Peering Thru the Crystal Ball

Preparing for the 2025 Housing Market

December 18th, 2024

​

The future is unknown.

Pretending otherwise insults your intelligence.

However, ignoring historic patterns equally compromises you. Instead, let’s look at the evidence of what’s to come so you can be proactive instead of reactive.

​
Recap: In the 2024 Market Review, despite the uncertainty, we saw…

…people were still buying homes with interest rates between 6-8%

…so home values continued to rise,

…thus, the market is not crashing.

Learning from the Past

Let’s examine the data necessary to make predictions about 2025…

• In April 2022 home values were at an all time high.
  ​
• In 2023 home values slowly decreased, plateaued, then dropped some more by the end of the year.
  ​
• In 2024 home values increased again, to the point that some months saw values only $6k less than the all time high in 2022.
  ​
• We can see over the last 10 years that despite bumps & adjustments, home values only continue to increase. ​
  ​
• And, in this 18 year record, inventory continues to be at historic lows.

Although the Real Estate Market exists in a complex system, its primary patterns are simple.

If there are more active home buyers than there are homes, prices increase.

If there are more homes available than active buyers, prices decrease.

When both are close to equal, prices plateau.
​
With inventory still at historic lows, prices will continue to increase– The RATE at which it increases has slowed. This is a good thing.

​
We see this in 4 years of Tacoma January–January increases:

• 2020-2021 = 14.8% increase
• 2021-2022 = 20.99% increase
• 2022-2023 = 6.29% increase
• 2023-2024 = 5.7% increase

2020-2022 brought those $100,000 price jumps.

14.8-20.99% annual value increases were never sustainable, despite arm-chair experts claiming it would never stop.
​

What Caused the Reduction in Annual Increase?

The ratio of inventory to buyers changed as buyers were pushed out of the market. Because of interest rates.

I asked Nikole Potulsky of Two Rivers Mortgage to weigh in...

2024 Interest Rates: Up Like a Rocket, Down Like a Feather

Between January of 2022 and October 2023, interest rates rose 5%.

Over the course of the last year, 2024, rates drifted down, then up, then down, then up.

• January 2024 = 7%
• October 2024 = 6%
• December 2024 = 6.75%

For most of 2024, we kept an eye on the Fed, hoping they’d lower interest rates & make home buying more affordable.

When inflation seemed to stabilize in early autumn, the Fed began to cut the federal fund rate. In response, mortgage investors offered lower interest rates and for a couple of weeks we saw the par rate drop a full percentage point down to 6%.

However, despite the fed rate cut, other economic factors pushed mortgage interest rates all the way to up to 7% again in November. (continued below)

​Contact Nikole for More Info​

So What Specifically Caused the Slowdown?

Buyers couldn’t afford to buy a home anymore due to the ratio of interest rate to purchase price.

High Interest Rates + home values 3-4x what they were 10 years ago = less buyers = less competition to drive values up with the same intensity of 2020-2022.

Unjustly, someone who makes $70,000-$80,000 a year can hardly buy the house they need in urban areas unless they’re willing to spend 60%+ of their monthly income & risk the cashflow needed to provide for the rest of life. Or unless they’re sitting on excess liquid cash. Which many are not.
​
It is an economic & humanitarian failure that the only two market balancing options are to obstruct homeownership by interest rate or to obstruct homeownership by 20% home value increases.

And, it is the reality of the real estate economic structure.

What Would Shake the Housing Market?

For housing prices to drop to pre-2020 values, where it puts most home owners at risk of being irrecoverably underwater, there would either need to be:

1. A flood of inventory on the market
2. A sustained buyer ‘freeze’ (where buyers stop buying for months to years at a time)
3. An infrastructure destroying event

There’s no sense in waiting for this. To truly level the playing field we’d need to see a massive amount of inventory. Or it would mean that Tacoma, Peirce, & WA state were imploding in ways that change our lives all together.

What Creates More Accessible Homeownership?

​
​The Point: The Market will keep doing what it has always done until significant portions are redesigned or ground breaking policy changes are made.

To make the most of it, you must take the reins into your own hands. Whether you’re a seller, buyer, or homeowner– it’s time to be proactive.

The Crystal Ball:

Evidence Based Predictions

What's most likely to happen in 2025:

• Home values will continue to increase, an average between 4-6% annually.
  ​
• Competition will most likely increase due to interest rates dropping below 7%
  ​
• Inventory will stay about the same.
  ​
• Homebuyers will still be able to get inspections, cash back, interest rate buy downs & retain negotiation power.
  ​
• Sellers who want to make the most money will still need the best listing preparation. Half-baked marketing won't get you the strongest, best offer.
  ​
• More people are moving to Washington from red states. Specifically LGBTQI+ people.

2025 Mortgage Rate Projections: More of the Same

"Mortgage rates are expected to be influenced less by the Fed & more by proposed tax cuts & tariffs.

We still expect rates to trend down slowly, but remain in the 6% range with possible dips to the high 5s in the fall." - Nikole Potulsky, Two Rivers Mortgage

Major Unknowns: Impacts of the Inauguration

Rightfully so, many anxiously await the consequences of the new administration.
​
Volatility on all levels is a constant threat. There are unprecedented conditions to this current political climate that leave large gaps in economic security. We’re facing unknowns we won’t know until they’re happening, or have happened.

That’s why preparation has never been more important.
​
​The strongest position is being pro-active, prepared, supported by experts, & community.​
​

What it Means for You

Proactive Preparation

Home Buyers.

"When should I buy a house?"
​​
For the cheapest house, buy immediately. For the right house, buy the soonest you can make an informed decision.

​Consult a real estate broker before you’re ready to buy a house.
​
A good broker doesn’t need you to buy a house right away, they want you to buy the right house. Working with me early means I can help you prepare. In turn, you get accurate education so you have more control over timing, less stress, & you keep more power in your home purchase. Then, when you are ready, everything will move smoothly.

Apply with a lender before you’re ready, ideally, Nikole Potulsky*. Establishing a relationship with a lender early allows you to make informed decisions about your financial future & avoid scrambling when it’s time to buy.

Home Sellers.

“When is the right time to sell?”

The answer? When timing matches your goals matches your specific property. I'd need to analyze your house, neighborhood, & financial goals.

​Consult with a real estate broker 6mo-1 year before you want to sell. This gives you the most control over the timing, costs, & prep work.

Listing a house is a very different process than buying. It can be highly labor intensive for sellers. The sooner you hire me to guide you, the more money you make, time you save, & energy you have for everything else in life.

And sometimes selling a house is unexpected. If you need to sell immediately, reach out to me as soon as you can, I’ll help you herd the cats & steer the ship.

Home Owners.

"When should I refi?" “When will interest rates drop?”​
​
They change every day. All the time.
​
Apply with a lender before you’re ready to refinance.
​
That way, they have all the details ahead of time to make sure you get the rate you want. Establishing this relationship early ensures your refi not only runs smoothly, but that you have the best chances of not missing an opportunity to achieve your financial goals.
​
Also, instead of holding out for a specific interest rate, you can decide the payment that makes it worth it to you to refi.
​
For example, you have a 7.5% interest rate and a $3,500/mo payment. Instead of holding out for 5% to refi, you may want whatever interest rate gets you less than $3,100/mo. Your lender can help monitor this so you don’t miss saving $400/mo.

​Nikole Potulsky* can help with that.

*Disclaimer: I receive no compensation for referring Nikole. I refer her because she has provided excellent service to my clients & myself for over 5 years.

Critical Thinking Reminders

• Finances are the backbone of Real Estate. Without it, everything else falls apart. If you don’t know your specific, accurate numbers you cannot make informed decisions.
  ​
• There’s no ‘one size fits all’ success strategy to the real estate market.
  ​
• You CAN time the market– if you are expertly prepared.
  ​
• Demand Quality; don’t settle for anything less than clear, transparent, practical information.

That’s all for now! Thanks for tuning in; I’m always here for you & your questions.

- Hannah-Clarke Gilmore

Your Referrals are My Bread & Butter