Housing Affordability

Housing Affordability and Home Sales

The WSJ published an article last Friday January 24^th, 2025, stating home sales are the lowest on record in nearly 30 years or since 1995. Reflecting on the graph below for existing home sales urges us to think about what’s next in 2025. Are we bullish for housing or bearish?

Before continuing on about predictions in the housing market, I wanted to share a quick story about a recent first-time homebuyer client of ours. She’s a family friend and recent college grad living in Charlotte, NC looking to move to Wilmington, NC. Just a few years ago, I can remember talking with her about different career options, and she said to me “I don’t really know what I want to do for a career.” I say this light heartedly, as I can definitely remember feeling the same way upon graduating college. About a year and a half ago, she found a job working remotely in HR.

Late last year, in November 2024, she found a small fixer-upper listed in the $250K-$260K range in Wilmington. She was able to make a larger down payment than most, putting 20% down, and ended up with a payment of just under $1,600!

I have to say, I was thoroughly impressed with her negotiation skills with her agent and seller. She also heavily shopped her financing options, and I had to be very nimble on price to keep her as a client. Before going under contract, we discussed strategies for saving money related to financing. I mentioned a seller credit is a great way to reduce a borrower’s cash to close. After the inspection, she followed my advice obtaining a seller credit and a price reduction. It was exciting to see a young person really work to get themselves an affordable housing payment, even with all the noise about housing being unaffordable. Not only is the payment less than paying rent at some apartment complexes, but she’s building equity versus paying a landlord’s mortgage payment. Also, I believe this will provide her with more financial flexibility in future years. She could sell this house and potentially upgrade to the next house, or she could just hold on to this appreciating asset. The first step into homeownership is scary, but looking back on those who did it early in their lives, they tremendously benefited.

Back to Market Predictions

The first sign of the housing market being more bullish is home sales increased in December, which typically is not a significantly active month for real estate purchases. Other supporting evidence is home sales have increased for the third consecutive month in a row, and this hasn’t happened since 2021. Additionally, those who have been sitting cash-heavy in 2023 & 2024 using different financial vehicles to earn 5% or more have lost their ability to obtain these returns due to the Federal Reserve’s rate cuts. As the Federal Reserve lowers its rates, the return on these investment accounts also shrinks with it.

Another significant factor that drives housing is inventory. Overall, national inventory is low, driving up demand in certain areas or neighborhoods. Additionally, the baby boomers are thinking about what’s next for them financially. My parents are on the tail end of being a baby boomer in their early 60s, and this is definitely on their minds. What will the baby boomers do with their real estate? You guessed it, sell it! In my opinion, this will help inventory on the Outer Banks as people age and make different living arrangements. With inventory increasing and confident investors looking to deploy capital, I am optimistic for 2025. I am not basing this judgment call or the above observations just on the Outer Banks market but on other markets such as Raleigh, Orlando, Northern Virginia, etc. Reflecting back on the graph of US existing home sales, I believe we are not likely to dip below 4.1 million home sales in 2025 or 2026.

For those who can afford housing or are optimistic investors, 2025 will be an active year in real estate where more people purchase hard assets to fight inflation with an appreciating asset. In my opinion, this is why we are seeing positive momentum forward for the third straight month nationally. Given mortgage rates come down roughly at the beginning of next year, more buyers will enter the market, which makes today more of a real estate opportunity if this is true. I believe buyers will have more negotiation power and more inventory in 2025 than they will in 2026 or 2027. If you’re on the fence about purchasing property, I hope you consider what prices could be in 2027 to 2030 if I am correct.

Video about this article: Video-Housing Affordability (YouTube Link)

WSJ Journal Article referenced: US Home Sales Lowest Levels-WSJ