Overview: The Housing Market in February 2025
As the year began, key indicators pointed to continued improvement in overall economic activity. In January, inflation moved closer to the Federal Reserve’s 2% target rate, registering one of its slowest increases since the early stages of the COVID-19 pandemic. The moderate decrease in inflation was largely driven by decelerating shelter costs, which declined on a month-over-month basis. Although inflation remains above target, further decreases could open the door to a rate cut at the next Federal Open Market Committee Meeting. However, in January, the short-term interest rate was held steady, despite continued weakening in the labor market.
Turning to the labor market, the economy continued to add jobs, pushing total nonfarm payroll employment to an all-time high. This expansion has occurred despite significant declines in federal government employment, which have fallen by nearly 11% since peaking in October 2024. Overall, the unemployment rate has remained stable in recent months, but net job growth in 2025 has been slower than in prior years. Nonetheless, steady wage growth has supported consumer spending.
At the same time, January was a difficult month for the housing market. Snowstorms and unusually cold temperatures have slowed sales and contract-signing activity across the nation. The good news is that affordability conditions are improving: NAR’s Housing Affordability Index reached its highest level since March 2022 in January, marking the seventh consecutive month of improvement.
Improved affordability, combined with mortgage rates at their lowest level since September 2022, is expected to support stronger housing demand in the next couple of months. Meeting this demand, however, will require a continued increase in construction activity to expand housing supply.