Overview: The Housing Market in February 2025
The year 2025 started with notable changes in the U.S. economy. Inflation rose faster than expected to 3.0%, prompting a halt to further cuts to the federal funds rate following the last reduction in December 2024. Despite the multiple rate cuts, which began in September 2024, mortgage rates didn’t decline as hoped. This is because mortgage rates are more closely tied to the 10-year Treasury yield, which is expected to decrease below 4% in the coming months. If mortgage rates decline and the labor market continues to add jobs, activity in the housing market is likely to increase.
The housing market typically slows down during the cold months, as seen in January’s lower sales and contract signings. Although both existing-home sales and pending sales have declined, the MBA index suggests that sales activity is expected to improve over the next 6-8 weeks, as more people are anticipated to look for homes in the spring. Additionally, the median sales price decreased, while affordability improved. With more new listings added that month and a larger pool of available inventory, more homes will become affordable to potential home buyers.
Notably, the U.S. labor market has been consistently strong, with growth continuing since January 2021. In January 2025, the number of unemployed people decreased, keeping the unemployment rate essentially unchanged for the last 8 months. The steady increase in jobs, combined with mortgage rates in the 6%-7% range, provides some optimism for the outlook of the U.S. housing market.


In January 2025, the Federal Reserve set the upper limit of the Federal Funds Rate at 4.5%. Although the Fed began cutting the short-term rate in September 2024, inflation continued to rise above its target. Consequently, the Fed announced it would maintain a range of 4.25%-4.50% for the rate until inflation decreases.

The U.S. labor market added 143,000 jobs in January, mainly in the health care, retail trade, and social assistance industries. In the construction industry, employment changed little from the previous month. In 2024, the average monthly gain was 166,000 jobs.

January’s inventory of unsold listings was 1.18 million, up 3.5% from last month. Compared to January of 2024, inventory levels were up 16.8%. The available inventory is equivalent to 3.5 months’ supply at the current monthly rate.
In January, privately-owned housing starts decreased to a seasonally adjusted rate of 1.37 million. This is 9.8% below the revised December 2024 estimate and 0.7% below the revised January 2024 rate.
Another measure of housing construction, building permits issued, decreased to 1.47 million in January.

