Nobody has a crystal ball, which is perhaps the most challenging part of Real Estate. We never know where the market is going to go, so we have to do our absolute best to interpret the market of today to help our clients make the best decisions in the moment. Let’s take a look at what the National and Local Expectations are for 2025!
In 2 weeks time we will have a changing of the guard in Washington, DC. How that will impact markets is anyone’s guess, and I think many of us are keen to see just how the FED and consumers alike are going to respond. Nationally, experts seem relatively optimistic about the housing market. The economic shock of raising the base rate from 0.25% to 4.75% between February 2022 and February 2023 (5.5% in February 2024) absolutely impacted the Real Estate Market.
We personally saw a lot of excited Buyers get pushed out of the Market when their mortgages went from affordable to astronomical. For perspective, the Principal & Interest Payment (excludes taxes, insurance) on a 3.5% down FHA loan of $350,000 went from approximately $1,566.09 a month in Feb. 2022 (3.76% rate) to $2,359.28 by Feb. 2024. That’s an increase of over $800 or 50%.
(Source: https://tradingeconomics.com/united-states/interest-rate)
While that’s alarming, that’s also assuming prices and taxes stayed static. Unfortunately that simply hasn’t been the case. It’s been a challenge finding homes in the York, Strafford, and Rockingham markets under $400k that are in good enough condition to finance, especially for first time homebuyers. See below for the York County market trends from February 2022 to December 2024.
The Median Single Family Home price rose from $422,500 to $499,000 (up 18%). We’ve seen slightly more closed sales, but that’s because inventory is also slightly up, keeping pace. What comes online is still selling quickly, as evidenced by their Median Days on market (still sub 3 weeks). So while more options are coming to market, nothing is sitting or going stale, which is what presents an opportunity for Buyers to negotiate.
Property Taxes have been on the rise, as Towns reassess values, and you’ve likely noticed your Homeowners Insurance is also going up. Each and every one of these factors has been pushing affordability to an all-time low.
Visual Capitalist put out a great blog in February 2024 detailing the ratio of Home Prices relative to income, which further shows just how rapidly that income-housing gap has spread.
Why does this matter? “When housing costs exceed a significant portion of household income, families are forced to cut back on other essential expenditures, dampening consumer spending…
Unaffordable housing also stifles mobility, as individuals may be reluctant to relocate for better job opportunities due to housing constraints. On the flip side, many cities are seeing severe labor shortages as many lower-wage workers simply cannot afford to live in the city. Both phenomena affect market efficiency and productivity growth.” (Visual Capitalist)
“Prices are high, because of all the Out-of-State Buyers!” If I had a dollar for every time I hear that said or posted on Social Media, I wouldn’t need to sell houses anymore! The Metrics are in for the 2023 Year, and we can see Mainers indeed buy the most homes in our state, closely followed by our pesky neighbors in New Hampshire and Massachusetts, plus (likely returning snow-birds from) Florida. There will always be people moving to our state from elsewhere, but the whole problem isn’t migration, it’s lack of supply.
“Based on information from Maine Real Estate Information System, Inc (d/b/a Maine Listings). Information was pulled on January 5, 2024 for the period January 1, 2023 through December 31, 2023.
© Maine Real Estate Information System Inc.
If we’re going to find any relief in the housing market, it needs to come in the form of more inventory. So long as we have scarcity, demand and therefore prices will remain high. This week I’ve seen several stories published by Fosters and Seacoast Online announcing proposed housing projects and those underway. If you’re like me, and encounter the majority of these articles through social media, you likely also see the public comments, which are often negative. The loudest voices may not be the most popular, so I encourage you to attend your local City and Town meetings to listen and participate in dialogue about affordable housing, zoning and so on. Both Maine and NH have passed legislation regarding Accessory Dwelling Units in an attempt to allow more housing density on current single family lots. I took a brief class last year on a new tool brought to NH by St. Anselm College (and partners) called the NH Zoning Atlas. If you’d like to sink your teeth into this problem, dig into the tool, it’s quite fascinating to get a deep look at things like how restrictive our zoning currently is, and where.
While it would be nice to see our government take the lead on problem solving, let’s be real. The people have the power, and if we want to add some relief to our communities, we’re going to have to be the solution ourselves. One such company helping folks overcome this hurdle is Backyard ADUs, a company specializing in ADU exploration and construction. You don’t have to learn the Codes of your town, you just need to find an expert who knows how to navigate them. We may be able to help solve the scarcity problem as homeowners.
Circling back to the 2025 market, if we see rates come down a little, as expected by Lawrence Yun, chief economist at the National Association of Realtors, we will see those marginally qualified or price-sensitive Buyers come back to the market. If rates begin to hover in the 5.5-6.5% range and prices stabilize, it may begin to “make sense” for renters to move from their $2,800/month apartment into a single family or multi-family home. The math just has to make sense. Right now, a good number of people have been sidelined, waiting for more favorable market conditions. If you’re sitting on a vacant property, or considering making a move, don’t wait because the news is saying sales are low. They’re low because the inventory is low! You’ve gotta put houses on the market in order for them to sell!
We didn’t make the Top 10 Us Housing Market Hot Spots, locales where job growth, prices, and affordability will be appealing to buyers, but that doesn’t mean we’ll see demand go down. The Boston Metro area made the cut, and being that you can take the Amtrak from Wells, Maine/Dover, NH South, means a commute to Boston isn’t that big a deal for people who love to live where they play and don’t mind public transit.
In short, I think 2025 will be another solid year for sellers. There’s no indication that prices or demand will go down. However, you cannot take the 2020 cowboy approach to real estate. Pricing right and marketing right will always be the most important part. I met with a Seller this time last year. The house was pretty beat, and I recommended a fair amount of work be done to get the $375k price they wanted. I told them as-is $325k. That house came online. The marketing was garbage, the photos horrible, and the price? $375k. Guess what hasn’t sold?
Buyers aren’t dummies. Don’t assume they are.
The high-ish rates will naturally control the number of eligible buyers. Buyers who want to get into the market will need to be clever and tenacious. They’ll need to employ tools such as hefty down payments or creative financing. This year alone, I worked with 3 separate first-time buyers, all of whom used the Renovation Loan to procure a bruised home to overcome the condition restrictions of regular loans. One of them wasn’t even my Buyer-client, I represented the seller, but the Lender who said they could do the loan honestly didn’t know how. We ended up saving the day at the 11th hour by moving it over to my 203k expert lender.
Using programs like the 203k Loan, Maine State Housing, and New Hampshire Housing to access grants and lower interest rates will be critical to those getting into the market. If I’ve learned anything over the past 7 years in Real Estate, it’s that the market isn’t going to get better for Buyers. The first home I ever sold was a 3 bedroom, 2 bathroom cape in Somersworth in great shape for $234,000. And that was in a bidding war! My average single family home sales price was $240,000 in 2018, which has since more than doubled to $551,000 in 2024. Waiting only results in higher prices. The rates will always fluctuate, but like I stated before, rates can be refinanced.
*IF* and I’m putting a lot of stress on that if. If you can comfortably afford a home right now, take the leap. Go for it. Settle in, make the payments, take control of your finances and ensure rent increases or landlords selling their buildings aren’t going to be the reasons you’re thrown into the market. It’s much better to shop for a home on your terms, on your timeline, than being forced to make a decision with limited inventory on a timeline you have zero control over. That gives you the ability to get creative with your financing and options, resulting in a happier decision at the end of the day.
Sellers, the days of getting 20% over asking, no inspections, and waived appraisals is over. You missed the boat. If you’re sitting on a piece of property, you’re still going to do very well for yourself when you sell it. If you’d like to mitigate risk, maximize the return on your investment, and possibly avoid pitfalls from home inspections/appraisals, talk to me. It’s not guaranteed, but I can often get us those results with the strategies I use to price and market homes.
What’s my 2025 forecast? Successful, but not without challenge!
What do you say? Let’s get down to business!