Thinking about buying your first home in 2025? While your personal finances play a crucial role, external factors like mortgage rates, home availability, and economic conditions significantly impact your homebuying journey.
As we move into 2025, industry analysts including the National Association of REALTORS® (NAR) are “cautiously optimistic” about national housing market trends. But local circumstances differ. Let's explore what happened in the Twin Cities housing market during 2024 and what experts predict for 2025.
The Twin Cities housing market showed improvement in 2024 compared to the previous year, despite some challenges. We spoke with two local experts: Amy Peterson, 2024 president of the St. Paul Area Association of REALTORS® (SPAAR), and Nicko Spehn, incoming 2025 president of SPAAR's Women's Council of REALTORS®.
Peterson noted that 2024 started out with some optimism, with more listings, anticipated interest rate drops, and milder-than-usual weather. These factors made it easier for people to tour houses during the first quarter of the year. However, rates continued to rise through the summer, which affected affordability. Yet in October, the metrics started to change again–more homes on market, more pending sales, and more buyers and sellers reengaging.
“People are still not excited about interest rates,” Peterson admitted, “but they are tolerating them and finding ways to look at it from a financing standpoint.”
That might include down payment assistance, finding some extra funds within the transaction (such as price reductions or seller concessions), or buying down the interest rate to help lower monthly payments.
“So we’ve seen some flexibility and options this fall,” Peterson explained. “As we carry over into 2025, the momentum is a little more positive.”
Spehn noted that educating clients was critical, especially with so much conversation around interest rates, a huge factor for many first-time buyers. Buyer assistance options can also benefit sellers, giving them confidence that the buyer can purchase their home.
According to SPAAR, the Twin Cities housing market saw improvement from October 2023 to October 2024, with:
Industry analysts, including NAR and SPAAR, express cautious optimism for 2025. Here's what potential buyers should watch for:
Experts expect rates to stabilize around 6%, as the Federal Reserve plans four interest rate reductions in 2025. However, factors like federal deficit and inflation could affect this prediction.
NAR predicts 2025 existing home sales will rise 9% and new home sales by 11%. Interest rates directly affect home sales volume, but new construction also affects supply and sales.
The Twin Cities currently has about 1.5 months of housing supply—still a seller's market compared to the balanced market range of 4-6 months. Anything beyond that, and it becomes a buyer’s market–but SPAAR doesn’t see that happening in the short-term.
“Heading into 2025, we don’t see a significant shift in the amount of inventory that’s available,” Peterson said. “However, more affordable inventory (median price or lower) versus new construction or upper price brackets may help create a more balanced market.”
This makes it even more important to work with an agent that can help walk you through all of the options, market details, and strategies to make informed decisions.
While cash purchases are trending nationally, they remain relatively steady in the Twin Cities area. However, these cash buyers can outcompete first-time buyers who need financing to purchase a home.
Higher prices are good news for sellers, but challenging for first-time buyers. NAR predicts a modest 2% nationwide price increase in 2025, a more sustainable rate than recent years. Peterson and Spahn anticipate similar single-digit increases in the Twin Cities area.
New home sales hinge on affordability. Building more homes at median price points could boost sales overall. Lower mortgage rates might increase competition and drive up prices, but greater inventory could offset this by forcing sellers to compete on price.
The average first-time homebuyer in 2024 was 38 years old–a record. First-timers must make increasingly high down payments, so it takes longer to accumulate enough money. They may also fund down payments with gifts or loans, sale of stock or other assets, and inheritance money.
Spahn emphasized that “there may also be assistance opportunities that open up the possibilities of home ownership” to help reduce demographic disparities. Partnering with the right real estate agent can be invaluable for all first-timers because many don’t know that help is available.
Minnesota offers various assistance programs for first-time buyers, including:
“When we see a house we like, it’s important to get out and look at it right away,” Spahn said. Don’t be deterred by bad weather, she advised, because there are advantages to looking now. It’s quieter in the off-peak season, so there is less competition for buyers and sellers may be more motivated.
Before you’re ready to look, work with your agent to pre-qualify with a lender and understand all your options within the buying process. If you’re considered a low-to-middle income household, check out Twin Cities Habitat for Humanity’s TruePath Mortgage option to help own a home you love with a mortgage you can afford.
Peterson stressed the importance of interviewing agents up front to find the best REALTOR® for you, because each one may do things a bit differently. The right partner will guide you every step of the way, from reviewing financing options to evaluating documents and negotiating with the seller. Check out our top questions to ask a realtor.
The 2025 housing market outlook offers encouraging signs for first-time buyers. While prices continue to rise, the slower pace combined with stabilizing mortgage rates and increased inventory creates more opportunities. With proper preparation and professional guidance, your dream of homeownership could become reality.
Your gift unlocks bright futures! Donate now to create, preserve, and promote affordable homeownership in the Twin Cities.
Twin Cities Habitat for Humanity : 9:34 AM on January 2, 2024
Buying a home can be one of the best decisions you’ll ever make. Homeowners have the chance to build wealth as they pay off their home loans. Plus, a...
Twin Cities Habitat for Humanity : 3:46 PM on July 15, 2024
Buying your first home is an exciting journey, but it can also be overwhelming. To help you navigate the process smoothly, we've compiled a list of...
Twin Cities Habitat for Humanity : 3:19 PM on November 5, 2024
Owning a home is a significant goal for many people. It’s a big step–the biggest single investment most people will ever make. Understanding how to...
Twin Cities Habitat for Humanity