January 2025 Housing Market: Sales Decline While Inventory Shows Improvement

The January 2025 Housing Market saw a decline in sales of existing homes, falling 5% from December. However, sales were still slightly higher than a year ago, indicating some resilience despite ongoing challenges in affordability and supply. The median existing-home price stood at $396,900, marking a 5% increase compared to the previous year and setting a record high for January. Inventory levels remained at historically low levels, with a 3.5-month supply nationally—still far below the six-month supply that characterizes a balanced market. However, there was a silver lining: inventory levels were 17% higher than a year ago, providing some relief for prospective buyers.

Limited Inventory Continues to Challenge Buyers

One of the primary obstacles in the January 2025 Housing Market remains the shortage of available homes. While inventory levels have improved from last year, they are still significantly below the levels needed for a balanced market. This ongoing supply shortage has fueled competition among buyers and contributed to rising home prices. Many regions, especially those with high demand, continue to experience bidding wars and constrained affordability for first-time buyers.

The persistent imbalance between supply and demand favors sellers, leading to continued price growth. Although a 17% increase in inventory over the past year is a step in the right direction, much more supply is needed—particularly in the lower and mid-tier price ranges—to restore equilibrium in the housing market.

Home Building Activity Declines Amid Harsh Weather and Market Challenges

The latest home-building data for January was less encouraging. Housing starts fell 10% from December, aligning with consensus expectations but highlighting a slowdown in new home construction. Single-family starts declined 8% from the previous month and were slightly lower than a year ago. Meanwhile, single-family building permits, a key predictor of future construction, remained nearly flat from December.

Builders cited several reasons for the downturn, including extreme weather conditions, uncertainty surrounding tariffs, high mortgage rates, and rising construction costs. The impact of bad weather played a major role in slowing homebuilding activity, but the decline in builder sentiment suggests broader concerns about the economic outlook. Many builders remain hesitant to ramp up production due to lingering financial pressures and the unpredictability of market conditions.

Builder Sentiment Takes a Sharp Turn Lower

The latest survey from the National Association of Home Builders (NAHB) painted a more pessimistic picture of market conditions. Builder sentiment fell unexpectedly, reflecting growing concerns over high borrowing costs and supply chain disruptions. Rising material costs and ongoing tariff uncertainty have added further challenges, making it difficult for builders to commit to new projects.

While builders remain hopeful that economic conditions will stabilize, they are taking a cautious approach to new developments. The slow recovery in single-family construction remains a hurdle for the overall housing market, as demand continues to outpace supply, particularly for entry-level homes.

Mortgage Applications Reflect Market Uncertainty

The latest mortgage application data from the Mortgage Bankers Association (MBA) provided further insight into shifting market trends. Refinancing applications fell 7% from the previous week but remained 39% higher than a year ago. This significant year-over-year increase suggests that homeowners are still taking advantage of rate fluctuations to secure better mortgage terms.

On the purchase side, mortgage applications dropped 6% from the prior week but remained slightly higher than the same period last year. The decline in applications reflects affordability concerns, with many potential buyers holding off on purchases due to elevated home prices and high mortgage rates.

Looking Ahead: What to Expect in Early 2025

As the housing market moves forward, several factors will shape its trajectory in the coming months:

• Mortgage Rates: The direction of mortgage rates remains a crucial factor. If rates stabilize or decline, buyer demand could strengthen, providing a boost to sales activity.

• Inventory Growth: While inventory levels have increased from last year, the market still needs more supply, particularly in the affordable housing segment. If construction activity picks up, it could help alleviate pressure on home prices.

• Economic Conditions: Broader economic indicators, including inflation, employment trends, and wage growth, will play a major role in determining housing market stability.

• Home Prices: With limited supply, home prices are expected to remain elevated. However, any slowdown in demand or an increase in available homes could temper price growth over time.

The January 2025 Housing Market reflects a complex mix of challenges and opportunities. While sales declined from December, they remained slightly higher than a year ago, and inventory levels showed improvement. However, affordability concerns persist, and the slowdown in home building activity raises questions about future supply. As 2025 unfolds, the housing market will be shaped by evolving economic conditions, mortgage rate trends, and the ability of builders to increase inventory in a meaningful way.

For further information on the Chicagoland housing market, contact the title insurance and escrow specialists at Plymouth Title Guaranty Corporation.