January kicked off the year with a flurry of activity building on our momentum of last year. Cautious optimism permeates forecasts from economists to housing experts as inflation creeps closer to Fed targets and employment stabilizes. To follow is breakdown of key market insights paired with mortgage financing solutions to successfully buy and sell real estate in today’s market.
A Wait and See Stance
At the January 2025 meeting of the FOMC Fed Chairman Powell offered a wait and see forecast on easing constraints on monetary policy. When pressed for timing and number of future federal funds rate cuts, one or two remained the ballpark estimate.
A positive inflationary commentary and a December core inflation reading in line with expectations at 2.8%, wraps the final week of January with mortgage backed securities trending up and 30-year fixed rates in the 6’s. Welcome to 2025, a year with pockets of opportunity and a whole new crop of market variables.
The Year Ahead
Shifting Out of the Lock-in Effect
Coming into the year hot, mortgage applications increased 33.3%, through the week of January 10th. The lock-in effect among homeowners with rates well under 4% has hints of easing as sales of existing homes inched higher through the second half of 2024.
Homeowners waiting for rates to drop have begun opting for the home of their choice rather the interest rate they deem ideal. Existing home sales were up 6.1% from a year ago thru November 2024, the largest year over year gain since 2021.
Home Sales Data
New home sales were up an average 15.7% year over year nationwide through November 2024. According to the National Association of Realtors, existing home sales during the same period rose at their “swiftest pace” since March posting a 6.1% year-over-year gain. The Portland metro area including Southwest Washington new home sales index boasts a 41% year over year increase in pending sales with inventory inching toward levels not seen since 2009 according to Zonda home data. Existing home inventory remains low with a 2.4 month supply.
The Flaw in Home Price Data
If the median home price of $597,115 in the Pacific Northwest seems egregious the infographic below says it all. The absence of buyers at the lower end of the market pushes the current median home price higher. Rates over 6.5% paired with the bump in appreciation continues to inhibit buyers and sellers with little or no equity and more rate sensitivity.
Seller paid buy downs and first-time home buyer incentives are key to pull these buyers back into the market for the foreseeable future. Mixing entry level home buyers back into median price data will greatly improve perceptions surrounding affordability.
Home Price Growth Decelerates to “Normal”
The Federal Housing Finance Agency reported home price growth slowed to a modest 4.4% from 2023 to 2024. CoreLogic posts a more conservative 3.8%. Either way, a welcome change when you consider home prices nationwide jumped 54.6% from January 2020 to October 2024.
Home price appreciation for 2025 is appropriately termed to be decelerating to somewhere between 1.2% and 4.5% depending on the region of the country and whose numbers you most trust. Again, no sign of significant declines or pockets of huge opportunity, just a return to sustainable growth levels.
Mortgage Rates
The Mortgage Bankers Association is comprised of a wide variety of mortgage industry participants across the country. Their insider view of the future as of January 2025 has 30-year fixed rate mortgages averaging 6.6% to 6.4% through year end. Looking into 2026, more of the same with a hint of improvement to around 6.3%. Pick your data source; the forecasts all look very similar.
Why Haven’t Rates Improved?
Ahead of the anticipated year end Federal Funds rate cuts, the markets priced in an easing of monetary policy and rates dropped under 6% for a hot minute. By early October, renewed fears of inflation, debt servicing and the Fed’s restrictive monetary policy, known as quantitative tightening, halted the downward trajectory in rates.
CNBC did a fabulous nine minute video of the relationship cuts to the Federal Funds rate have on mortgage rates and what they signal to the financial markets. Discover why Fed Rate Cuts Aren’t Making Mortgages Cheaper .
Loans Reflective of Market Conditions
Mortgage offerings shift with market demand, and Fairway’s product team has stacked our deck with diverse financing solutions to help homebuyers and agent partners navigate current market challenges.
Rate Buy Downs
I closed only one loan in 2024 that DIDN’T have a buy down sponsored by the seller or paid by the buyer. The trend will likely continue through early 2025 with 6% serving as the new desired target rate among home shoppers.
- Home Sellers – sponsoring a rate buydown at the onset is a strong bargaining chip creating an incentive that can avoid unnecessary negotiations and concessions.
- Home Buyers- be the hero sharing how your client can save in this market of strong home appreciation and rates stubbornly in the 6% range. Learn more here and reach out with questions.
Bridge Loans
The buy before you sell programs took off in early 2023 and adoption rates through educating agent partners and clients has skyrocketed.
Key Features:
- Qualify for a new home before the sale of existing property -removes the debt on existing mortgage from qualifying ratios
- Eliminates the need for a contingent offer even before the home is sold
- Fast turn pre-approval
- Requires 25% to 30% equity position
- Flexible proceed options – sale proceeds exceeding property lien may be retained by the seller or used toward a principal reduction on the new home loan.
- Re-amortization of new loan with principal reduction when departing residence sells
- Available on conventional and jumbo loans
- Options for no monthly payment on equity advance
Investor Loans
Interest in investment property financing has surged. A newer loan product known as Debt Service Coverage Ratio (DSCR) financing offers many investors a streamlined financing solution for income-generating real estate.
Key Features:
- Qualification is based solely on property income performance not personal income. An excellent product for investors who have a savvy tax strategy and shelter taxable income and/or investors whose personal income has substantial variances over the past few years. Personal income is not shown on the application
- Loan amounts up to $3M for single-family homes and 1–4 unit properties
- Down payment requirement is 20%, possibly more depending on the estimated rents from the property
- Expanded property eligibility including non-warrantable condos and short-term rentals
- Supports purchase, refinance and cash-out
Tapping Home Equity
Rapidly becoming a category unto itself, tapping home equity has surged with both the traditional HELOCs requiring payments on funds borrowed AND the Home Safe Second, the HELOC reverse mortgage for borrowers aged 55+ offering the option to delay payment until the home is sold at a later date. Here’s how clients are putting equity to work:
- Transitional Financing – HELOC products with no early payoff penalties offer cost-effective access to short-term funds for pre-sale updates or down payment needs. Many programs allow funds to be used and repaid as needed, minimizing interest charges.
- Debt Management & Home Improvements – Whether consolidating high-interest debt or funding necessary maintenance and updates, HELOCs can improve monthly cash flow while preserving long-term equity. According to top local agents, proactive maintenance offers the highest return on investment – addressing issues before they become costly repairs. Learn more about which updates that drive the highest return.
- Move Up and Clean Up – improve credit scores, remove the uncertainty of volatile interest rates impacting future payments, improve monthly cash flow by making a smaller down payment on a new property reducing or eliminating consumer debt in a move.
- Home Safe Second – borrowers must be 55+, loan amount minimum $50K maximum of $1M, one time draw not a line of credit. All repayment may be deferred until the home is sold. Must be first lien in place at time of close.
First-Time Home Buyer
First-time buyers (FTHB) cite the number one reason for delaying a purchase, lack of down payment. Here a few ideas to share with first time home buyers
- FHA’s 3.5% down FTHB program has flexible qualifying criteria and unique terms like non-occupant co-borrowers, nominal cash reserves, and gifted funds for down payment from family members.
- Down payment Assistance Programs (DPA) – available only to first-time and first-generation home buyers who are at or below 100% of the area median income (AMI). AMI is determined by the State/County of the home you are purchasing. Find yours here. A portion of your down payment could be waiting for you.
- House Hacking – Buying a home with the intent to supplement your mortgage payment with rent paying roommates. The phrase was coined several years ago and the trend continue to grow in popularity.
As we navigate 2025’s market dynamics, our commitment to educate on financing solutions to capitalize on current conditions remains strong. The data shows a market finding its footing, with opportunities emerging across all segments. If you’re in the market for a home, an agent needing new ideas or an advisor with questions on best-fit options for a client, we’d love to help!
Data Sources and Interesting Reads:
What is “Demure and Mindful” to Real Estate? Let’s Look at First-time Buyers
Highlights From the Profile of Home Buyers and Sellers
The Rise of Rental Fraud in Real Estate Listings: A Nationwide Analysis
