The U.S. housing market is gradually returning to pre-pandemic conditions, with more homes available for buyers and less competition compared to recent years. As of December 2024, the number of homes on the market approached one million, the highest December inventory since 2019. While the overall supply remains 25% below the 2018–2019 average for this time of year, it is significantly better than the extreme shortages seen during the pandemic, when inventory fell to a 51% shortfall in early 2022.

As more sellers enter the market, price growth is also slowing, creating a more balanced environment for buyers and sellers alike. Zillow's Market Heat Index indicates that, for the first time since 2019, the housing market is in neutral territory. With home values stabilizing in many metro areas, buyers may find better negotiating power heading into 2025.

Home Prices and Market Conditions

The typical U.S. home value in December 2024 was $358,461, with a monthly mortgage payment of $1,844 assuming a 20% down payment. Home values declined in 45 out of the 50 largest metro areas, showing signs of a cooling market.

• The largest price drops were seen in Tampa (-0.9%), Austin (-0.8%), New Orleans (-0.7%), Buffalo (-0.7%), and Atlanta (-0.7%).

• Only Louisville saw an increase in home values, rising 0.2%.

• Home values remained steady in Salt Lake City, San Jose, Washington, D.C., and Oklahoma City.

• Year-over-year, home values increased in 42 out of 50 major metro areas, with the highest gains in San Jose (7.9%), Providence (6.7%), Hartford (6.5%), Cleveland (6.4%), and New York (6.4%).

• The largest annual declines occurred in Austin (-3.2%), Tampa (-2.5%), San Antonio (-1.8%), New Orleans (-1.4%), and Jacksonville (-0.9%).

While mortgage rates remain elevated—contributing to affordability challenges—the increase in housing supply has helped slow price appreciation. The typical monthly mortgage payment has risen by 1.6% since last year and is up 109.7% since pre-pandemic levels, reflecting the impact of higher interest rates.

Housing Inventory and New Listings

More homes are available for buyers, providing them with more choices than in previous years. Active inventory in December increased by 16.8% compared to last year, while the number of new listings declined by 30.9% month over month, a seasonal trend typical during the winter months.

Key inventory insights include:

• Total inventory remains 25.1% below pre-pandemic levels.

• Homes are staying on the market longer, with a median age of inventory at 82 days.

• The number of price cuts increased slightly, with 17.2% of listings seeing reductions, up 1.7 percentage points from last year.

• Fewer homes are selling above list price, with 26.9% of homes selling for more than asking, down 2.4 percentage points from last year.

Buyers vs. Sellers: A More Balanced Market

For the first time in five years, the housing market is evenly balanced between buyers and sellers, according to Zillow's Market Heat Index. This means neither buyers nor sellers have a strong upper hand, creating more room for negotiation.

• The strongest sellers' markets include San Jose, San Francisco, Hartford, Buffalo, and Boston, where demand remains high.

• The strongest buyers' markets are Miami, New Orleans, Jacksonville, Indianapolis, and Pittsburgh, where homes are sitting longer on the market and price cuts are more common.

Rental Market Trends

Rents have also shown signs of stabilization, falling 0.2% month over month in December, which aligns with the pre-pandemic seasonal trend. However, rents remain 3.4% higher than a year ago.

• Rent prices decreased in 32 of the 50 largest metro areas, with the largest monthly drops in Denver (-1.3%), Salt Lake City (-0.6%), San Jose (-0.6%), Portland (-0.6%), and Austin (-0.5%).

• Annual rent increases were highest in Hartford (7.9%), Cleveland (7%), Richmond (6.5%), Providence (6.2%), and Chicago (5.8%).

What This Means for Buyers and Sellers in 2025

With inventory continuing to recover and price growth slowing, buyers entering the market in 2025 may find more negotiating power than in previous years. However, mortgage rates remain a key affordability challenge, keeping monthly payments high. The return of sellers who had been hesitant due to higher interest rates could further increase inventory, offering buyers even more options.

For sellers, realistic pricing and strategic marketing will be crucial, particularly in metro areas where price declines have been more pronounced. While demand remains steady in certain regions, the days of bidding wars and rapid price escalation have largely passed.

As the market continues to stabilize, both buyers and sellers should remain informed and flexible in their approach, ensuring they make the most of the evolving housing landscape in 2025.

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For many Americans, buying a home is the largest financial decision they will ever make. At the core of this decision lies a critical factor: the mortgage interest rate. This seemingly small percentage can significantly impact monthly mortgage payments, making the difference between a manageable budget and financial strain.

Mortgage rates have fluctuated dramatically in recent years, making it difficult for buyers to determine the best time to enter the market. During the pandemic, rates dipped as low as 3%, but by 2023, they surged past 8% before moderating slightly. As of early 2025, the average 30-year mortgage rate sits at 7.01%. Even a small reduction in this rate can translate to thousands of dollars in savings over the life of a loan.

To navigate the homebuying process effectively, it is essential to understand the factors that influence mortgage rates. These factors fall into two broad categories: economic forces that shape overall lending conditions and personal financial factors that affect individual loan offers.

Economic Factors That Drive Mortgage Rates

Several key economic indicators influence mortgage interest rates. Lenders adjust rates based on these factors to manage risk and maintain profitability.

Economic Growth and Inflation

The overall health of the economy plays a significant role in determining mortgage rates. In times of strong economic growth, businesses expand, consumer spending rises, and demand for credit increases. As a result, lenders often raise interest rates to keep pace with demand.

Inflation is a particularly strong driver of mortgage rates. Lenders must ensure that the interest rates they charge exceed inflation to maintain the real value of their returns. When inflation rises, mortgage rates typically follow suit, as lenders adjust rates to compensate for the decreasing purchasing power of future loan payments.

Federal Reserve Policy

The Federal Reserve does not set mortgage rates directly, but its monetary policy decisions strongly influence them. The Fed controls the federal funds rate, which determines the cost of borrowing for banks. When the Fed raises this rate, borrowing becomes more expensive, which typically leads to higher mortgage rates.

During the 2020 pandemic, the Fed took aggressive measures to keep mortgage rates low, including purchasing mortgage-backed securities. However, as inflation surged in 2022 and 2023, the Fed raised interest rates 11 times to slow economic growth, contributing to higher mortgage rates.

Bond Market Trends

Mortgage rates are closely tied to the yield on 10-year U.S. Treasury bonds. These government-backed securities serve as a benchmark for mortgage rates because they compete with mortgage-backed securities for investor capital. When Treasury bond yields rise, mortgage rates generally increase as well.

Global economic events and geopolitical instability also play a role. During uncertain times, investors often seek the security of Treasury bonds, driving yields down and leading to lower mortgage rates. Conversely, when confidence in the economy is high, Treasury yields rise, pushing mortgage rates upward.

Housing Market Supply and Demand

The housing market itself influences mortgage rates. When demand for homes is strong, lenders may raise rates to manage loan volume and risk exposure. In contrast, during a housing market slowdown, lenders often lower rates to attract more borrowers. Default rates and foreclosure trends also factor into lenders' pricing strategies. If default risks rise, mortgage rates may increase as lenders seek to protect themselves against potential losses.

Personal Factors That Affect Mortgage Rates

While broader economic conditions set the stage for mortgage rates, an individual borrower's financial profile determines the exact rate they receive.

Credit Score

Lenders use credit scores to assess risk. Borrowers with higher credit scores typically qualify for lower interest rates, as they are viewed as less likely to default on their loans. Maintaining a strong credit score by making timely payments and managing debt responsibly can lead to significant savings on mortgage costs.

Loan Amount and Term

The size and duration of a mortgage impact the interest rate. Larger loan amounts may come with slightly higher rates due to increased lender risk. Likewise, loans with longer repayment terms, such as 30-year mortgages, often have higher rates than shorter-term options like 15-year loans.

Down Payment

A larger down payment reduces the lender's risk and can result in a lower mortgage rate. Borrowers who put down at least 20% typically receive better rates and avoid the added cost of private mortgage insurance (PMI).

Debt-to-Income Ratio (DTI)

Lenders evaluate a borrower's DTI ratio, which compares monthly debt payments to gross income. A lower DTI signals financial stability and can lead to better loan terms. Keeping debt levels manageable before applying for a mortgage can improve loan eligibility.

Loan Type

Different mortgage products come with varying interest rates. Fixed-rate mortgages offer stable payments over the loan term, while adjustable-rate mortgages (ARMs) start with lower rates that can increase over time. Government-backed loans, such as FHA, VA, and USDA loans, often have competitive rates but may include additional requirements.

Making Informed Decisions in a Changing Mortgage Landscape

Understanding what drives mortgage rates can help homebuyers make more informed decisions about when to enter the market and how to secure the best loan terms. While economic conditions set the baseline for rates, personal financial factors play a crucial role in determining the final cost of borrowing.

By monitoring market trends, improving financial health, and comparing loan offers, buyers can position themselves to secure the most favorable mortgage rates possible. In a fluctuating rate environment, staying informed and working with knowledgeable professionals can make all the difference in achieving long-term financial stability through homeownership.

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When applying for a home loan, obtaining a preapproval letter carries far more weight than a prequalification letter. While both documents serve as indicators of a borrower's financial standing, a preapproval provides a much clearer and verified picture of a buyer's ability to secure financing. Knowing the differences between the two can make all the difference when entering the housing market.

The Difference Between Prequalification and Preapproval

A prequalification is often regarded as an initial step in the mortgage process, offering a general idea of how much a borrower may qualify for based on self-reported financial information. However, because the lender does not verify income, credit history, or debt, this type of letter holds little weight when negotiating with sellers.

A preapproval, on the other hand, involves a thorough financial review, including a credit check, employment verification, and assessment of assets and liabilities. Once completed, the lender provides a written commitment stating that the borrower qualifies for a mortgage up to a certain amount, pending a satisfactory home appraisal. Sellers are more likely to take an offer seriously when backed by a preapproval letter, as it minimizes the risk of financing issues.

The Advantages of Preapproval

A preapproval letter serves as a valuable tool in the home-buying process. It helps define a realistic price range, ensuring that buyers focus on properties within their financial reach. This can prevent the frustration of falling in love with a home only to realize later that it is out of budget.

In competitive markets where multiple buyers may be interested in the same home, a preapproval can make an offer stand out. Sellers prefer offers with fewer uncertainties, and knowing that a buyer already has financing secured gives them confidence in moving forward with the sale.

Preapproval Is Not a Guarantee

While a preapproval strengthens a buyer's position, it is not an absolute guarantee of loan approval. Several factors can still derail the process before closing. A low appraisal could require the buyer to pay the difference in cash or negotiate a lower price with the seller. Additionally, significant changes in a buyer's financial situation—such as taking on new debt, losing employment, or making large purchases—could impact the final approval. Issues with the home's title could also delay or prevent the loan from closing.

Steps to Get Preapproved for a Home Loan

To obtain a preapproval, a buyer must provide a lender with detailed financial information. The requirements vary by lender, but typically include:

• Social security numbers for all applicants
• A credit check to assess borrowing history and outstanding debt
• W-2s and tax returns from the past two years
• Recent pay stubs or proof of income
• Documentation of real estate holdings, including mortgage balances and leases
• Bank statements and investment account records
• Proof of insurance for investment properties
• Explanation of any past liens, judgments, or credit issues

Lenders will review these documents to determine a borrower's debt-to-income ratio, creditworthiness, and ability to make monthly mortgage payments. Once preapproved, the lender will issue a letter stating the maximum loan amount the borrower qualifies for. Preapprovals are typically valid for 90 days, after which financial information may need to be updated.

Moving Forward with Confidence

With a preapproval letter in hand, buyers can confidently enter the real estate market, knowing they have financing ready when they find the right home. By taking this step early, buyers can streamline the purchasing process, avoid unnecessary setbacks, and increase their chances of securing the home they want.

Navigating the home loan process can feel overwhelming, but with proper preparation and a solid preapproval, buyers can position themselves for success in a competitive market.

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Must-Have Features in Today’s New Construction Homes

Homebuyers today are looking for more than just square footage—they want functionality, efficiency, and personalization. As the size of newly constructed homes reaches a 13-year low at 2,479 square feet, according to the National Association of Home Builders (NAHB), buyers are prioritizing quality over quantity. Features like outdoor living spaces, smart storage solutions, and energy-efficient designs are shaping the modern home.

Whether you are building a new home or considering upgrades, incorporating these must-have features will not only improve daily living but also increase the home's resale value.

1. Outdoor Living Spaces

A patio, deck, or outdoor living space is one of the most sought-after features in new homes. Homeowners are willing to compromise on interior space if it means having a comfortable area to entertain or relax outside. Whether it's a front porch, a backyard retreat, or a covered patio, an outdoor space adds both value and functionality.

Homeowners are investing in screened-in patios, fire pits, and built-in grilling stations, turning their backyards into multi-purpose entertainment spaces. The cost of a patio varies depending on materials and size, ranging from $500 to $20,000 for high-end designs with custom features.

2. Garage Storage Solutions

A well-organized garage with built-in storage is a game-changer for homeowners. Extra storage space helps reduce clutter inside the home and provides a designated area for tools, seasonal decorations, and outdoor gear.

Beyond organization, garage storage enhances safety by keeping hazardous materials like paint and fertilizers away from children and pets. In flood-prone or humid areas, overhead storage helps protect valuable items from moisture and pests.

3. Hardwood Flooring Over Carpet

More homebuyers are opting for hardwood flooring instead of carpet, and for good reason. Hardwood floors:

• Boost home value – The National Association of Realtors (NAR) estimates a 118% return on investment (ROI) for homes with hardwood floors.

• Are easier to maintain – Unlike carpets, hardwood flooring resists stains, allergens, and pet damage.

• Last longer – Hardwood can be sanded and refinished multiple times, making it a durable long-term choice.

4. Walk-In Pantry for Kitchen Storage

A walk-in pantry is becoming a necessity in modern kitchens. With an increasing focus on bulk shopping and meal prep, homeowners need ample storage space for dry goods, small appliances, and cookware.

A walk-in pantry keeps countertops clutter-free and helps organize spices, snacks, and kitchen essentials. With more people cooking at home, additional kitchen storage is a major selling point.

5. Maximizing Natural Light

Large windows, skylights, and glass doors not only make a home feel more open but also have health and energy benefits. Natural light:

• Boosts mood and well-being by regulating circadian rhythms

• Reduces energy costs by decreasing the need for artificial lighting

• Enhances home appeal by creating a bright and welcoming atmosphere

Many homebuyers are drawn to homes with expansive windows and open floor plans that maximize natural light.

6. Kitchen Island for More Functionality

A kitchen island is one of the most functional features a modern home can have. It serves multiple purposes, including:

• Extra prep space for cooking

• Seating for casual meals or entertaining

• Additional storage with built-in cabinets and drawers

Many homeowners also install sinks, dishwashers, and charging stations in their kitchen islands for added convenience.

7. Mudrooms for Organization

A mudroom is a must-have for homeowners looking to keep their homes clean and organized. Located near the garage or back entrance, mudrooms provide a drop zone for shoes, coats, and backpacks.

Popular mudroom features include:

• Built-in cubbies and lockers for each family member

• Benches with storage underneath

• Hooks for jackets and bags

For pet owners, a dog washing station in the mudroom is a practical addition. These features help contain messes and make everyday routines more efficient.

Why These Features Matter

New construction homes are becoming smaller, but smarter design choices are making them more efficient and livable. Features like custom storage solutions, outdoor spaces, and energy-efficient upgrades are shaping the future of homebuilding.

Top considerations for new home buyers:

1. Functionality – Storage, organization, and flexible spaces are key.

2. Energy efficiency – Features like LED lighting, energy-efficient windows, and smart thermostats reduce utility bills.

3. Personalization – Buyers value homes that feel unique and adaptable to their lifestyle.

If you're building a new home, focus on features that will improve your quality of life and increase resale value. From walk-in pantries to hardwood flooring, these must-haves create a more comfortable and efficient living space.

Working with an experienced home builder and real estate expert ensures that you get the best value for your investment. Whether you're planning a custom build or looking for move-in-ready new construction, prioritizing these key features will make your home more desirable now and in the future.

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