Several metrics, both from before and after the Trump Administration taking power, validate consumers' fears regarding whether they can afford to buy a home.
Prices were near or at record levels even before President Trump announced tariffs, which would likely raise the costs for new construction. While new-home sales are a smaller portion of the market than existing houses, more than
However, relief could be on the way for consumers in the form of increased listings.
A Clever Real Estate survey found 42% of Americans are worried about
The previous crash stemmed from overvalued housing and lax mortgage underwriting standards. While stricter lending practices
Despite hopes for a market correction, price trends suggest that fears of a crash in 2025 are unlikely to subside anytime soon.
New owner payments up year-over-year
Recent reports highlight rising costs for prospective buyers:
- Redfin found that the typical homebuyer's monthly mortgage payment reached an all-time high of $2,807 for the four-week period ending March 23, marking a 5.3% year-over-year increase.
- The Mortgage Bankers Association's Purchase Application Payment Index remained flat in
February at $2,205 but was still 1% higher than the previous year. - Median home sales prices were 3% higher than in the same period in 2023.
Mortgage rates, however,
Homebuyer activity and down payments
While higher housing costs have pushed pending home sales down by 4.6% year-over-year, some signs of renewed buyer interest exist:
- Pending home sales, as measured by the National Association of Realtors, were down 3.6% in February compared to the previous year but up 2% from January.
- Realtor.com reported that in Q4 2024, homebuyers put down an average of $30,320—a $3,000 increase from the previous year.
- Buyers paid a record-high 14.4% of the purchase price in 2024 as down payments, up from 14.2% in 2023.
"As rates continue to decline this spring — albeit at a slow pace — homebuyer demand is on the rise," Bob Broeksmit, MBA president and CEO, said in a statement.
Rising down payments signal both positive and negative market forces. While higher equity at the outset of homeownership is beneficial, increased down payment requirements may push lower-income buyers out of the market. Danielle Hale, Realtor.com's chief economist, noted that high mortgage rates incentivize buyers to limit their loan size by making larger upfront payments.
"Heading into spring, a modest seasonal increase in home-buying activity is expected," said Sam Williamson, First American senior economist, in a comment on the NAR data. "Nevertheless, challenges like affordability constraints and the ongoing rate lock-in effect continue to weigh heavily compared to the dynamics of pre-pandemic spring markets."
Another good sign is sellers are entering the market at a faster pace than buyers, with new listings up 7.5% during the period, Redfin found.
"Buyers are cautious because they're worried about the economy and potential layoffs, and they're wondering if mortgage rates will come down later this year," said Kimberly Freutel, a Redfin agent from Sammamish, Washington, which is in the Seattle metro area. "But because other buyers are cautious too, some house hunters are getting homes for under asking price."
Location, location, location
Where change is happening though is the question. In 574 counties analyzed by Attom Data Services in the first quarter, 554 of them are less affordable to borrowers than on a historic basis. It is actually an improvement from 563 in the fourth quarter and
"Home affordability is in a holding pattern this quarter — financially stressful for average wage earners but not changing much," said Rob Barber, Attom CEO in a press release, pointing to normal winter lull as well as the decline in mortgage rates.
But the housing ecosystem shouldn't get complacent.
"If history is a good guide, prices will rise as we head into the peak buying season that's about to start, which will worsen affordability measures," Barber said.
Realtor.com's Hale also warned about market dynamics, good and bad, coming into play.
"As mortgage rates ease, a more diverse set of buyers, in terms of budgets, will likely enter the market, and the incentive to minimize their home loan will soften," said Hale. "However, if for-sale inventory fails to keep up with increased buyer demand, down payments could climb once again as the result of increased competition."
Hope on the horizon
While First American's Real House Price Index for January declined both on an annual and month-to-month basis by 2.3%, it believes the for sale inventory should continue to rise throughout 2025, helping to improve affordability.
"Nationally, the current months' supply is 4.6, well above the February 2024 level of 3.9, when price appreciation was 6.9 percent — a market that was perhaps 'too hot,'" said Mark Fleming, First American chief economist, in a press release. "Months' supply has inched higher over the last year as the inventory of both new and existing homes has rebounded from historical lows, meanwhile affordability challenges have constrained demand and, in turn, sales activity."
But while he expects home price growth to continue to moderate as supply increases, it would not be enough to create a nationwide price decline.
"Of course, real estate is local, and low single-digit price growth nationally likely means prices are declining in some pockets of the country, while growing in others," Fleming said. "Nevertheless, when analyzing the outlook for affordability, it's important to consider what months' supply can tell us about the likely future path of house prices."
