Housing’s Next Chapter

Though 2024 saw a robust economy and persistently high mortgage rates, the 2025 housing market may echo the mid-1990s as more supply returns amid slow but steady demand

By Alex Thomas

A Look Back at 2024
Healthy job creation, driven in part by elevated immigration and an uptick in capital spending, kept overall economic growth in positive territory in 2024. Yet consumers and businesses alike contended with mortgage rates solidly above 7%, a threshold rarely crossed over the past two decades.

Those rates shaped the year’s housing narrative. On the resale side, many would-be buyers retreated in the face of poor affordability. At the same time, 75% of homeowners locked into sub-5% mortgages had little incentive to sell. As a result, existing-home listings stayed well below normal. This was good for prices, which held firm or rose in most regions across the country. However, sales volumes plummeted to levels not since the Global Financial Crisis.

New construction fared better, largely thanks to home builders’ use of rate buydowns and a strategic emphasis on smaller, more efficient floorplans. With many buyers unable to find attractive resale options, builders offered an alternative that—while not cheap—at least included incentives to help offset the lack of affordability at market rates. This relative advantage helped maintain a steady clip of new-home sales in 2024, especially among well-capitalized public builders focused on high-demand markets.

A “Soft Landing” Echo from the Mid-’90s
The Federal Reserve’s approach throughout 2024 bore some resemblance to the mid-1990s: the economy showed no glaring signs of recession, inflation cooled only gradually and the Fed proved unwilling to cut rates aggressively. In the ‘90s, a similarly robust labor market kept borrowing costs elevated for years, underscoring that “higher for longer” is feasible without crushing economic growth.

The parallel suggests that unless we see a major downturn or a radical drop in inflation, mortgage rates could remain near the 7% mark for much of 2025. In the 1990s “soft landing,” that prolonged stasis in rates stemmed from a healthy job market and fiscal discipline. While current fiscal deficits are a concern, the same basic principle holds: if the economy keeps humming along, there’s little immediate reason for rates to collapse.

Shifting Market Dynamics in 2025
Several trends are poised to shape the coming year:

Lingering Affordability Pressures
A three-year run of near-7% mortgages has kept affordability poor. Housing-cost-to-income ratios well above historical norms continue to weigh on first-time buyers in particular. Rate buydowns remain a potent draw for new-home shoppers, but that monthly payment disparity versus existing homes may narrow if resale sellers begin to drop prices more significantly in higher-supply markets. New home construction is also elevated particularly in Sunbelt markets, which may force builders to cut prices to work through inventory this spring.

The Lock-In Effect Weakens—Slightly
By late 2024, the share of homeowners with rates at 6% or higher increased, meaning homeowners are broadly less “locked in” than before. As these owners list their properties, resale inventory should inch up. 

Regional Supply Gaps
The Sunbelt—particularly Texas and Florida—has seen unsold new-home inventory climb faster than in other regions. While national supply is nowhere near the glutted levels of the 2000s, distinct regional gluts could spark heavier discounting in certain metros. Meanwhile, the Midwest and Northeast continue to see fewer listings, keeping prices more stable.

Policy and Economic Crosswinds
Though the labor market remains solid, shifts in immigration policy, possible government cost-cutting and ongoing discussions about deregulation could each tilt housing demand in unforeseen ways. If the economy cools even modestly, that might temper new construction and bring mortgage rates down—but not necessarily enough to restore broad affordability.

Navigating 2025
Home builders—especially larger public builders—have adapted to this rate climate by stocking move-in-ready homes and using creative financing incentives. Those best positioned financially can deploy rate buydowns and smaller footprints to stand out in a competitive market. On the resale side, real estate agents will watch carefully for any surge of newly listed homes.

For buyers, the biggest question remains monthly payments. By most measures, 2025 won’t deliver a sudden relief in mortgage rates or a collapse in home prices, but it may offer more overall choices than the past two years. And while the mid-1990s stands as proof that elevated rates can coexist with solid growth, it also serves as a reminder that policy, demographics and local market conditions ultimately shape where housing goes next.

Alex Shaban, Research Analyst at John Burns Real Estate Consulting, contributed to this article.

Alex Thomas is a Senior Research Analyst at John Burns Research and Consulting.