2025 Housing Market Forecast: The Path to Home Sales Recovery

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Winners and losers in this volatile housing market

Times are good for cash buyers, homeowners who secured a mortgage at lower rates 

Housing Market Crash image

The last two years have been good to Christian Dicker. 

Like many loan officers, Dicker was working nights and weekends, banging out refinancings and purchase mortgages at record-low rates for clients. It didn’t matter where he was — getting dinner with his family at a fancy restaurant or out on the lake on a boat — Dicker always had his phone on hand to make sure he didn’t miss any of his clients’ emails or calls. About 40% of his business came from refis in the summer of 2021, even though he had focused on purchase mortgages his entire career. 

But the boom times are over, and he knows it.

One of Dicker’s clients this past weekend backed out of a $295,000 home purchase in Michigan. That sort of thing was virtually unheard of a year ago, when rates were about 3%. 

“After hearing their monthly mortgage payment would be around $2,000 a month, my client backed out of the offer the next day,” said Dicker, a senior loan officer at Motto Mortgage. “Less than a year ago, my client could’ve bought the home with a monthly mortgage payment of $1,700.”

The rising rate environment has thinned Dicker’s pipeline, culling refis almost entirely. And he’s far from alone. Market conditions are forcing countless LOs to find creative solutions to lock down home purchases for clients whose purchasing power has diminished greatly in the past six months. Origination volume will see a steady, significant decline, meaning smaller paychecks for LOs and their lenders, all while prospective borrowers face increased pricing pressure, meaning many will indefinitely postpone or give up the search for a new home entirely.

The sudden spike in mortgage rates — which rose to a high of more than 6% in mid-June before falling to the 5.75% range a week later — has proven a shock to the system for the mortgage industry. Lenders that scaled up during the pandemic to take advantage of those low rates now find themselves hugely overstaffed as business falls dramatically. For LOs and the industry at large, the future is increasingly uncertain and the overall outlook can feel like a losing proposition.

“There really are hardly any winners in the mortgage industry,” said Joe Garrett, founder of banking and mortgage banking consulting firm Garrett, Mcauley & Co. “The winners in terms of mortgage companies are the ones who have a lot of servicing because the value has gone up as rates have gone up. Outside of the mortgage business, the winners are homeowners who refinanced.” 

The Mortgage Bankers Association projects that, of $2.4 trillion in originations this year, just $730 billion will be from refis. Compared with 2021, origination volume is expected to drop 40% from last year’s $4 trillion origination volume. Less business for lenders and real estate brokerages, in return, is hurting title companies, tech vendors, appraisers and mortgage insurance firms. 

But any market that pushes some businesses to the brink of insolvency also will create opportunities for others. Through numerous interviews with industry analysts and players, HousingWire assessed the rapidly changing housing market to determine who remains vulnerable to the higher-rate environment, and who’s primed to capitalize in the months ahead. 

The culling

“You’re going to start to see the housing market price a lot of people out, which means there’s going to be fewer loans out there to be done, which means you’re going to probably see a lot of people starting to exit,” said Coley Carden, vice president of residential lending at Winchester Co-Operative Bank

Banks, including Wells Fargo and JPMorgan Chase, which own and hold portfolios of mortgage backed securities (MBS), as well as nonbank lenders, have borne the brunt of rising interest rates thus far. Both depositories have instituted large-scale layoffs at their mortgage divisions, and Wells Fargo has indicated it plans to pull back on its mortgage business.

Nonbank lenders, including Pennymac, Mr. Cooper, loanDepot, Guaranteed Rate, Fairway Independent Mortgage, Interfirst Mortgage Co., Movement Mortgage, New Rez/Caliber, First Guaranty Mortgage Corporation and Better.com, all have conducted at least one round of workforce reductions this year, and further staff eliminations are expected to continue as volume falls. More than 10,000 industry jobs likely have already been shed during the past year, analysts told HousingWire. 

While industry observers say originators are in a better position now than during the financial crisis in 2008, largely as a result of  the refi boom over the past two years, analysts including Argus Research’s Kevin Heal, expect gain-on-sale margins to decline in coming quarters due to volatility and lenders selling loans in the secondary market with lower gains, or at a loss. 

“With today’s rising interest rates, combined with inflation, prospective buyers have seen their buying power reduced greatly,” said Sean Dobson, chief executive officer at Amherst Holdings. “This will likely cause some, who may have been ready to purchase otherwise, to take a pause.”

Brokerages prepare for leaner times

Reduced buying power means fewer closed deals for real estate brokerages, whose agents used to receive love letters from home shoppers desperate to win bidding wars.

Real estate brokerages aren’t immune from the current market environment. Because their agents are typically 1099 contractors, they are thought to be more insulated than mortgage lenders, whose employees generally receive W2s.

In early June, luxury-focused Side, which has raised more than $200 million at a valuation of $2.5 billion, laid off 40 workers, or about 10% of its staff

“In our efforts to meet demand, we grew the team faster than we could train, support and develop everyone to meet the demands of changing roles and processes,” founder and CEO Guy Gal said in a written statement. “Considering this paired with the macroeconomic trends shaping the real estate market, we decided to slow down and get better organized so that we can speed up again.”

Tech-fueled Redfin laid off 470 employees, or about 8% of its workforce, saying housing demand fell short of expectations in May. But the brokerage is unusual in that it has salaried agents and a business model that is stretched thin during housing market downturns. Compass, which similarly has a tech bend and is also unprofitable, eliminated about 450 positions, roughly 10% of the brokerage’s employees. Compass also announced it would halt any merger and acquisition activity for the rest of the year.

Other top brokerage leaders were quick to say such troubles didn’t necessarily mean stronger headwinds for real estate brokerages.

“You have to be an ant putting away crumbs when the weather is good to have enough food when the weather is bad,” Frederick Peters, CEO of Coldwell Banker Warburg Peters, told RealTrends. “Compass never did that.”

Still, many large brokerages are taking a hard look at their physical footprints, vendor relationships and other potential means of trimming the fat as volume drops.

Less demand for homebuilders

Fewer buyers in the market also means homebuilders are enticing shoppers with incentives, which negatively affects margins. 

“Things like buying down a customer’s rate, or offering buyers free upgrades to their house and lowering lot premium don’t really count as cutting prices, it counts as giving them stuff for free,” said Carl Reichardt, a homebuilding analyst at BTIG

Despite the negative effect on builders’ bottom line, such incentives still aren’t luring buyers. A combination of higher home prices, rising interest rates, consumer concerns about the future of the real estate market and the lack of new home inventory has resulted in a decline in sales and traffic, according to Reichardt.

More than half of the 86 homebuilders surveyed by the BTIG/HomeSphere State of the Industry Report reported a year-over-year decrease in sales, marking the largest share of builders to experience an annual decline in sales in more than four years. Only 20% reported year-over-year traffic growth, the lowest level since April 2020, at the start of the pandemic.

Landlords hold the cards

The phrase “cash is king” has perhaps never been more apropos — home prices remain high, and rising rates put mortgage seekers at a disadvantage.

Even if mortgage rates are hovering in the 6% range, homes are still going to sell, loan officers said. Though not necessarily to buyers with financing. Homebuyers who offer cash were four times as likely to win a bidding war as those who didn’t in 2021, according to data from Redfin. 

The median existing housing price surged 14.8% from a year ago to an all-time high of more than $407,000 in May, exceeding the $400,000 level for the first time, a report from the National Association of Realtors showed. 

Motto Mortgage’s Dicker recalls providing loans in the mid-3% level in October. His clients need to adjust their expectations in a higher-rate environment. “You can’t get something of a newer quality and bigger size compared to last year,” he said. 

All-cash sales made up 25% of transactions in May, with 16% coming from individual investors or second-home buyers taking advantage of the rising demand for renting, according to the NAR.

“More people are renting, and the resulting rent price escalation may spur more institutional investors to buy single-family homes and turn them into rental properties,” said Leslie Rouda Smith, president at NAR. 

Amherst Holdings, which acquired more than 46,600 rental homes across the country with an estimated value of more than $7.6 billion, sees potential for more business in a downmarket for the mortgage industry. The spike in borrowing costs means consumers will find themselves unable to purchase the same home that they might have been able to afford a year ago. 

“If demand for household buyers of properties cools off, we may see more opportunities for companies in the leasing space to supply single-family rentals to those who have been priced out of the homebuying market,” said Amherst’s Dobson. 

“It seems desirable properties – whether it be a new single-family home that has all the bells and whistles or if it’s an apartment for rent – they are renting up at higher prices and they’re also renting faster,” added Aaron Sklar, partner at Kiser Group.

Rents for apartments in professionally managed properties were up 12% nationally in the first quarter of 2022 from a year earlier, with increases in several metro areas exceeding 20%, according to a report from the Joint Center for Housing Studies at Harvard University. 

Rent for single-family homes rose even faster than those for apartments, pushed up by demand for more space among households working remotely, the report said. Single-family rents nationally rose 14% in March 2022, marking the 12th straight month of record-high growth, according to CoreLogic data.

“It’s definitely a landlord’s market,” said Kiser Group’s Sklar. “Rents seem to be going up just as high as the interest rates are. I don’t think it’s a win for anyone on the lending side. But I do think that owners of properties, and single-family home operators, they’re the real beneficiaries of higher interest rates.”

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