In the year 2025, March has arrived, signaling the onset of spring and ushering in the peak season for the real estate market – the spring market. The question on everyone’s mind is whether this year’s housing market will continue to be affected by high interest rates, soaring housing prices, and supply shortages. Let’s delve into the spring real estate market in the United States for 2025.
Is the real estate market thriving? The performance of the renovation industry can provide some insights. Richard McPhail, the CFO of Home Depot, recently mentioned in an interview that despite the market being frozen due to high interest rates, Home Depot’s sales grew by 14.1% in the fourth quarter of last year, with growth seen in nearly 80% of regions in the U.S. This suggests that Americans may be gradually accepting the current level of interest rates as the norm.
In other words, more and more people might be giving up waiting for rates to drop and accepting the current interest rate environment. Therefore, those who need to move will still need to do so, and those who need to change houses will still need to do so. After all, since the increase in interest rates in 2022, now entering the third year, rates have not dropped below 5%.
According to Redfin data, in December last year, the median year-over-year home sales in the United States increased by 6.3% to around $428,000. The average down payment for buyers of median-priced homes was 16.3%, approximately $63,188, higher than the same period in 2023. This is mainly due to the continued rise in housing prices, coupled with mortgage interest rates reaching around 7%, leading buyers to pay a relatively higher down payment. Some buyers are willing to prepay more to reduce monthly interest expenses.
Looking at the proportion of all-cash home purchases, it was 31% at the end of last year, lower than 33.8% at the same time in 2023. Looking at the yearly comparison, 32.6% of home sales in 2024 were cash transactions, the lowest proportion in nearly three years. However, this figure peaked in 2023 due to interest rates hitting close to the 20-year high of almost 8%. During periods of high interest rates, paying in full cash can avoid high monthly interest payments, leading to long-term cost savings.
Based on the Case-Shiller Home Price Index released at the end of February, in December, housing prices rose by 3.9% compared to the same period last year, higher than the 3.8% increase in November. The northeastern region led the other regions in housing price growth, with Boston setting a new record, the only market to do so in the fourth quarter of last year. New York once again became the city with the highest annual price increase among the 20 largest cities in the U.S., with a 7.2% increase in December, followed by Chicago with a 6.6% increase, and Boston with a 6.3% increase.
The Midwest and Northeast markets continued to see high demand, leading to continued price increases in December, while the South and West regions remained soft. In Tampa, Florida, housing prices experienced the largest decline by 1.1% annually. Looking at the composite price index of the top 20 metropolitan areas, the Case-Shiller Index shows a 4.5% annual increase, higher than the previous month’s 4.3% increase. However, overall, housing sales in 2024 reached the lowest levels in nearly 30 years.
Brian D. Luke, the Head of Commodities, Physical and Digital Assets at Standard & Poor’s Dow Jones Indices, predicted that housing prices would stagnate in the second half of this year, with the Western market seeing the fastest decline. He believes that San Francisco has been the worst performing market since 2020, and housing prices might drop by 4.5% in the second half of 2025, followed by Seattle with a 3% decline.
Currently, housing prices in San Francisco are 11% lower than the historic peak in May 2022. Additionally, cities like San Diego and Tampa, which previously performed well during the pandemic, saw declines of 2.9% and 2.7% respectively in the second half of last year.
Moving into January of this year, with mortgage interest rates persisting above 7% and adverse weather conditions leading to a slowdown in housing sales, it set a bleak start to the new year. The National Association of Realtors (NAR) recently reported that existing home sales in January fell by 4.9% compared to December, adjusted annually to a rate of 4.08 million units. However, in reality, January’s sales were 2% higher than the same period last year.
According to Freddie Mac, mortgage interest rates have hovered within a narrow range of close to 7% since the beginning of this year, averaging 6.96% in January, higher than December’s 6.72%.
Lawrence Yun, the Chief Economist at NAR, mentioned, “Despite the Federal Reserve repeatedly lowering short-term rates, mortgage rates have remained unchanged for months. Coupled with rising housing prices, housing affordability remains a significant challenge.”
Despite the chilly market conditions at the start of the year, there are three pieces of good news that could stimulate market activity. Firstly, as the spring selling season approaches, inventory of existing homes has begun to increase. By the end of January, the total housing inventory for sale was 1.18 million units, a 3.5% increase from December and a 16.8% increase from the same period last year. Based on the current sales pace, the unsold inventory would be able to supply for 3.5 months, higher than December’s 3.2 months and last year’s 3 months.
According to real-time data from Redfin up to February 23, the supply in the market has reached 4.6 months in the past four weeks, one month more than January and higher than the same period last year by 4 months. This indicates a shift towards a buyer’s market, but many buyers may not agree due to housing prices nearing historic highs and interest rates still not reaching acceptable levels.
Nevertheless, there is indeed a further improvement in supply, especially in the Sun Belt region. In Cape Coral, Florida led the pack with a 11.6 months supply in January, higher than the 8.6 months supply from the same period last year. This was followed by Miami with a 11.4 months supply, indicating a 3 months growth year-over-year; McAllen, Texas with a 10.5 months supply; Fort Lauderdale, Florida with a 10.3 months supply; and West Palm Beach, Florida with a 9.96 months supply.
Therefore, Florida has now become a 100% buyer’s market. The construction boom sparked by the pandemic has increased housing supply, leading to depleted buyer demand due to relative affordability issues, alongside an increase in natural disaster risks, which raised insurance costs. Buyers are growing hesitant about owning homes, significantly reducing demand. For buyers, this means more opportunities for negotiating prices and conditions.
However, for buyers in the Northeast, the market remains challenging as buyer demand is high and supply is limited. Rochester, New York had only a 1.1 months supply in January, the lowest among the 100 cities analyzed. This was followed by Buffalo, New York with a 1.2 months supply, down by 0.2 months year-over-year; Hartford, Connecticut with a 1.4 months supply, down by 0.3 months; Grand Rapids, Michigan with a 1.5 months supply; and Worcester, Massachusetts with a 1.6 months supply.
Apart from existing home supplies, the supply of new construction homes is also increasing in the market, particularly in areas with fewer land restrictions and less complicated building regulations. According to the U.S. Census Bureau data, the total number of new housing starts reached 1.6 million units in 2021, with single-family home starts exceeding 1 million units for the first time since 2007. These regions include several cities in Texas and Florida, along with Phoenix, Atlanta, Charlotte, and Nashville. Conversely, regions with strict building regulations still face the challenge of insufficient housing supply.
Overall, while the supply in the U.S. has increased, there are significant differences among regions, with more listings in the West and South, but relatively fewer in the Northeast and Midwest.
Another piece of good news is the long-awaited decline in interest rates. On February 27, “Mortgage Daily News” reported that the average thirty-year fixed-rate mortgage for that day was 6.79%, lower than a month and a year ago, providing homebuyers with increased purchasing power. For a buyer with a monthly budget of $3,000, a rate of 6.8% can afford a $449,500 home; however, with a rise to 7.1%, the affordability decreases to $439,000, a drop of over $10,000.
Will interest rates further decrease in the future? Currently, numerous factors are at play, including economic and employment factors, as well as the impact of Trump’s immigration policies, tariffs, and federal job cuts, making it difficult to predict until the situation becomes clearer.
The third positive news is that with slow sales since the winter, the average number of days on market for homes has reached 56 days, the longest since March 2020. This extended timeframe provides buyers with the opportunity to negotiate with sellers, signaling reduced market heat and increasing the likelihood of negotiation and deal-making.
In cities like West Palm Beach, Fort Lauderdale, and Miami in Florida, the median prices for homes sold were 5% lower than the list prices, the largest decline among the 50 most populous metro areas in the U.S. Additionally, Tampa and Jacksonville saw home sale prices around 4% below asking prices. Another report by Rocket revealed that in Miami-Dade County, 78% of home sales in January were made below the asking prices.
In the past four weeks leading up to February 23, only 21.7% of homes were sold above listing prices, compared to 24% in the same period last year. In fact, the percentage has been lower than 2024’s figures so far. On average, homes were sold for 98.1% of the listing price. For instance, if a house is listed at $1 million, it would sell for around $980,000, slightly lower than last year.
According to Realtor.com’s real-time data, the proportion of price-reduced listings in February was 16.8%, higher than the 14.6% in February 2024. Homes remained on the market for 66 days, an increase of 5 days from last year. This trend may indicate a slowdown in price growth. Subsequently, the average list price of homes in February across the U.S. fell below last year’s levels, dropping by 0.8% to $412,000.
However, it is crucial to note that while the days on market have lengthened compared to last year, the listing time in the four major regions of the U.S. remains equal to or faster than pre-pandemic levels. In the West, homes stayed on the market for the same average time as between 2017 and 2019. In the South, it decreased by 8 days, while in the Midwest and Northeast, the speed remains significantly faster than pre-pandemic levels, dropping by 19 and 24 days, respectively.
In conclusion, the spring market of 2025 presents significant opportunities for buyers, making it a relatively favorable time in several years. However, it is essential to monitor the local market’s supply and demand dynamics. Although housing prices will not return to pre-pandemic levels, there is a chance they might drop back to last year’s or even the prices from two years ago, providing buyers with better negotiation power, especially for less competitive properties. For sellers, it’s crucial to seize the opportunity, leverage advantages, and capitalize on the spring selling season.
Regarding interest rates, reaching 5% in the short term may be challenging. For those looking to buy or upgrade their homes, adapting to this interest rate level early on might be more practical. Actively negotiating prices to reduce monthly burdens or increasing down payments to lower interest rates could be more beneficial. ◇