A significant increase in housing supply is on the horizon, according to real estate expert Michael Bordenaro and Redfin’s head of economic research, Chen Zhao. Bordenaro, in a recent video, and Zhao, in an interview with Business Insider, both highlighted the factors that are set to bring about this shift in the housing market by the end of 2025. As mortgage rates gradually decrease, more homeowners are expected to list their properties, leading to an influx of available homes. However, this surge in supply may not be met with equal demand, potentially resulting in lower housing prices.
The Current Housing Market Landscape
Michael Bordenaro, known for his insightful analysis of the real estate market, recently shared his predictions in a video titled Housing Supply Explosion Coming in 2025…Here’s Why. He noted that while housing inventory is slowly returning to pre-pandemic levels, it is expected to reach a significant peak by 2025. Bordenaro pointed out that markets like Florida and Texas are already experiencing a rise in available homes, a trend that he believes will spread nationwide.
Interest Rates and Their Impact
Both Bordenaro and Zhao agree that the trajectory of interest rates will play a crucial role in this anticipated supply boom. According to Bordenaro, mortgage rates are expected to decrease slightly over the next few months but are unlikely to drop below 5.5% anytime soon. Zhao, in her interview with Business Insider, echoed this sentiment, stating that while rates won’t return to the historically low levels seen during the pandemic, they will start to decline, potentially reaching the mid-5% range by the end of next year.
The Lock-In Effect and Homeowner Behavior
One of the primary reasons for the current constrained housing supply is the so-called “lock-in effect,” where existing homeowners are reluctant to sell their homes due to the low mortgage rates they secured earlier. However, as Zhao explained, this effect is expected to diminish as mortgage rates become more favorable, encouraging more homeowners to sell. Zhao anticipates that a 5.5% mortgage rate will unlock a significant number of homeowners who, motivated by the substantial equity gains made during the pandemic, will decide to sell their properties.
Rising Inventory Amid Stagnant Demand
Bordenaro highlighted a concerning trend in his analysis: while inventory is rising, the demand for homes is not keeping pace. He noted that many sellers are still holding out for high prices, unaware that buyers are increasingly priced out of the market due to the combination of elevated home prices and interest rates. This mismatch between supply and demand is likely to result in a “race to the bottom,” where sellers may be forced to reduce their asking prices to attract buyers.
The Role of Home Equity and Financial Pressure
An additional factor contributing to the expected surge in housing supply is the increasing use of home equity lines of credit (HELOCs). According to Bordenaro, many homeowners are tapping into their home equity to finance various expenses, a trend that has seen a significant uptick since the end of 2021. However, with HELOC interest rates now sitting around 9%, homeowners may find themselves under financial pressure, potentially leading to more homes being listed for sale as individuals seek to alleviate their debt burdens.
Migration and Its Influence on the Market
Zhao also pointed to migration patterns as a factor that will influence the housing market in the coming years. She suggested that concerns about climate change and rising insurance costs will drive people to relocate from high-risk areas, particularly in states like Florida. This migration will contribute to the overall increase in housing supply, as homeowners in these regions look to sell their properties and move to safer, more affordable locations.
The Potential for a Housing Market Correction
With the anticipated influx of homes on the market, Bordenaro and Zhao both suggest that a correction in home prices is likely. As more properties become available and sellers begin to lower their prices to attract buyers, the market could see a significant shift. Bordenaro cautioned that while some sellers may choose to stay put rather than sell at a lower price, many will be motivated by life circumstances to sell, further increasing supply and putting downward pressure on prices.
The Long-Term Outlook for Homebuyers
Despite the challenges facing the housing market, both Bordenaro and Zhao remain optimistic about the future for homebuyers. Zhao, in particular, believes that as rates continue to drop and more homes hit the market, buyers who have been priced out of the market will finally have opportunities to purchase homes at more reasonable prices. However, she also warned that the market’s recovery will be gradual and that homebuyers should be prepared for a slowly improving environment rather than an overnight transformation.
“Foreclosures Are Going to Go Nuts”
People in the comments shared their thoughts: “If no one has a freaking job, no one is gonna be buying a freaking house!”
Another commenter added: “I still remember the government handing out a 10k tax rebate for buying a house in 2008-9. The average cost for a single family house back then was 170, pure insanity when compared to the 430 today!”
One person said: “That’s because foreclosures are going to go nuts too.”
A Time for Patience and Preparedness
For prospective homebuyers, the next few years could bring significant opportunities, but also challenges. As Michael Bordenaro and Chen Zhao have highlighted, the housing market is on the cusp of a major shift, driven by a combination of rising inventory, declining interest rates, and changing homeowner behavior. While the coming supply boom could lead to more affordable housing, it’s crucial for buyers to stay informed and be prepared to navigate a dynamic and potentially volatile market.
Effect on Different Regions
What are your thoughts? How will the predicted increase in housing supply affect different regions across the United States? What strategies can prospective homebuyers employ to take advantage of the expected market shift? How might the current economic conditions influence homeowner decisions to sell or stay put?
Explore the full insights by viewing the video on Michael Bordenaro’s YouTube channel here and by reading the article on Business Insider here.
