The US real estate market has long been a key indicator of economic health, reflecting the country’s financial stability and the prosperity of its citizens. In recent years, however, the market has faced unique challenges that have reshaped its landscape, leaving buyers and sellers in a state of uncertainty.
Historically Low Turnover and Declining Sales
One of the most striking aspects of the current US housing market is its historically low turnover rate. As of 2024, only 25 out of every 1,000 homes changed ownership in the first half of the year—the lowest rate in 30 years.
Additionally, home sales have plummeted by roughly 37% since 2021. These numbers paint a picture of a sluggish market where fewer people are buying and selling compared to previous decades.
The reasons for this decline are multifaceted. Key factors include:
- High mortgage rates
- Record-high home prices
- Low housing inventory
These three elements are interconnected, creating a self-reinforcing cycle: fewer people can afford to buy, builders construct fewer homes, and the market continues to slow.
The Federal Reserve’s Role in Shaping the Market
The Federal Reserve (Fed) plays a critical role in the US housing market by influencing mortgage rates through its interest rate policies. When the Fed raises rates, borrowing becomes more expensive, leading to higher mortgage rates and reduced affordability for buyers. This discourages potential buyers and stifles market activity. In 2022 and 2023, mortgage rates peaked at 7.79%, pricing many out of homeownership.
Conversely, rate cuts—like the Fed’s September 2024 decision—lower borrowing costs. After this cut, rates dropped to 6.09%, offering some relief to buyers. The Fed’s goal is to address the “lock-in effect,” where homeowners with ultra-low mortgage rates (secured in 2020–2021) refuse to sell, further limiting supply. While lower rates could free up inventory and boost sales, the impact may take time, as mortgage rates depend on factors beyond the Fed’s control.
Even with rate cuts, the market still faces a supply shortage. Without more new construction, prices may remain high. The full effects of the Fed’s actions will take time to materialize, but experts predict potential improvement by 2025 if mortgage rates stabilize around 6%.
Supply and Demand Imbalances
The current housing dilemma stems from a mismatch between supply and demand—a fundamental economic principle where there are more buyers than available homes. The supply shortage existed before the pandemic but worsened due to COVID-19 economic conditions. Historically low mortgage rates during this period spiked demand, further shrinking inventory.
Many homeowners who locked in ultra-low mortgage rates in 2020–2021 are reluctant to sell, as doing so would force them into higher rates. This “lock-in effect” tightens supply, fuels buyer competition, and drives up prices, making homeownership unattainable for many.
If mortgage rates continue to fall, renewed buyer interest could reignite bidding wars like those seen in 2021. While this benefits sellers, it risks sidelining buyers. To compete, buyers should:
- Save aggressively
- Check credit scores
- Secure financing early
- Research prices in target areas
- Partner with experienced real estate agents
How Does the US Market Compare Globally?
The US housing market remains relatively stable compared to sharper price surges in Canada or Australia. Unlike Europe, where renting is more common and regulated, the US emphasizes homeownership as a pillar of financial stability—a cultural difference that shapes policy and market dynamics.
Japan offers a stark contrast: its aging population has led to long-term housing price deflation, highlighting the role of demographics. Meanwhile, the UK shares US struggles with supply shortages and affordability but employs a more centralized approach to housing policy.
Long-Term Market Forecasts
Experts predict gradual stabilization over the next 3–5 years, with annual price growth slowing to 2–3% between 2025 and 2030—a stark contrast to recent double-digit spikes. Key trends include:
- A rise in multifamily and mixed-use developments to address affordability
- Remote work sustaining demand in suburban and rural areas
- Climate change impacting property values, especially in coastal regions
The housing shortage remains a long-term challenge, with estimates suggesting a decade or more to resolve.
Cautious Optimism for Recovery
Despite current hurdles, optimism is growing. If the Fed continues cutting rates, inventory could rise as homeowners regain confidence to sell. Experts believe mortgage rates at or below 6% could lure buyers and sellers back to the market.
For buyers, this period may offer a unique window to act before demand surges in 2025. Lower borrowing costs and potential inventory growth could create opportunities to secure homes at competitive prices.
Why This Matters: Whether you’re buying, selling, or investing, understanding these trends is key to navigating the US real estate market. Stay informed, plan strategically, and partner with experts to make the most of shifting conditions.
