In a new episode of the Top of Mind podcast, host Mike Simonsen sits down with Orphe Divounguy, senior economist at Zillow. They explore forecasts for the 2025 housing market, key macroeconomic trends to monitor, solutions to the housing affordability crisis and more.
This conversation has been summarized and edited for length and clarity. To start the conversation, Divounguy dives into the past two years of economic developments and how they impact today’s housing market.
Divounguy: It was January 2023 and we had just experienced this record increase in interest rates. The Fed had acted so strongly in mid-2022 to raise interest rates and rein in inflation and stave off a recession. House prices were declining. Despite all that noise, we narrowly avoided a recession but got a big rebound in house prices.
Divounguy also shares that during the pandemic, a strong labor market, high levels of savings and a successful stock market also contributed to greater household financial wealth. He also pointed to low mortgage rates as another positive for homeowners. As such, consumers spent some of their housing wealth, which furthered economic activity.
Simonsen: Is there any recession risk now and as we look at 2025?
Divounguy: Our baseline scenario is that we will probably not go into a recession this year. But I am concerned about the labor market being frozen, right? While layoffs remain really low, hiring rates are lower than normal. Our job openings are 9% lower than they were a year ago. The hiring rate has dropped to about 3.3%, the lowest in more than a decade.
Simonsen: I’ve talked about “the great stay” and how the labor market parallels the housing market, where I’m not leaving my mortgage because I’ve got a good mortgage. So, both are happening together.
Next, the due dive into Zillow’s mortgage rates forecast for 2025.
Divounguy: We expect rates will continue to ease. But we’ll remain above 6% in 2025. That will be true so long as you don’t get big surprises on the policy front in D.C. There’s no reason why the 10-year Treasury yield wouldn’t ease somewhat.
Simonsen: Do you have a take on your forecast for total home sales volume for 2025?
Divounguy: We revised the sales number down slightly. Zillow thinks we’ll have more sales in 2025 than we had in 2023 and 2024.
The conversation closes with Divounguy sharing his framework for tackling the affordable housing crisis in the U.S.
Divounguy: Suppose the world stayed constant — no changes in mortgage rates or anything. Then you get a big increase in the number of existing homeowners choosing to sell their homes. Even if we had a massive increase in that number of new listings, that would not be enough to get affordability to get the kind of price declines that we need.
What that tells me is that we really need more housing supply coming from new construction. But ultimately, the big lever here is mortgage rates. You want to get affordability, you got to get rates down. I don’t see another solution than a continued increase in housing supply by making it easier for builders to build.
