2025 Housing Market Predictions: A Q&A with Rick Sharga

The mortgage services industry has faced tough headwinds over the last few years, from higher interest rates and home prices to lower inventory levels. But there are dynamics at play—including pent-up demand, potential regulatory changes and a shift toward pre-pandemic levels of delinquency and foreclosure—that could make 2025 an interesting year for the mortgage industry. Rick Sharga, president and CEO of market intelligence firm CJ Patrick Company, shares his insights on what we might be able to expect from the mortgage industry in 2025.

What are you seeing regarding home price trends and affordability?

Unfortunately, affordability is the worst it's been in about 40 years. That's probably not going to get significantly better in 2025, but it might get marginally better. The reason for hope is based on three criteria.

First, home price appreciation seems to be slowing down. We saw home prices appreciating by double-digit percentages over the last couple of years. Most forecasters believe home price appreciation will be in the low single digits this year—between 2% to 4%, which is more manageable.

The second reason for hope is that mortgage rates are expected to settle down and potentially decline slightly over the course of the year. Even a modest drop—from a little over 7% to the mid-6% range—would be meaningful to many prospective buyers.

The third reason for some optimism is that wage growth continues to be relatively strong, and according to most forecasts, we should continue to see economic growth with a fairly robust jobs market, which bodes well for wages.

What about overall demand in the housing market?

We have a lot of pent-up demand, and we have the largest cohort of young adults between the ages of 25 and 34 in history. The millennial wave of adults turning 35—the average age of a first-time home buyer today—hasn't peaked yet. So, I think we have two or three more years of very strong demand coming to market. People are getting used to higher mortgage rates, and we are seeing more properties come to market. More inventory combined with pent-up demand and a re-acclimation to financing rates may increase home sales, which would be a lift for the whole market.

What are you expecting in terms of delinquency and foreclosure for 2025?

Consumer delinquencies are going up everywhere except in the mortgage industry. Mortgage delinquency rates remain around 3.5%, which is lower than the average for the last 20 years (4.5%).

I expect that in 2025, we’ll see a gradual movement back toward normal. Because there's usually a pretty strong correlation between mortgage delinquency rates and unemployment rates—and unemployment rates continue to be low. So, I think we’ll only see mortgage delinquencies creep up a little bit this year, with foreclosure activity increasing slightly as well. But I don’t think we’ll be back to pre-pandemic levels until at least the end of 2025.

How will FHA loans compare?

There’s likely a higher-than-normal percentage of delinquencies and defaults that are going to be coming from the Federal Housing Administration (FHA) portfolio over the next couple of years. National delinquency rates are at about 3.5%, while FHA delinquency rates are hovering around 10%. Those are not unusually high percentages for FHA, but they’re high enough to warrant some concern.

FHA borrowers tend to have less equity and lower cash reserves as well as a higher debt-to-income ratio, so they have much less wiggle room if they do run into financial distress. And many of those borrowers also happen to live in markets where we're seeing insurance premiums go up or even double, along with a rise in property taxes. With all of these factors at play, we're likely to see those borrowers either decide they can no longer afford their homes and have to sell, or wait too long and find themselves in financial distress.

What mitigates this a bit is that the overall market share of FHA loans is somewhere between 10% and 15% nationally, so there may not be a significant increase in the total number of delinquencies and defaults.

Do you expect similar trends with VA loans?

Yes, the borrower profile for this group is very similar to FHA borrowers. One of the benefits of a Veterans Administration (VA) mortgage is you can usually qualify for 0% down, and the performance of those borrowers historically has been outstanding.

That said, the VA has put a foreclosure moratorium in place while it's trying to get its loss-mitigation programs approved by Congress. That's artificially inflating their delinquency numbers because people who would've rolled from delinquent into default or might otherwise have decided to move on from that property are now in a temporary holding pattern. The moratorium will eventually expire, and we'll see some of those people move into foreclosure.

Can you speak broadly to the opportunities and challenges you expect to see in default servicing this year?

The default-servicing industry might experience a bit of a reprieve as we shift administrations. I expect a more industry-friendly tenor with the new administration. I also expect to see some changes at the Consumer Financial Protection Bureau (CFPB), including less punitive actions, which would enable servicers to pursue foreclosures when they need to.

Plus, some agencies have realized their loss-mitigation approaches had built-in problems. For example, the FHA has announced changes to its program. Until now, many borrowers cycled through loss mitigation attempts multiple times; going forward, a borrower will only be able to qualify for one loss-mitigation package in any given 18-month period. This limit will likely bring default rates closer to normal.

Looking for a mortgage services partner you can trust?

Contact Jason Myers to learn more about our comprehensive mortgage services offerings today.

The views and opinions expressed herein are those of the author and do not necessarily reflect the position of MCS and its affiliates. Any content provided by our bloggers or authors are of their opinion and are provided for informational purposes only. Readers are encouraged to conduct their own research and understand the fluctuation and impact of market conditions.