According to Fannie Mae’s most recent Home Price Index, home prices accelerated in the fourth quarter of 2024 after slowing the previous two quarters. The year-over-year acceleration was slight but highlights the delicate balancing act the housing market faces in 2025. Mark Palim, Fannie Mae’s senior vice president and chief economist, says the market is caught between competing factors. “The housing market in 2025 faces a difficult balance act, with a notable decline in mortgage rates likely needed to help unwind the lock-in effect and thaw the supply of existing homes for sale,” Palim said. “However, we believe such a decline would likely jumpstart demand from potential first-time home buyers currently waiting to purchase, which could lead demand to outpace any improvement in supply, further exacerbating already-high home prices and purchase affordability.” Put another way, when mortgage rates fall and affordability improves, buyers will return and – if enough of them do – it will end up putting upward pressure on prices, reducing the impact of any initial improvement. (source)
