember to price realistically. Many buyers are stretched thin and overpricing your home simply means that it could sit longer than you expect or want it to. And, by the way, the longer a home sits, the more problematic the buyers think that home might be. What's the matter with this house? Is there something I can't see?

Odeta Kushi - Yeah, it's suspicious. Why does no one want it? What's the matter? Exactly. All right. So, let's sum it up. Spring 2025. As we described it in a recent blog post, when spring does arrive, right now it's looking like the housing market will be more like a lamb than a lion.

Mark Fleming - That's right, buyers should be prepared, sellers should be realistic, and everyone should remember the best time to buy a house is when it makes the most sense for you financially and personally. 

Odeta Kushi - Wise words. Well, that's it for the episode. Thanks for tuning in.

Mark Fleming - I try. Wait, tuning in, one final word of advice whether you are buying or selling, don't stop believing in your housing journey. Listeners, we tried to sing it, it didn't work out.

Odeta Kushi - You tried to sing it. You tried to sing it. And, of course, we end on another ‘80s reference. Typical. Thank you for joining us on this episode of The Reconomy Podcast. If you have an economics-related question you'd like us to feature in the future, you can email us at economics@firstam.com. And, as always, if you can't wait for the next episode, you can follow us on X. It's @OdetaKushi for me and @MFlemingEcon for Mark. Until next time.

Thank you for listening, and we hope you enjoyed this episode of The REconomy Podcast from First American. We're pleased to offer you even more economic content at firstam.com/economics. This episode is copyright 2025 by First American Financial Corporation. All rights reserved.