Following a slow year in the U.S. housing market, experts expect that first-time homebuyers in Missouri may have greater access to financing programs and increased housing choices in 2025, though prices and mortgage rates may remain elevated.
The U.S. housing market in 2024 experienced its slowest sales since 1995, when the country’s population was about one-fifth smaller than it is now.
Home sales steadily rose from 2018 to 2021, peaking in at 6.89 million in 2021, but fell to just over 4 million in 2023 and 2024.
Sales have decreased along a path that loosely syncs up with the Federal Reserve Bank’s efforts to fight inflation by raising its benchmark interest rate.
The Fed does not set mortgage rates, but they are affected by the central bank’s interest-rate decisions. Long-term mortgage rates generally follow the yield on a 10-year Treasury note, which is largely influenced by the Fed’s benchmark rate and the market’s outlook on inflation.
Rates for a 30-year fixed rate mortgage were 6.72% on Dec. 19, and experts don’t anticipate drastic rate changes in the near future, despite the Fed dropping interest rates by a quarter percentage point on Dec. 18. Those mortgage expectations are largely attributable to uncertainty surrounding the change in presidential administrations and the likelihood of fewer interest rate cuts from the Fed in 2025 than previously expected.
John Curry, sales manager at Frontier Property Management, which leases and sells homes in central Missouri and St. Louis, said three primary factors influence the housing market.
“There's really only three main levers that can be tweaked in the market to create these big shifts, and that's purchase prices, interest rates and rents,” Curry said. “Now, rents don't necessarily affect the single-family market for first-time homebuyers, so you can kind of count that lever out.”
Curry said uncertainty about the future of interest rates makes it difficult to forecast what purchase prices will look like in 2025. Nationally, the median home sale price was more than $410,000 in November, while it was $260,000 in Missouri. Since late 2021, the national median home price has not dipped below $400,000, while Missouri’s median home prices have seen a gradual increase from $220,000.
He also said that some people may be loath to see home prices fall, especially those who purchased homes when prices were lower and have seen the equity in their home balloon.
“They've kind of banked on that equity, so to speak,” Curry said. “Not too long ago, their house was worth X, and now it's worth nearly double that. People don't want to see the purchase prices come down.”
Tina Siebert, 2024 president of the St. Louis Realtors, said it can be hard to make generalizations about statewide housing trends since markets often vary by locality. But, in the St. Louis area, Siebert said she anticipates home prices will flatten.
“I don't anticipate any big price drops at all,” Siebert said. “I think pricing is where it's going to be, but I don't see it doing the increases that we were seeing year over year for the last four years.”
Even with purchase prices likely to remain elevated, some homeowners may be reluctant to let go of mortgages on homes bought before rates skyrocketed in 2022. From May 2019 to March 2022, the average rate on a 30-year fixed mortgage remained below 4%.
While many purchased homes during that time, the homes may not have been suited to their long-term needs, Curry said. Some may have thought they would purchase another home in the coming years, but now the housing market looks drastically different than it did then.
“When things are going well, everybody thinks that's how it's going to continue,” Curry said. “Well, now those people that bought in at a 3.5% interest rate, if they were to sell their property or refinance, then they're going to have to refinance at a 7% or 6%.”
With high prices, elevated mortgage rates and reluctance to sell homes, some first-time homebuyers may feel discouraged about their prospects. In fact, the National Association of Realtors found that first-time homebuyers accounted for only 24% of purchases in 2024, the lowest since NAR began collecting this data in 1981. The median age of first-time homebuyers for the year was 38, a record high.
But Siebert feels things are looking up for first-time homebuyers, at least in the St. Louis region. Over the past few years, houses sold like hotcakes, hardly staying on the market for an entire weekend after being listed.
“We're starting to see houses sit on the market for 21 days, 30 days, which was absolutely unheard of over the last four years,” Siebert said. “So it's giving buyers a chance to get into the playing field.”
That rapid rate of sales contributed to a slim supply of available homes, though housing stock has started to replenish this year. In December 2023, total housing inventory in the U.S. dipped to 990,000. By November 2024, it had rebounded to roughly 1.3 million, according to Trading Economics.
A Realtor.com forecast projects 1.1 million new homes will be constructed in 2025, a 13.8% increase from 2024, increasing the supply of houses on the market.
Siebert expects the increase in available homes to continue, though she cautions the rate at which housing stock replenishes will be gradual, at least in the St. Louis region.
“I don't see 50 homes coming on the market Jan. 1 in a neighborhood,” she said. “It's still going to be trickle, trickle, trickle.”
Siebert said houses staying on the market longer gives first-time homebuyers a greater opportunity to utilize state and local programs offering them down payment assistance or loans.
“When you were going against eight other offers, and you had down payment assistance, that's another hoop in the game you’ve got to play to get over,” Siebert said. “And sellers were like, ‘Well, I'll just take a cleaner offer.’ And that a lot of times came from an investor or a buyer that had more cash on hand.”
Siebert recommends prospective first-time homebuyers educate themselves about the process as early as possible and leave ample time to build savings, set a budget and improve credit scores.
She cautions newcomers to the market to assess their purchasing power, then only look at houses in that range to avoid the disappointment of falling in love with a home they cannot afford.
“A lot of people have champagne taste on a beer budget,” Siebert said.
While it's hard to say for sure what 2025 will bring for the state’s housing market, Curry is hopeful that both interest rates and prices will decrease in the new year.
“These things aren't set in stone. I hope that there's powers way above me and way above the things that I see on the day-to-day that make me wrong, so that we do see both purchase prices coming down and interest rates coming down and rent stabilizing across the board, to give us an environment that we experienced five or six years ago,” Curry said.
“I think it could go either way, though. So us brokers are on the sidelines, just kind of biting our fingernails, wait and see.”
This story was originally published by Missouri Business Alert.
