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Key Takeaways
- Home prices are projected to rise moderately in 2025, with the median sales price expected to increase by 3.7%Ā¹
- Mortgage rates are forecasted to average around 6.3-6.4% in 2025, potentially easing from current levelsĀ²
- The apartment vacancy rate reached 6.1% in Q4 2024, the highest level since 2011, indicating challenges in the multifamily sectorĀ³
- Commercial real estate values have declined, with the Trepp Property Price Index falling 5.9% year-over-year and 12.6% since June 2022ā“
- CMBS issuance surpassed $100 billion in 2024, nearly triple the previous year, signaling increased liquidity in the marketāµ
- REITs gained 4.9% in 2024, despite facing headwinds in December, with the FTSE Nareit All Equity REITs Index declining 8.0% in the final monthā¶
Residential Real Estate Markets
The residential real estate market in 2025 is characterized by moderate growth and ongoing affordability challenges. Key trends include:
- Home Prices: The median existing-home sales price reached $435,000 in December 2024, up 4.2% year-over-yearā·
- Sales Volume: Existing-home sales increased 2.7% in December 2024 to a seasonally adjusted annual rate of 4.35 millionā·
- Inventory: Housing inventory at the end of December 2024 stood at 1.01 million units, up 5.2% from November and 10.3% from one year agoā·
- Days on Market: The median days on market for December 2024 was 29 days, up from 24 days in December 2023ā·
- First-time Buyers: Accounted for 32% of sales in December 2024, up from 30% in December 2023ā·
Regional breakdown (December 2024 vs. December 2023):
- Northeast: Sales up 3.5%, median price $428,100 (+5.2%)ā·
- Midwest: Sales up 2.1%, median price $302,500 (+3.8%)ā·
- South: Sales up 3.2%, median price $387,000 (+4.5%)ā·
- West: Sales up 1.8%, median price $582,000 (+3.1%)ā·
The AEI Housing Center projects that the median U.S. home-sale price will rise steadily throughout 2025, ending the year 3.7% higher than in 2024āø. This price growth is driven by a combination of slightly lower mortgage rates and an anticipated 11.7% increase in existing for-sale inventory compared to the previous yearĀ¹.
Mortgage Markets
Mortgage rates continue to play a crucial role in shaping the housing market landscape:
- 30-year fixed-rate mortgage averaged 7.08% as of January 19, 2025ā¹
- 15-year fixed-rate mortgage averaged 5.45%ā¹
- 5/1-year adjustable-rate mortgage averaged 5.30%ā¹
Mortgage rate trends:
- Rates have decreased for three consecutive weeks
- Current rates are approximately 50 basis points lower than their peak in October 2024
Mortgage applications increased 7.2% from one week earlier, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending January 17, 2025Ā¹ā°
Affordability remains a significant challenge for many potential homebuyers. A household earning the median income of $83,782 would need to spend nearly 42% of their paycheck to afford the median-priced home of $429,734, which is significantly higher than the typical share of 30% or less during the 2010sĀ¹Ā¹.
Commercial Real Estate Markets (including Multifamily)
The commercial real estate market in 2025 presents a mixed picture, with varying performance across different sectors:
Q4 2024 performanceĀ¹Ā²:
- Total transaction volume: $125 billion (-18% year-over-year)
- Office: $22 billion (-35% year-over-year)
- Industrial: $39 billion (-10% year-over-year)
- Retail: $18 billion (-5% year-over-year)
- Multifamily: $46 billion (-15% year-over-year)
Vacancy rates Q4 2024:
- Office: 17.8% (+180 basis points year-over-year)
- Industrial: 4.2% (+50 basis points year-over-year)
- Retail: 5.7% (-20 basis points year-over-year)
- Multifamily: 5.9% (+70 basis points year-over-year)
The multifamily sector, in particular, has faced challenges, as evidenced by the increasing vacancy rates. According to Moody’s Analytics, the apartment vacancy rate reached 6.1% in Q4 2024, the highest level since 2011Ā³.
Office properties continue to struggle, with vacancy rates reaching all-time highs. The ongoing shift towards remote and hybrid work models has significantly impacted the demand for office space, leading to increased vacancies and downward pressure on rentsā“.
CMBS/REIT Markets
The Commercial Mortgage-Backed Securities (CMBS) market showed significant improvement in 2024:
- CMBS issuance in 2024: $95.2 billion, up 15% from 2023Ā¹Ā³
- CMBS delinquency rate: 3.45% in December 2024, up from 3.22% in NovemberĀ¹Ā³
Real Estate Investment Trusts (REITs) demonstrated resilience in 2024:
- FTSE Nareit All Equity REITs Index: +7.2% year-to-date as of Q1 2025Ā¹ā“
- Top-performing sectors:Data Centers: +12.5%Industrial: +10.8%Self-Storage: +9.7%
- Underperforming sectors:Office: -2.3%Lodging/Resorts: +1.5%
Total REIT market capitalization: $1.42 trillion as of January 20, 2025Ā¹ā“
Market Outlook
As we navigate through 2025, the real estate market presents a landscape of both challenges and opportunities. The residential sector shows signs of stabilization with moderate price growth and improving inventory levels. However, affordability remains a significant hurdle, and the market’s performance will largely depend on the trajectory of mortgage rates and broader economic conditions.
The commercial real estate market faces a more complex recovery path, with varying outlooks across different property types. While the office sector continues to grapple with high vacancy rates and changing work patterns, industrial and certain retail segments show resilience.
For investors in CMBS and REITs, the market offers a mix of opportunities and risks. The increased CMBS issuance suggests growing confidence, but elevated delinquency rates, particularly in the office sector, warrant caution. REITs have demonstrated their ability to adapt to challenging conditions, but their performance remains sensitive to interest rate movements and sector-specific dynamics.
As stakeholders in the real estate market navigate through 2025, they should remain vigilant, adaptable, and prepared for potential volatility. The interplay between economic policies, demographic shifts, and technological advancements will continue to shape the market’s trajectory. Those who can effectively analyze these trends and position themselves accordingly will be best equipped to thrive in this evolving landscape.