Prepare for the 2025 Spring market with essential insights every homebuyer should know, featuring expert advice from Jerry Koors, President of Merchants Mortgage.
All eyes are on mortgage rates these days to see when they will start to decline. This is especially true for those who want to buy their first home and current homeowners who may feel locked in by their existing, and historically low, interest rates.
Unfortunately, we’ll be waiting a bit longer until we see mortgage rates drop. The Mortgage Bankers Association’s latest forecast shows mortgage rates will be slightly higher in the first two quarters of 2025 than originally forecasted. While still down from the 7% highs in recent years, we expect to see rates between 6.4% and 6.6% with a gradual decline, or improvement, of approximately half of a percent later in the year. In some respects, the forecast mirrors a lot of what we experienced in 2024.
Why are rates still high?
A number of factors affect mortgage rates. Rising inflationary concerns, a continued positive job market, and a new economic policy all contribute to uncertainty in the market. Today, that means interest rates remain higher.
As we move through the year, though, those factors could change and affect rates in new ways, either good (lower rates) or bad (higher rates).
How does this impact homebuyers?
In general, incomes have not kept up with rising interest rates and rising home values, making home ownership – especially for first-time buyers – more difficult. With the chaotic market over the past several years, it can be stressful to think about buying a home when you don’t know what the future holds. The key is planning and patience.
Here is what prospective homebuyers need to know for Spring 2025:
- It’s a Buyer’s Market: The market has been strongly in favor of sellers, but it is shifting to a buyer’s market. That means buyers should be negotiating sales prices. These will vary widely by location. For example, median home prices are much lower in the Midwest than the West Coast or Northeast. U.S. News & World Report notes that some of the most undervalued housing markets – that is, markets that have a lower payment-to-income ratio – are former Rust Belt cities such as Detroit, Cleveland, and St. Louis. The Indianapolis metro area is ranked as the 8th most undervalued market.
- Better Inventory: While inventory can still be an issue in some markets, there are more listings available today than there have been over the past three to four years (up 22% from December 2023 to December 2024 alone), which allows buyers choices and further strengthens negotiating. Vermont, Florida, and Nevada gained the most inventory during this time period, and Indiana’s housing supply is up 15%.
- Work with an Expert: It’s hard to keep up with all of the macroeconomic factors in play that influence housing costs and mortgage rates. This is where professionals come in. We pay attention to markets, how they are changing, and how they are expected to change in the future to ensure our customers have the best, most up-to-date information as they consider purchasing a home.
Midwest cities continue to be a prime location for homebuyers as just a few hours away in Illinois, three cities – Rockford, Peoria, and Bloomington – all ranked on Realtor.com’s January 2025 recap of the month’s Top 20 Hottest Housing Markets. Here in our home state, Zillow has predicted that Indianapolis is going to be the second hottest housing market in the country this year, despite high interest rates. We anticipate homes will sell quickly in these markets, but that does not mean homebuyers should rush into a sale. Purchasing a home is a major financial investment. Although many elements can be outside of an individual’s control, homebuyers can have more options and leeway through patience and careful planning.
