Inflation, Affordability, and Housing Market Insights for 2025
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Episode 11: A Look Ahead to 2025 I'm discussing the housing market's position as we head into 2025. Take a listen to learn about the inflation’s grip on the economy, elevated mortgage rates, and the opportunities emerging from modest inventory growth. I'll also highlight how Groundfloor’s award-winning platform and Flywheel Portfolio are designed to thrive in uncertain markets, offering stability and innovation for both investors and borrowers. Let’s dive in!
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As we look ahead to 2025, the housing market is facing a delicate balancing act between persistent inflation, high mortgage rates, and affordability challenges. Recent data suggests that while the road ahead may be “bumpy,” as Zillow puts it, there are reasons to be optimistic for both buyers and investors who are prepared to adapt to this dynamic environment.
Inflation remains one of the most influential factors shaping the economic landscape. The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, accelerated in October 2024. The core PCE index, which excludes volatile food and energy prices, rose by 0.3% for the month and 2.8% year-over-year, the fastest pace since March 2024, according to the Bureau of Economic Analysis.
Even more concerning, the core services PCE price index, which includes categories like housing, healthcare, and financial services, climbed 4.4% annualized, marking its sharpest increase in seven months (BEA.gov). This stubborn inflation in services, which dominates consumer spending, is a significant factor that could keep mortgage rates elevated into the coming year.
Mortgage rates are currently hovering between 6.75% and 7.5%, making affordability a central challenge for the housing market. Despite these elevated rates, home prices remain remarkably resilient. The median sale price for newly pending contracts this fall was $380,000, reflecting a 5% increase compared to the same period last year, according to Altos Research data. While nearly 39% of homes on the market have seen price reductions, the actual sales prices continue to hold steady, suggesting that sellers are willing to adjust their expectations to attract buyers, but not at the expense of overall market value.
Inventory has grown, providing some relief to a supply-constrained market. As of November, there were approximately 719,000 unsold single-family homes on the market, a 27% increase from last year but still far below pre-pandemic levels, when inventory typically exceeded 900,000 homes in November, according to Altos Research. This slow rebound in inventory underscores the broader challenges the housing market faces in achieving balance.
Zillow’s forecast for 2025 offers some insight into what lies ahead. The real estate platform predicts a modest 2.6% growth in home prices and 4.3 million existing-home sales, a slight increase from this year. The Southwest, in particular, may see more buyer-friendly conditions as inventory levels are expected to grow. However, the broader outlook remains uncertain, especially given the economic policies proposed by President-elect Donald Trump. His plans to impose a 25% tariff on goods from Mexico and Canada could reignite inflation and make homebuilding more expensive, potentially exacerbating affordability challenges for buyers and developers alike.
The diversification in a pool of first lien loans provided by the Groundfloor Flywheel Portfolio is uniquely positioned to mitigate these uncertain macro influences. Unlike traditional investment approaches that might overly rely on specific segments of the market, Groundfloor’s portfolio takes a broad index-like approach, distributing exposure across a range of property types and geographies.
This strategy guards against short-term volatility, such as sudden mortgage rate spikes that affect resales or localized labor shortages that hinder progress in specific regions. By diversifying risk across a variety of projects, investors can maintain steadier returns even when broader economic conditions remain unpredictable.
For Groundfloor investors, the current market dynamics present both challenges and opportunities. The resilience of home prices and the gradual increase in inventory could create openings for fix-and-flip projects in regions where motivated sellers need to adjust quickly.
Additionally, the demand for rental properties is likely to grow as more potential buyers are priced out of the market. Groundfloor’s creative financing solutions, like our newly released DSCR Loan option, offer an essential tool for borrowers navigating these headwinds. Because exit liquidity exists in the market for completed fix and flip and new construction projects investors benefit from repayments from deep capital pools interested in the long term duration of DSCR loans.
As inflation and affordability continue to dominate the conversation, the Federal Reserve’s actions will play a pivotal role in shaping the market. With core inflation remaining elevated, the Fed has signaled caution on the pace of future rate cuts, which could keep mortgage rates from dropping significantly in the near term (Barrons.com). Investors should closely monitor the evolving economic landscape, particularly as tariffs, labor shortages, and material costs influence new home construction.
The housing market’s resilience over the past few years, despite high rates and affordability challenges, demonstrates its ability to adapt. As we move into 2025, it’s clear that while the road may be unpredictable, the opportunities for investors remain substantial. By leveraging the diversity of the Groundfloor Flywheel Portfolio and staying informed about macroeconomic trends, investors can navigate this complex market with confidence, turning challenges into opportunities.
What are your thoughts on these trends? We’d love to hear from you as we continue to explore how market forces will shape 2025 and beyond.