It’s been a rough few years for those in the housing market. Buyers have been plagued by soaring prices, rising mortgage rates, and limited inventory. And while sellers can capitalize on higher values, they’ll face the same obstacles as other buyers when searching for their next home.
Last year marked the lowest number of existing home sales since 1995, according to the National Association of Realtors. In January, housing affordability hit a 20-year low as home prices continued to outpace the rate of income growth, according to the Federal Reserve Bank of Atlanta. Also in January, the 30-year fixed mortgage rate climbed back above 7%.
But as the prime homebuying and selling season approaches, there may be a glimmer of hope as mortgage rates begin to ease and inventory expands, at least in some regions.
“This spring, there’s some cautious optimism,” says Kimber White, president-elect of the National Association of Mortgage Brokers. “If mortgage rates stay in the mid-to-low 6% range, more buyers will enter the market, and sellers who were locked in with ultra-low rates might finally list their homes.”
At the same time, new home construction is helping to boost supply, notes Michael Mariani, vice president of lending solutions at Fidelity Investments.
Inventory has been rising in most markets across the country, with areas such as Texas and Florida seeing especially strong growth through new construction, he says. Yet, the Northeast—which is more dependent on supply from existing homes—remains fiercely competitive.
“We’re seeing different dynamics play out based on supply and demand, with new construction being a core differentiator,” says Mariani.
Struggling to find a home in a competitive market
Steven Antonio knows firsthand the frustrations of trying to buy in an area where there is a severe inventory shortage.
He and his wife spent the last couple of years searching for a new home in New York and New Jersey. They’re both first-time homebuyers who want a more stable, long-term living situation. One of their biggest goals is to get their young daughter into a school system where she can stay from kindergarten through high school.
Yet, “the supply has been terrible,” Antonio laments. After being outbid on a home in Chatham, New Jersey in February, he and his wife signed yet another rental lease in New York City. “We’re shifting gears for the short term,” he says. But they’re not giving up. The couple will continue to monitor real estate listings, ready to potentially break their lease or temporarily pay both rent and mortgage for a short period if the right buying opportunity comes along.
While the Northeast is one of the most competitive markets, White advises all buyers to keep their expectations in check. “Inventory will still be tight, so don’t expect a flood of new listings,” he says. “Spring 2025 should be a better market than last year, but we’re not returning to the ultra-low rates of the past anytime soon.”
Setting yourself up for homebuying success
How to buy a house this year: Even with a modest spring improvement, the overall market remains challenging for many. If you’re looking to buy, it’s crucial to research your desired markets, assess your financial situation, understand your mortgage options, and develop a strategic plan.
Here are 5 steps to help get you started:
1. Set a realistic budget
If you’ve spent years on your quest to buy a new home, it can be tempting to jump at any viable opportunity. But it’s critical to understand your financial limits — and to stay within those parameters. Use a mortgage calculator to get an estimate of what fits your budget. Then, determine your ideal price range for a home and its related costs, taking both your financial situation and comfort level about spending into consideration, says Mariani.
Then, get preapproved. Mortgage preapproval “is a great way to firm up what a lender will qualify you for,” Mariani adds. Plus, preapproval will allow you to act quickly when you find a dream home with an affordable price tag.
2. Understand down payment options
Higher home prices usually mean larger down payment requirements. While many people assume a 20% down payment is needed to secure a mortgage, there are programs that offer lower cost options, Mariani says. For example, first-time homebuyers may qualify for a Federal Housing Administration (FHA) loan, which comes with a down payment as low as 3.5%.
If you put down less than 20%, you may be required to get added insurance, such as private mortgage insurance (PMI). Paying the extra cost of PMI does add to a monthly mortgage payment. But you may be able to have it removed or refinance when your equity reaches 80%. Not all loans allow that: FHA loans charge mortgage insurance premiums upfront and throughout the life of the loan. Understanding your options can help you save thousands of dollars on the cost of homeownership. The key step is to assess all costs and benefits— financial, psychological, logistical, and otherwise—before making a decision.
3. Learn about different financing opportunities
White expects to see more creative financing options like temporary buydowns (when you pay an upfront fee to reduce the loan’s interest rate for a set period) and adjustable-rate mortgages (ARMs), which have a fixed interest rate for a set period and then adjust periodically.
ARMs typically come with a lower introductory rate, followed by a period where the rate adjusts up or down based on the loan terms. This type of loan can be beneficial if a buyer plans to move before the initial fixed-rate period ends or is comfortable with adjustments to the highest rates.
When considering an ARM, think: “Could I manage the worst-case scenario?” says Mariani. If the answer is “no,” explore other options.
4. Consult multiple lenders
It's worth the time and effort to speak with different lenders to compare rates, fees, and loan terms. After you meet with each lender, consider how you felt about them and the loan approval process. And here’s some additional incentive to do this outreach: “Research shows that borrowers who shop with multiple lenders often secure a better interest rate just by doing that extra homework,” Mariani says.
5. Maintain perspective
Without a doubt, hunting for a home can be stressful, and especially so in today’s market. While it’s critical to control what you can, it’s just as important to keep the big picture in mind and accept what you can’t change.
“Things are unpredictable right now, and no one has a crystal ball,” says home seeker Antonio. “Markets are competitive and hard to navigate. But the reality is that many other people have much worse problems than us. We’re fortunate that we have the ability to sit on the sidelines a little bit longer and patiently scan for what is out there.”