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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 26 January 2025 C O V E R S T O R Y where the inventory of homes for sale has exceeded pre-pandemic levels, such as Florida and Texas, and in those states, we're seeing home prices decline in some markets. There's also been a reversal in prices in some of the markets that saw prices accelerate to unsustain- able levels during the pandemic, like Boise and Austin. But the Northeastern states and swaths of the Midwest, where inventory levels are still very low, are continuing to see prices rise. We're also continuing to see a trend of population migrating from high-cost, high-tax states like California and New York to less expensive markets in the South and Midwest, which suggests that prices might continue to rise in those regions. Probably worth noting that it's unlikely we'll see home prices appreciate very much in most markets next year; most forecasts expect prices to go up between 3.5-4% in 2025. Q: What demographic groups—such as first-time buyers, retirees, or investors—are likely to benefit or be challenged by the predicted market condi- tions? First-time buyers will continue to be the most challenged in 2025. Affordabil- ity is the worst it's been in 40 years, and unlikely to improve dramatically next year, and while the inventory of homes for sale has improved, there's virtually nothing available at the entry level of the market. Retirees are increasingly choosing to age in place and tapping into their home equity to pay for home improvements that accommodate their changing physical needs. There should be ample opportunities for investors, especially rental property investors, as many prospective homebuyers will opt to rent until market conditions im- prove. And the Trump administration will probably create a somewhat more investor-friendly environment for real estate investors. Q: Given concerns about housing affordability, do you foresee federal or state gov- ernments implementing policies to address housing shortages or rising costs? If so, how effective do you think these will be? There's a limit to what the federal government can do to stimulate home construction, but making government lands available for development, expanding the QOZ program, and providing tax incentives for builders to create more affordable housing units are all things that the Trump administration has discussed. The Trump administra- tion has also talked about leveraging tax and funding policies to entice state and local governments to remove some of the restrictions and regulatory hurdles currently preventing or dramatically limiting homebuilding. We may see more state and local legislation aimed at allowing more ADUs, although that doesn't seem likely to make much of a dent in the overall housing shortage. The private sector might step up production of manufactured housing and 3D-printed homes as a way to re- duce construction costs and shorten the time it takes to build houses. Q: What steps can policymak- ers take to improve access to affordable housing while main- taining a stable housing market? Anything that policymakers can do to increase supply will improve access to affordable housing. Creating incentives for homebuilders to develop entry-level homes would help immense- ly. Removing regulatory burdens could help reduce costs; eliminating zoning restrictions could free up development opportunities. More broadly, ensuring a strong economy with the creation of good jobs and solid wage growth creates the foun- dation needed for a strong housing mar- ket. Reducing the federal deficit could send bond yields a bit lower, which in turn would help reduce mortgage rates. So: more inventory helps offset the supply and demand imbalance, slowing home price appreciation; lower bond yields help reduce borrowing costs; and improved wages increase buying power. The combination of those three elements ultimately is what it will take to bring affordability back to reasonable levels. Q: Do you expect demand for rental properties to rise or fall in 2025, and how might this affect housing developers' strat- egies? We have the largest number of young adults between the ages of 25-34 in the history of the country. Those are prime years for household formation and first-time homebuying. The largest wave of millennials in that age range hasn't hit the market yet but will do so over the next two years. Millions of those prospective homebuyers are on the sidelines today, opting to rent because they can't afford to buy a house, which should create a lot of demand for both multifamily and single-family rental properties. However, about 1 million apartment units will have entered the market during 2023-2024, and vacancy rates have edged up just above historic aver- ages in many markets, causing rental rates to flatten and in some cases decline slightly on a year-over-year basis. Mul- tifamily housing starts have plummeted this year and aren't likely to rebound dramatically until 2026. Q: Do you think the GSEs will leave conservatorship under President Trump's new administration? If so, what are the potential upsides and potential risks? I think the Administration would probably like to end the GSE conserva- torship and allow private capital to play a larger role in the secondary market. But Fannie Mae and Freddie Mac have an enormous footprint in the market today, so removing the conservator- ship could disrupt the entire mortgage industry and would be likely to cause mortgage rates to rise, at least temporar- ily. Ending the conservatorship would