Why experts say the worst might be over for housing
The US housing market is showing signs of stabilization after a sharp post-pandemic slowdown, with conditions shifting gradually toward buyers, according to First American deputy chief economist Odeta Kushi.
“Affordability is likely to improve slightly compared to the end of 2024 but will still remain over 30% less affordable than in early 2022, before the Fed started increasing rates,” Kushi said in a new report.
“Housing is highly sensitive to mortgage rates, so even modest shifts in mortgage rates can have outsized effects on affordability.” She added that buyers may see “mild rate relief and improved affordability even earlier as markets continue to adjust.”
On regional variations, she noted that Northeastern and Midwestern markets "may see the strongest price growth unless supply increases.”
Addressing existing-home sales, which fell nearly 40% from early 2022 to early 2023, Kushi said, “If we define the start of a cycle as the point when the decline ends, then we’ve already crossed that threshold.” She attributed the slowdown to “ultra-low mortgage rates—averaging 4.1%” that create “a financial disincentive that has frozen many would-be sellers in place.”
She also pointed to a “frozen labor market” as an additional “lock-in” effect, with fewer job changes reducing relocation-driven sales.
Turning to the new-home sector, Kushi said, “It’s very possible that new-home sales in 2025 will end the year below 2024 levels,” citing affordability constraints, tariff-related building material cost uncertainty, and increased competition from resale and new-home inventory.
While lifestyle changes will continue to drive some activity, she emphasized that “life happens” events—such as marriage, divorce, downsizing, and death—“won’t be enough to fuel a significant increase in sales activity.”
Concluding her outlook, Kushi noted, “While the housing market isn’t poised for a dramatic rebound in the near term, it appears to have found the floor from which the next cycle will begin.” Existing-home sales are expected to stay low, with new-home sales facing challenges, but rising inventory and easing mortgage rates could improve affordability and prices, paving the way for a gradual rebound.
She added, “The worst of the adjustment appears to be behind us,” and while “2025 may not end in a boom, it won’t be a bust either. It’s a slow, steady march toward balance.”
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