Real Estate Rundown March 2025

Photo Courtesy of Daniel Neuhaus

Mortgage Rates Have Dropped, Demand Falls Short

Mortgage interest rates fell to their lowest level in two months last week, with the average 30-year fixed rate dropping to 6.88%, yet mortgage demand declined, according to the Mortgage Bankers Association. Total mortgage applications fell by 1.2%, with refinance applications decreasing by 4%, though they remained significantly higher than a year ago. Purchase applications stayed flat, despite an increase in housing supply as homes linger on the market longer. While lower Treasury yields contributed to the rate drop, home prices remain high due to historically low inventory. Mortgage rates continued to decline early this week, driven by expectations of slower global economic growth.

Home Prices are On the Rise

Home prices continued to rise in December, marking the second consecutive month of growth, with nationwide prices increasing 3.9% year-over-year, according to the S&P CoreLogic Case-Shiller Index. The Northeast led regional growth, with Boston reaching an all-time high, while New York saw the largest annual gain at 7.2%. Despite sluggish home sales and high mortgage rates averaging 6.72% in December, home prices remained resilient, especially in major Northeastern cities rebounding from the pandemic. Meanwhile, former pandemic boomtowns like Tampa and Phoenix saw declines, with San Francisco experiencing the steepest drop since 2020. Though home prices have slowed from their 2021 peak, they continue to outpace inflation.

Pending Home Cancellations

Home-purchase cancellations rose in January, with 14.3% of contracts falling through, the highest rate for this time of year since 2017, according to a Redfin analysis. Cities in the South, including Atlanta, Orlando, Las Vegas, and Houston, saw the most canceled deals, while Los Angeles experienced a spike due to January’s wildfires. Rising inventory, economic uncertainty, and high mortgage rates contributed to buyer hesitation, with some opting out during inspections in favor of better options. Florida saw particularly high cancellation rates, driven by an influx of supply, rising insurance costs, and natural disaster risks. While cancellations are above normal levels, they remain lower than peaks seen during the early pandemic and late 2022.

Economic Growth Could Keep Rates Down

Declining consumer confidence and economic uncertainty have pushed mortgage rates lower, reversing some of the optimism seen after the November election. While overall economic data remains strong, concerns over fiscal and labor policies are creating downside risks, causing rates to trend toward December lows. However, upcoming reports on inflation and employment could shift sentiment and drive rates back up. If rates continue to decline, homebuyers may benefit from lower costs and increased negotiating power, as inventory has risen nearly 20% year-over-year and price reductions have become more common, particularly in slower markets.

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