U.S. Housing Market: Truths, Trends, and Regional Disparities

Feb 15

The Housing Market's Hidden Truths

The U.S. housing market, often the misunderstood ADHD kid at the party, dances to a tune of misalignment rather than a simple shortage of structures my friends, revealing a complex interplay between market expectations and economic realities. According to the US Census Bureau’s Household Survey Data, a staggering 10% of the nation’s housing stock—around 15 million homes—sitting empty, the tale of scarcity begins to unravel like an old sweater!

Driving through neighborhoods, one can spot a plethora of unoccupied and unfinished properties, especially the MANY sprawling luxury homes built for tv aspirations. As a Texas Real Estate Agent , I pay relentless attention to today’s tricky landscape (because I care about you and want to save you the stress), particularly amidst the swirling winds of U.S. politics right now. My mission is to illuminate and simplify the path for you, whether you’re a first-time homebuyer, one of my seasoned investors, or simply a curious observer of real estate trends (I know there are some nerds like me out there that love trend watching), providing a nuanced perspective on what to consider as you ponder the prospect of homeownership in 2025. So, settle in my little housing munchkins—we’re about to delve into the complexities of today’s housing gauntlet!

The Pricing Paradox

One of the most glaring issues in the current housing market is the pricing strategy adopted by many sellers. I am going to sound harsh, but it’s good for folks to take in: There is a widespread delusion regarding the potential selling price of homes, with many owners still setting unrealistic price tags that have absolutely no alignment with what most buyers can afford today. This mis-pricing is particularly pronounced in the luxury home segment, where (completely devoid from rationality) the construction of opulent 4000sq ft “homesteads” behind developed suburban gates and high-spec residences continues despite a clear mismatch with market demand.

Overall, the housing market could be described as ‘frozen’ (you’re welcome:). A better word for it might be a type of stagnation, however the economists in suits will completely gloss over this idea and change the subject. This doesn't mean that nothing is happening, but rather that key factors are suppressing both supply and demand, leading to a unique set of challenges and opportunities. This stagnation is driven by a combination of:

Homeowners' reluctance to sell
High interest rates
Affordability issues
Potential policy changes

Why Aren't People Selling? The "Lock-In" Effect

One of the most significant factors contributing to the current market conditions is that many homeowners are choosing to stay put. According to a recent Redfin survey, 34% of U.S. homeowners say they will never sell their homes, and another 27% wouldn't consider selling for at least 10 years!! Ya’ll, that is significant. This reluctance stems from several reasons:

Paid-Off Homes: Nearly two in five (39%) homeowners who don’t plan to sell anytime soon say it’s because their home is almost or completely paid off. Owning a home free and clear, only paying for property taxes and HOA fees, is a powerful incentive to stay put.
For The Love of Home: Almost as many respondents (37%) said they’re not selling because they simply like their home and have no reason to move. Sometimes, the emotional attachment and comfort of a familiar space outweigh any potential financial gains from selling.
High Replacement Costs: Nearly one-third (30%) of respondents are staying in their current home because today’s home prices are too high With 31% of Gen Z not in a hurry (or able) to get out of their parent’s houses. With home prices having risen significantly since before the pandemic, many homeowners are hesitant to jump back into the market as buyers.
Low Mortgage Rate "Golden Handcuffs": A significant 18% don’t want to give up their low mortgage rate. With more than 85% of U.S. homeowners with mortgages having an interest rate below 6%, the thought of taking on a new mortgage at current rates is a major deterrent.
Wealth Effect: The wealth effect is when people spend more because the value of their assets, like stocks or real estate, increases. This perceived increase in wealth makes them feel more financially secure, boosting consumption. On the flip side, if asset values drop, spending may decrease. The wealth effect from borrowers with significant home equity and/or equity market growth should maintain positive home price growth, though at a much more subdued pace than the Covid Housing Boom.

This reluctance to sell has resulted in a historically low housing turnover rate. According to Redfin in the first eight months of 2024, just 25 out of every 1,000 U.S. homes changed hands, the lowest turnover rate in decades. This limited supply naturally impacts the entire market dynamic.

3% Interest Rates: The Lover That Has Moved On

The sad realty is, if you’re waiting for interest rates to go under 5% ever again..you’ll be holding your breath for a long while. Sometimes it’s best to accept you’ve been broken up with and cut your losses. The current stagnation is closely married to elevated interest rates.

Suppressed Demand: High interest rates increase the cost of borrowing, making it more expensive for potential buyers to enter the market. This directly impacts affordability and reduces the pool of qualified buyers.
Discouraged Sales: As mentioned earlier, many existing homeowners are locked into low mortgage rates. The prospect of selling their home and then having to secure a new mortgage at a significantly higher rate discourages them from listing their properties.
Modest (and I mean that’s an understatement if I ever heard one) Relief Expected: J.P. Morgan Research anticipates that mortgage rates will ease only slightly to 6.7% by the end of 2025. This suggests that the "lock-in" effect and its impact on supply will likely persist.
Basis Points: Over 80% of borrowers have mortgage rates that are at least 1% higher than current market rates (100 basis points equals 1%). This makes refinancing or selling unattractive for them, leading to a reduced supply of homes on the market.

The housing market's dynamics are further complicated by demographic factors and economic interventions. Older individuals, having had more time to accumulate assets, are generally wealthier and continue to hold a significant portion of the market. However, the broader market participation necessary for a healthy housing ecosystem is lacking. This scenario is mirrored in the job market, where growth is predominantly seen in sectors like healthcare and government, which does not bode well for economic diversity, at all.

There is are so many professionals in the industry that are taking the ‘if I ignore it maybe people will stop asking, and critics often label concerns about these trends as pessimistic, yet they very much align with classic recessionary indicators. The ongoing economic handholding, such as interventions that delay the inevitable adjustments, only adds complexity to the market. This situation disproportionately affects younger people and the middle class, who find themselves increasingly sidelined in the current economic landscape.

An Alarming Rise in Delinquencies

A recent mortgage industry conference highlighted a worrying trend: the rise in 90+ day delinquencies. This is very concerning given the extensive financial relief measures that have been implemented, which should have theoretically alleviated such pressures. The lack of transparency in reporting these delinquencies suggests a deeper systemic issue that I expect could have long-term repercussions for the housing market.

The Student Loan Debacle

Adding to the economic train wreck, the impending resumption of student loan repayments is set to reveal further distress within the consumer base. Issues with loan servicing and the tracking of these loans hint at potential chaos as borrowers attempt to navigate their repayment obligations amidst poor administrative handling.

Regional Vulnerabilities Beginning To Trend

It's essential to recognize that the U.S. housing market is not a monolith. Regional disparities play a significant role in shaping local market conditions.

Vulnerable Cities: Cities like Denver, Austin, and Nashville, with high concentrations of younger renters, are particularly vulnerable to economic shifts due to the economic sensitivity of renters who have lower incomes and wealth accumulation.
Manhattan's Unique Challenges: Manhattan faces challenges due to rent control laws that have led landlords to withhold apartments from the market, contributing to high vacancy rates and reliance on rental income.
The Northeast's Struggles: The Northeastern United States, especially New York, faces demographic shifts and economic fragility due to high costs of living and reliance on family financial support.
Midwest Affordability: Cities like Cleveland and Cincinnati in the Midwest generally offer more affordable housing markets compared to coastal cities.

The "Hidden Vacancy" Problem

While there's much talk about a housing shortage, it's important to acknowledge that there is a "hidden vacancy" problem. This hidden truth reveals that approximately 10% of the U.S. housing stock, equating to about 15 million homes, is sitting vacant.

This suggests a mismatch between the types of housing available and the needs/affordability of potential buyers. Vacancy rates indicate that there are enough homes, but they may not be the right type, in the ideal location, or at an affordable price point.

The Northeast's Decline

The Northeastern United States, particularly New York, has experienced significant demographic shifts that have negatively impacted the housing market. Many residents, especially younger ones, rely on financial support from family to afford the high cost of living. This dependency creates a fragile economic environment that is highly susceptible to downturns. For instance, during economic hardships, such as job losses, many residents may choose to leave expensive cities like Manhattan, leading to increased vacancies and a destabilized market.

Legislative Impacts and Market Speculation

In 2018, New York implemented stringent rent control laws, which inadvertently led landlords to withhold apartments from the market, hoping for a legislative reversal. This decision has contributed to the high vacancy rates observed in Manhattan. Additionally, the city's status as a sanctuary city has led to unique uses of hotel spaces, further complicating the housing and rental markets. These factors, combined with high investor activity and speculative behavior, underscore the multifaceted challenges facing the housing market in the Northeast.

The Midwest's Emerging Trends

Turning our attention to the Midwest, we observe a different set of dynamics. Cities like Cleveland and Cincinnati are noted for their more affordable housing markets compared to coastal cities. However, even in these areas, the affordability is relative and is becoming increasingly strained.

Investor Influence and Market Corrections

The Midwest has attracted significant investor interest, particularly in affordable housing sectors. However, this influx of investment has not necessarily led to a balanced market. Instead, it has often resulted in heightened market activity without a corresponding increase in genuine homeowner occupancy, leading to potential bubbles and unsustainable price inflations.

Seasonal and Demographic Shifts

The seasonal nature of the housing market also plays a crucial role, especially in areas like the Northeast, where harsh winters can deter home listings and sales. As the weather warms, there may be an uptick in market activity, but this is often tempered by the underlying economic and demographic challenges that continue to plague the region.

The Trump Administration's Potential Impact

As we move further into 2025, the policies of the Trump administration could significantly shape the housing market. While it is possible to loose our minds and try to predict the future with certainty, here are some potential impacts based on current proposals and historical trends:

Increasing Supply:
Streamlining zoning approval processes and making federal land available for new housing construction projects could increase the housing supply. However, these changes would primarily need to be addressed at a local level.
Decreasing Supply:
Restricting immigration could negatively impact the construction labor force, potentially exacerbating the affordable housing shortage. Approximately 30% of construction workers are immigrants.
- Trump has generally opposed multifamily developments in predominantly single-family neighborhoods and has expressed intentions to prevent low-income housing developments in suburban areas.
Increasing Costs:
Privatizing government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac could lead to higher mortgage rates, further dampening demand.
- Several of Trump’s proposals could lead to rising inflation y'‘all, which is very likely to result in higher mortgage rates and further reduce housing demand.

Navigating the 2025 Market: Advice for My Buyers

Y’all the current housing market landscape is really tricky, so what should potential homebuyers do? Here's my motherly advice:

Assess Your Financial Situation Realistically:

Get pre-approved for a mortgage: Understand how much you can realistically borrow and what your monthly payments will look like at current interest rates.
Factor in all costs: Don't just focus on the mortgage payment. Consider property taxes, insurance, HOA fees, and potential maintenance costs.
Be honest about your budget: Don't stretch yourself too thin. It's better to buy a home you can comfortably afford than to be house-poor.

Consider the Long Term:

Think about your future plans: How long do you plan to stay in the home? If you're only planning to stay for a few years, the transaction costs of buying and selling might outweigh the benefits.
Factor in potential interest rate changes: While rates are expected to remain elevated, there's always the possibility of fluctuations. Can you afford the payments if rates rise further?

Be Patient and Persistent:

Don't rush into a decision: Take your time to find the right property that meets your needs and budget.
Work with a knowledgeable agent: A good real estate agent can help you navigate the complexities of the market, find hidden opportunities, and negotiate the best possible deal.
Consider different locations: Be open to exploring different neighborhoods or even cities. You might find more affordable options in less popular areas.

Look Beyond the Headlines!!!!!!:

Do your own research: Don't rely solely on media reports. Dive into local market data, talk to local experts, and form your own informed opinion.
Understand the regional nuances: The national housing market is a collection of local markets. What's happening in Texas might be very different from what's happening in California.

Acknowledge Trump's Policy Changes:

Anticipate policy changes: The new administration could bring policy changes that have complex and conflicting effects on the housing market.
Factor in potential mortgage rates: Privatizing GSEs like Fannie Mae and Freddie Mac could lead to higher mortgage rates, which would further dampen demand.

The U.S. housing market in 2025 will continue to be a complex and uncertain landscape my friends. All of the factors combined, including homeowners' reluctance to sell, high interest rates, affordability issues, and potential policy shifts, will keep a lot of people hand tied for a little while. As a Texas real estate agent, I encourage you to stay informed, do your research, and seek expert advice. By understanding the current trends and challenges, you can make informed decisions and navigate the market with confidence.

Stay stong out there, be kind, and stay engaged!