Redfin Predicts More Sales, Less Gen Z Activity

Redfin’s 2025 housing forecast anticipates modest growth in home sales, rising between 2% and 9% compared to 2024, with home prices expected to increase by 4% due to limited inventory and steady demand. Mortgage rates are predicted to average around 6.8%, keeping some buyers sidelined, though pent-up demand will still support sales. While new construction may increase thanks to eased regulations, affordability issues will persist, with meaningful impacts from new builds likely a few years away. Renters are expected to see more affordable options as wages rise and rental supply grows.

The report highlights a shift in Gen Z’s approach to housing, with many delaying homeownership in favor of renting or pursuing other wealth-building strategies. Meanwhile, lower-priced homes could see increased demand from older buyers moving down the price ladder due to high costs. Other trends include potential industry consolidation under a Republican-led government, the growing influence of climate risks on property values in vulnerable areas, and a renewed population return to major urban centers, particularly in California.

Consumer Housing Sentiment Rises Sharply Year-Over-Year

Consumer sentiment about the housing market is improving, as shown by the Fannie Mae Home Purchase Sentiment Index® (HPSI), which rose to 75.0 in November, up 10.7 points from last year. This growth is largely driven by optimism that mortgage rates will decline in the next 12 months, even as high rates and home prices remain concerns. While only 23% of respondents believe it’s a good time to buy, this is significantly higher than last year’s 14%. Sentiment about selling conditions remained steady but has also improved compared to a year ago.

According to Fannie Mae’s Chief Economist Mark Palim, the upward trend in sentiment reflects consumers’ gradual adjustment to current market conditions. More people expect their financial situation to improve and anticipate slower home price growth, which could ease affordability challenges. These factors might encourage buyers who have been hesitant to enter the market to take action in the coming year.

Hammack: Fed Nearing Slower Rate Cuts

Federal Reserve Bank of Cleveland President Beth Hammack stated that the Fed is “at or near” the point where it should slow the pace of interest rate cuts, citing stronger-than-expected economic growth and persistent inflation. Hammack supports the expectation of one more rate cut by January and a few more reductions next year but emphasizes that future actions will depend on economic data. She noted that rates are likely near a neutral level, where they neither boost nor slow the economy and should remain “modestly restrictive” for some time to manage inflation effectively.

Hammack highlighted the importance of bringing inflation down to the 2% target while acknowledging the economy’s current resilience, including a healthy labor market. Recent data showed hiring rebounded in November, though the unemployment rate rose to 4.2%. Hammack stressed the need for a cautious approach to rate cuts, aligning with Fed Chair Jerome Powell’s support for gradual adjustments. She also mentioned challenges in assessing the restrictiveness of current rates, given potential shifts in the neutral rate level.