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There is a lot of economic uncertainty right now, and that is affecting real estate. This month we take a look back at previous major downturns to give some perspective on what may be ahead.

Are We Headed for a Recession?

The headlines are screaming that we are headed for a recession. According to a study by LendingTree, 2 out of 3 Americans think a recession is coming. 74% admit that world news or current events affect their financial decisions.

Inflation remains elevated. The Fed has said they want inflation to be around this target of 2.0% to 2.9%, and to do this they are keeping a close eye on things like tariffs and unemployment – which both can drive inflation. Unemployment came in recently at 4.2%, which is relatively good when you look at it historically. The problem is job growth – it is sort of stalling out as of late.

What’s Ahead for the Economy?

The most likely scenario is that the Fed will cut rates to stabilize the labor market. If they do this, it probably because they are viewing any inflation from tariffs as temporary. However, it is a very slippery slope, because (if that assumption proves wrong), we could be looking at rate hikes again in 2026.

Please keep in mind that this is not the 30-year mortgage rate. This is the Fed funds rate. However, historically the two have correlated to one another. Chances are that the average 30-year fixed rate right now (6.5%) already has that rate cut priced in. So, don't expect a big swing in the market. The most important thing to note here, is that the average mortgage payment dropped by $250 per month since May. This is a sweet spot for buyers as it improves affordability. Especially since the rates are not predicted to remain this low for long:

Housing Prices

While looking at a lot of this information nationally is beneficial, local markets are operating very, very differently across the country. However, overall home prices are moderating.

In Tallahassee, we are seeing the same trend. This leveling out of home prices is predicted to continue throughout 2025.

What’s the biggest takeaway from this is, while home price growth is slowing, it in no way means that homes will lose value (depreciation). But, it is a reality check for some sellers in todays market, as we see a rise in the number of homes with price reductions.

What’s Ahead for the Housing Market?

Every drought ends in recovery, but let’s look at the data and ask, “What happens in the real estate market when things start to sort of downturn?”

This certainly isn't the first slowdown that we've seen in the real estate market.

The great financial crisis saw home sales drop by 51%, and it took 3 years to recover. Home prices were all over the place, and mortgage rates saw a downward trend.

Most recently, COVID, where home sales dropped 27%, and it took 8 months to recover. Home prices skyrocketed, and mortgage rates dropped to probably the lowest we will see in our lifetimes.

But these downturns lead to recoveries. Right now, home prices are flattening, and mortgage rates are easing. Remember: When mortgage rates go up, they take the escalator, and when they come down, they take the stairs. That certainly is true today.

If you look at home prices right now as a leading indicator, every single one of the forecasters, whether they're optimistic or pessimistic, predict an increase in home prices. It is expected that home prices will continue to rise, although at a more moderate level.

New Construction

Builder incentives are back! In fact, 66% of builders are offering incentives from rate buy downs and upgrades to price cuts - and nearly 40% are dropping prices. Right now, the average price cut on a new construction home is about 5%. That’s huge! On a $350,000 home, that could be almost $20,000.

Buyers interested in new homes should find a local real estate agent they trust right now!

Bottom Line

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• There is a lot of economic uncertainty
• Mortgage rates probably won’t fluctuate much this year
• Home prices will continue to rise, but at a more moderate pace
• New construction is prime for buyers right now