• Private home insurers are dropping a growing number of customers in most states, a Senate report found.
• That leaves homeowners at risk, turning to more expensive last-resort options or going uninsured.
• While Florida has managed to reverse the trend somewhat, the risk to homeowners is set to intensify.

As Americans flock to places in the US vulnerable to natural disasters, private home insurance companies are running the other way.

The problem has left a rising number of homeowners with just one option to cover property damage: insurers of last resort.

The scale of homeowners losing their plans became clearer on Wednesday after a Senate Budget Committee investigation found that private insurers' nonrenewals spiked threefold in more than 200 counties between 2018 and 2023.

"What our new data reveal is that the failure to deal with climate change is also affecting whether families can even get homeowners insurance, which threatens their ability to get a mortgage, which spells trouble for property values in climate-exposed communities across the country," Senate Budget Chairman Sheldon Whitehouse said in releasing the report.

A recent study by Harvard University's Joint Center for Housing Studies found that between 2018 and 2023, the number of properties enrolled in California and Florida's insurers of last resort more than doubled. A similar trend is playing out in Louisiana. While Florida has reduced participation this year, it still has the highest enrollment in the country.

The problem isn't isolated to the most predictable states. The Senate Budget Committee found that the rate of homeowners losing their private insurance also rose in Hawaii, North Carolina, and Massachusetts.

Policymakers and insurers are trying to stabilize the private market, by enacting new laws and overhauling regulations. However, with scientists predicting that climate-fueled disasters will become more frequent and severe for the foreseeable future, the risk to America's homeowners is mounting.

Growing insurance risk has some states looking for solutions

In nearly three dozen states, insurers of last resort, known as Fair Access to Insurance Requirements, or FAIR, are available to homeowners and businesses who struggle to find insurance on the private market.

The numbers are rising because private insurers are pulling back coverage and hiking premiums in areas at risk of wildfires, hurricanes, flooding, and other disasters often made worse by climate change.

While state-mandated FAIR plans are designed to be a backstop, insurance regulators and private insurance companies are alarmed by how many homeowners and businesses are enrolling, especially in California and Florida. The plans are often more expensive and provide less coverage. Plus, saddling one insurer with the riskiest policies increases the chances of one major disaster sinking the system and leaving taxpayers and insurance companies with the bill.

Florida and California are trying to reverse the trend, and Florida has seen some progress. The state's insurer of last resort, Citizens Property Insurance Corporation, said on December 4 that its policy count dropped below 1 million for the first time in two years.

Mark Friedlander, a spokesperson for the Insurance Information Institute, said the drop reflects a series of changes in recent years to stabilize the state's private insurance market after more than a dozen companies left the state or stopped writing new policies.

The Florida legislature passed laws to curb rampant litigation and claim fraud that drove up legal costs for private insurers. Friedlander said insurance lawsuits in the first three quarters of 2024 are down 56%, compared with the first three quarters of 2021 — the year before the new laws were enacted. Citizens also started a "depopulation" program that shifts customers to the private market. State regulators in October said they had approved at least nine new property companies to enter the market, and premiums weren't rising nearly as much as last year.

In California, many of the deadliest and most destructive wildfires have occurred within the last five years. As a result, some private insurers are hiking premiums and limiting coverage in risky areas, pushing more homeowners to the insurer of last resort. The Harvard study found that policies in the state's FAIR plan doubled between 2018 and 2023 to more than 300,000. As of September, the California Insurance Commission said policies totaled nearly 452,000.

The commission is working to overhaul regulations to slow the trend, including requiring private insurers to sell in risky areas. In exchange, it should be easier for companies to raise premiums that factor in reinsurance costs and the risks of future disasters. That should help stabilize rates, said Michael Sollen, a spokesman for the commission.

Sollen added that in the past, private insurers could seek approval for higher premiums but weren't required to offer coverage in wildfire-prone areas.

"In a year from now, what's happening with the FAIR plan will be a key measure for us," he said. "We expect to see those numbers start to stabilize and go down."

A mounting home insurance crisis

Still, a reduction in state-backed plans isn't necessarily a sign of progress, Steve Koller, a postdoctoral fellow in climate and housing and author of the Harvard report, told Business Insider.

A growing number of homeowners in places like Florida, Louisiana, and California are purchasing private insurance from nontraditional providers barely regulated by state governments. These so-called "non-admitted" insurers don't contribute to a state fund that guarantees homeowners will have their claims paid even if the insurance provider fails, leaving their customers without access to this backup coverage.

"Someone could be moving to a private insurer from Citizens, and that insurer might have higher insolvency risk," Koller said.

He added that more homeowners are opting out of insurance altogether. The number of US homeowners going without insurance has soared from 5% in 2019 to 12% in 2022, the Insurance Information Institute reported.

Plus, Americans are increasingly moving into parts of the country most vulnerable to extreme weather. Tens of thousands more people moved into the most flood—and fire-prone areas of the US last year rather than out of them, the real estate company Redfin reported earlier this year.

As insurers of last resort try to shift more risk to the private market, home insurance premiums are expected to keep rising. That's especially true in the areas hardest hit by climate-fueled disasters.

If private insurers exit hard-hit regions en masse in the future, Koller said states might need to become the predominant insurance provider in the same way the National Flood Insurance Program took over after the private market for flood insurance collapsed in the 1960s. Most flood insurance plans are still issued by the federal government.

"My guess is states are going to work very, very hard to avoid that and ensure the existence of a robust private market, but that's a parallel that I can't personally unthink about," he said.

Have you struggled to get home insurance, moved to an insurer of last resort, or gone uninsured? Contact these reporters at [email protected] or [email protected].

• Three baby boomer homeowners told BI they want to downsize but can't find suitable options.
• Rising home prices have led to a big increase in their home equity over the years.
• But those rising prices also make it harder to find affordable homes for retirement.

As many baby boomer homeowners look to cash in on their home equity and downsize, some are grappling with a shortage of suitable homes.

Older homeowners are increasingly staying put, as mortgage rates and housing costs remain stubbornly elevated and inventory— particularly of affordable and accessible homes — is scarce. Some simply can't find a suitable home that would leave them with enough cash to retire on, while others simply don't feel downsizing is a savvy financial move with housing and borrowing costs so high.

Kim Cayes is one of those boomers who feel stuck. The 67-year-old always banked on selling her four-bedroom house in Parsippany, New Jersey, to help support herself in retirement.

"My plan had kind of been: save everything I can, and then when I retire, move someplace cheap and use the equity in my house to buy a house in cash to reduce my costs," she told Business Insider.

Cayes bought her home for $245,000 in 2000 after her divorce. She added a major addition and has since benefited from New Jersey's soaring home prices — the house was recently appraised at nearly $700,000, according to documents reviewed by Business Insider.

But Cayes, now semi-retired from corporate communications, is no longer interested in leaving northern Jersey for a cheaper part of the country. Two of her three adult children live with her, and she doesn't want to leave her community.

"I would hate to move somewhere and leave one of my kids behind because, not being married, my kids are all I've got," she said. "Especially as you get older, you need a network of people."

Cayes is looking for a single-story home in the $400,000 to $450,000 range. But she hasn't had any luck finding something suitable. She says the homes she's looked at would need a lot of work and aren't in familiar neighborhoods.

"Thinking I'm going to spend the final years of my life in a worse situation than I've ever been in — that's just so depressing," Cayes said. "Especially when my friends are all traveling around the world with their spouses and constantly posting on Facebook which countries they're in."

'A lateral financial move'

Some boomers who can afford to stay in their homes don't want to endure the costs and possible stress associated with downsizing. Even those who are still paying off their homes often have much lower mortgage interest rates than what they could get on the market today, hovering around 6.5%. And leaving a familiar home and neighborhood can be emotionally taxing.

Dorothy Lipovenko, 71, and her husband love the single-family home in a well-connected neighborhood of Montreal where they've lived for nearly 25 years. But the options to downsize in their area seem limited to pricey new condos and old homes that need major repairs. Lipovenko doesn't want to live in a modern condo without green space, but she also doesn't want to take on a home renovation project.

"It becomes a lateral financial move, and that is what has us saying 'no,'" she said. "Downsizing is a huge undertaking, physically and emotionally, and a one-for-one trade makes no sense."

Ideally, Lipovenko and her husband would move to a smaller, single-floor house — she dreams of a Levittown-style suburban starter home, she said.

"It's not just giving up possessions and going into a smaller space; it's shrinking a lot of things to fit a new mindset," she said. "I just can't see my husband and I spending the last decades of our life in a little apartment."

'I'm lucky I have this house'

Andrea S., 60, already lives in a single-story starter home in Sherman Oaks, California, that's well-suited for a retiree. But Andrea, who requested partial anonymity to protect her privacy, isn't sure she can afford to stay in it.

The former agent and producer bought her two-bedroom bungalow with her ex-partner in 1994 for $245,000. She's lived in the home ever since, hasn't made any major improvements, and has a housemate to split the bills with. The Zillow estimate, reviewed by Business Insider, found the house is now worth about $1.3 million.

"I'm lucky I have this house," she told Business Insider. "I just hate the fact that the house is pretty much my pension fund."

Andrea's income is lower than she expected it to be at this point in her life — she's struggled to work since suffering from a head injury in a car crash in 2021. Meanwhile, the pandemic and Hollywood writers' strike killed off some of her projects, she said. At the same time, maintenance and repair costs for her nearly 75-year-old house are daunting: the HVAC system needs to be replaced, and the pool and large yard are expensive and energy-intensive to maintain.

"If I can't get a job that covers me enough to cover my bills, then I have to think about do I sell the house," she said.

But she's concerned that she won't be able to find an affordable home in a neighborhood as pleasant and walkable as hers, especially on a budget that makes sense. After her crash, she gave up driving and wants to keep living in a place with bus access and grocery stores within walking distance. Plus, she's concerned about the capital gains tax she'll need to pay if she sells the home.

"I'm realizing now, at age 60, all the things that you become very vulnerable to, especially when you're a woman and you don't have a life partner," she said.

Andrea and her friends joke about their dream of retiring together in the British seaside town of Port Isaac — the idyllic setting for the early-2000s TV show "Doc Martin."

"You get some nice little cottage in town. They don't have big yards. And you walk out your door, and you see the lovely English coastline," she said. "That sounds good to me."

Are you struggling to downsize or find a suitable home to retire in? Are you otherwise affected by the cost of retirement housing? Reach out to this reporter at [email protected].

When Zillow debuted in 2006, the fledgling site bore little resemblance to the real-estate behemoth it is now. There were no options to find an agent, get a mortgage, or request a tour — the search portal couldn't even tell you which homes were actually for sale. There was, however, the Zestimate: a "free, unbiased valuation" for 40 million houses around the US, based on a proprietary algorithm. Half the single-family homes in America suddenly had a dollar figure attached to them, and anyone could take a peek. Zillow's site crashed within hours as a million people raced to ogle at the results.

The initial rush was a sign of things to come. Nowadays, the Zestimate is arguably the most popular — and polarizing — number in real estate. An entire generation of homeowners doesn't know life without the algorithm; some obsessively track its output as they would a stock portfolio or the price of bitcoin. By the time a seller hires a real-estate agent, there's a good chance they've already consulted the digital oracle. For anyone with even a passing interest in the housing market, the Zestimate is a breezy way to take the temperature. Keep tabs on mortgage rates all you want, but they can't tell you that your house has appreciated 20% over the past year, or that your annoying coworker's property is worth more than yours.

Many industry insiders, however, regard the number as a starting point at best and dangerously misguided at worst. Real-estate agents recount arguments with sellers who reject their pricing advice, choosing instead to take the Zestimate as the word of God. One meme likens its disciples to adults who still believe in Santa. Zillow itself lost hundreds of millions of dollars during the pandemic when it relied on its algorithm to buy homes at what turned out to be inflated prices, part of an ill-fated attempt to flip homes at scale.

The Zestimate is just one of a slew of automated valuation models that are increasingly used by banks, investors, and laypeople to estimate the value of homes. No other model, however, has wormed its way into our culture like the Zestimate. The model, like other consumer-facing AVMs, is prone to errors that render it more of an amusement than a serious pricing tool. But while the algo's price-guessing skills may be suspect, it's undeniably elite at one thing: luring people to Zillow-dot-com.

The Zestimate is both everywhere and an enigma. About 104 million homes, or 71% of the US housing stock, have a little dollar figure hovering above them on Zillow's website. One of them is the house in Austin where I was raised until the age of 10. It's not for sale, but right underneath the address, in bold, is the Zestimate. Next to it is a "Rent Zestimate," or the amount the owner could probably charge a tenant each month. You can click to see a graph of its Zestimate over the past decade — the Zillow-fied value of my childhood home rose a staggering 72% from May 2020 to its peak in May 2022 but has since dropped 24% from that top tick thanks to the chill running through the Austin market. In just the past 30 days, the Zestimate has dropped by $4,455. Ouch.

Just how accurate are those numbers, though? Until the house actually trades hands, it's impossible to say. Zillow's own explanation of the methodology, and its outcomes, can be misleading. The model, the company says, is based on thousands of data points from public sources like county records, tax documents, and multiple listing services — local databases used by real-estate agents where most homes are advertised for sale. Zillow's formula also incorporates user-submitted info: If you get a fancy new kitchen, for example, your Zestimate might see a nice bump if you let the company know. Zillow makes sure to note that the Zestimate can't replace an actual appraisal, but articles on its website also hail the tool as a "powerful starting point in determining a home's value" and "generally quite accurate." The median error rate for on-market homes is just 2.4%, per the company's website, while the median error rate for off-market homes is 7.49%. Not bad, you might think.

But that's where things get sticky. By definition, half of homes sell within the median error rate, e.g., within 2.4% of the Zestimate in either direction for on-market homes. But the other half don't, and Zillow doesn't offer many details on how bad those misses are. And while the Zestimate is appealing because it attempts to measure what a house is worth even when it's not for sale, it becomes much more accurate when a house actually hits the market. That's because it's leaning on actual humans, not computers, to do a lot of the grunt work. When somebody lists their house for sale, the Zestimate will adjust to include all the new seller-provided info: new photos, details on recent renovations, and, most importantly, the list price. The Zestimate keeps adjusting until the house actually sells. At that point, the difference between the sale price and the latest Zestimate is used to calculate the on-market error rate, which, again, is pretty good: In Austin, for instance, a little more than 94% of on-market homes end up selling for within 10% of the last Zestimate before the deal goes through. But Zillow also keeps a second Zestimate humming in the background, one that never sees the light of day. This version doesn't factor in the list price — it's carrying on as if the house never went up for sale at all. Instead, it's used to calculate the "off-market" error rate. When the house sells, the difference between the final price and this shadow algorithm reveals an error rate that's much less satisfactory: In Austin, only about 66% of these "off-market Zestimates" come within 10% of the actual sale price. In Atlanta, it's 65%; Chicago, 58%; Nashville, 63%; Seattle, 69%. At today's median home price of $420,000, a 10% error would mean a difference of more than $40,000.

Without sellers spoonfeeding Zillow the most crucial piece of information — the list price — the Zestimate is hamstrung. It's a lot easier to estimate what a home will sell for once the sellers broadcast, "Hey, this is the price we're trying to sell for." Because the vast majority of sellers work with an agent, the list price is also usually based on that agent's knowledge of the local market, the finer details of the house, and comparable sales in the area. This September, per Zillow's own data, the typical home sold for 99.8% of the list price — almost exactly spot on. That may not always be the case, but the list price is generally a good indicator of the sale figure down the line. For a computer model of home prices, it's basically the prized data point. In the world of AVMs, models that achieve success by fitting their results to list prices are deemed "springy" or "bouncy" — like a ball tethered to a string, they won't stray too far. Several people I talked to for this story say they've seen this in action with Zillow's model: A seller lists a home and asks for a number significantly different from the Zestimate, and then watches as the Zestimate moves within a respectable distance of that list price anyway. Zillow itself makes no secret of the fact that it leans on the list price to arrive at its own estimate.

Other sites have their versions of the Zestimate, too — there are actually about 25 different AVMs in the market, says Lee Kennedy, the founder and managing director of AVMetrics, a company known for independently testing these models. Realtor.com will show you three estimates, each from a different AVM provider. Redfin, a Zillow competitor, also has its own model. Kennedy has been studying AVMs for more than three decades, but it wasn't until the advent of Zillow that the masses became aware of them. Consumer-facing AVMs, like the Zestimate or the Redfin Estimate (Restimate?) are meant to be used informally, he says, as casual starting points before consulting real experts. They're not supposed to be used for real pricing, which should be left to the big guys — the "business-to-business" AVMs used by banks, investors, and the government-sponsored enterprises Fannie Mae and Freddie Mac. Lauryn Dempsey, a real-estate agent in the Denver area, gives similar advice to her clients.

"They're tools that provide information," Dempsey says, "but they should not be used in a vacuum to make decisions."

The business-to-business models are so costly to develop, Kennedy tells me, that they'll probably never be offered to regular people for free. But his testing indicates they're much more reliable. His firm has unveiled blind testing that looks at how models perform before taking into account the list price, a method that penalizes those aforementioned bouncy algorithms. The standard measurement breaks down how often the model can get within 10%, in either direction, of the actual selling price. In a highly urbanized area with lots of housing transactions, some of the models can correctly get close to the final selling price about 80% to 90% of the time — "not bad," Kennedy says. AVMs of all kinds work best in areas with a lot of homes that look and feel roughly the same. Cookie-cutter suburbs are heaven; areas with a wide range of home styles and ages, like Boston, pose a greater challenge. The value of a ranch home in the middle of nowhere is even tougher to peg.

So the Zestimate isn't exactly unique, and it's far from the best. But to the average internet surfer, no AVM carries the weight, or swagger, of the original. To someone like Jonathan Miller, the president and CEO of the appraisal and consulting company Miller Samuel, the enduring appeal of the Zestimate is maddening. "When you think of the Zestimate, for many, it gives a false anchor for what the value actually is," Miller says.

Miller is no unbiased observer. Given that he's an appraiser who estimates the value of homes for a living, it should come as no surprise that he's siding with the humans over the robots. But he raises real issues, highlighting the disconnect between the public's continued use of the Zestimate and its actual track record.

I could say that I virtually stalked my childhood home for "research," but let's be real: By the time I scrolled to the bottom of the page, I had fully surrendered to the voyeuristic urges that draw millions of visitors to the Zillow website each month. It's been almost two decades since I've stepped inside the house, and I can only imagine the changes its new owners have made to my old room (sadly, no pics of the interior). But with the aid of Zillow, my trip down memory lane was lined with data: I walked away with intimate knowledge of the home and its occupants. Prior to 2006, no regular person had this kind of power.

The launch of Zillow spawned a whole genre of internet snooping that, if anything, has only intensified in the years since. When I call up John Wake, a former economist and real-estate agent who now writes the newsletter Real Estate Decoded, he reveals that he, too, looked up his childhood home only a few months ago. "That part is really fun," he tells me. Keeping tabs on your own Zestimate, though, can provide less of a thrill. In December 2022, after interest-rate hikes tamped down home prices, Wake shared with his followers on X that his Zestimate was down 18% from May: "YIKES!" In a 2020 column, the Wall Street Journal editor Kris Frieswick opened up about the difficulty of quitting the algorithm: "My self-worth is defined by my Zestimate. Each day I approach Zillow.com filled with hope, and fear." The column reads mostly as tongue-in-cheek, but plenty of people take their number very seriously. As Frieswick pointed out, at least several disgruntled homeowners have actually sued Zillow over Zestimates they said were inaccurate.

Looking up other people's houses, by comparison, is a mostly harmless pastime. Bosses, neighbors, lovers, and exes — all are fair game in the all-seeing eyes of the tool. During the heat of the 2021 homebuying frenzy, a "Saturday Night Live" sendup of a Zillow ad declared: "The pleasure you once got from sex now comes from looking at other people's houses." The skit, which featured a lot of moaning and sultry mood lighting, was mostly about the fantasies of browsing homes for sale on Zillow — as one YouTube commenter observed, "They didn't even get into the naughty pleasure of looking up all your friends' Zestimate values." This kicked off a thread of others chiming in with "guilty!" and lots of cry-laughing emojis. "OMG I thought this was just my kink," another person replied. I imagine all of these people at a raucous dinner party, bonding over their exploits on zillow.com. And here I am, the buzzkill in the corner talking about median error rates.

Virtual spelunking aside, the hazards of the Zestimate are most obvious when a seller actually decides to list their home. Francine Carstensen, a real-estate agent in Alabama, says those in her line of work have a complicated relationship with the Zestimate: "We love it, and we hate it." A lofty estimate might jolt a homeowner into action — "I could sell my house for what?!" — and drive more business her way. But the number can also make it hard to do her job. A few times, she tells me, she's lost clients over a pricing disagreement involving the Zestimate. It can be difficult enough to pry a seller away from their unrealistic expectations without a number on a screen confirming their hopes for a bigger payday.

"I hate it when they tell me, 'Well, this is what Zillow tells me my house is worth,'" Carstensen says. "Because it's very rarely accurate."

Accuracy may not even be the point. It didn't appear to be in 2006, when the beta version of the Zestimate launched. "The Zestimate started out fairly inaccurate, but it didn't matter," Rich Barton, a Zillow cofounder who was then its CEO, recalled in a 2021 podcast episode. "It was provocative." Spencer Rascoff, another cofounder and former CEO, sold his own home in 2016 for 40% less than its Zestimate. The next year, the company offered $1 million to whoever could improve the Zestimate algorithm the most. The winning team, a group of three data scientists working remotely from the US, Canada, and Morocco, beat the Zillow benchmark by 13%.

No misstep appeared more damning, however, than the implosion of Zillow's homebuying business. In 2018, the company launched Zillow Offers, making all-cash offers to sellers looking to move quickly and seamlessly. In theory, Zillow could then turn around and offload the home in short order for a modest fee, plus however much the home had appreciated. The company used a combination of internal algorithms and human analysts to value the home and predict what it could sell for in a few months — in some cases, homeowners could get an immediate cash offer based on their Zestimate with just a few clicks. But the company's forecasts turned out to be way off base. Zillow Offers squandered $422 million in the third quarter of 2021 alone — a Business Insider investigation found that almost two-thirds of the homes listed by Zillow in Atlanta, Phoenix, Dallas, Houston, and Minneapolis were being marketed at a loss. Amanda Pendleton, a Zillow spokesperson, tells me it was the volatility of the market, not the Zestimate, that really led to the program's downfall. Once the losses came to light, the company swiftly shuttered the division and laid off a quarter of its staff.

I remember wondering whether this would be the death knell for the Zestimate, a kind of algorithm-has-no-clothes moment. I was wrong. Zillow and its best-known creation haven't gone anywhere — the company continues to highlight its progress, providing periodic updates as its data scientists tinker away at the formulas. As search portals like Homes.com and Redfin jockey with Zillow for dominance, the Zestimate is too valuable of an asset to give up. People still flock to Zillow for those little numbers next to each home, for the thrill of feasting their eyes upon something that, like salaries, is considered taboo to talk about in person. For Zillow, that's an unequivocal win.

"It's 100% a marketing tool," says Mike DelPrete, a scholar-in-residence at the University of Colorado Boulder who studies the intersection of tech and real estate. "Like, not even 99%. It's a marketing tool."

James Rodriguez is a senior reporter on Business Insider's Discourse team.

• NYC legalized accessory dwelling units in certain neighborhoods as part of broader housing reforms.
• It's part of a bigger movement to boost ADU construction across the US.
• ADUs offer affordable housing options and boost property values for homeowners.

New York City just became the latest local government to join a nationwide push for more backyard tiny homes and converted basements.

As the US grapples with a housing shortage that's sent home prices and rents soaring, a growing number of cities and states are turning to accessory dwelling units to help solve the problem.

The secondary units on lots with primary homes — largely in the form of backyard cottages, basement apartments, or converted garages — offer smaller, cheaper housing options, particularly in expensive neighborhoods dominated by single-family houses. They've also been embraced by homeowners looking to boost their property values and earn income by renting out their extra units.

New York City's legalization of ADUs for thousands of homeowners went into effect this week, so we looked at how ADUs have helped homeowners and renters in other places across the country.

The pros and cons of ADUs

The benefits of ADUs start with affordability.

The median rent for a California ADU costs less than 30% of the median income of two-person households in the greater San Francisco Bay region, according to a 2021 survey. And a significant portion of the state's ADUs were affordable to people making less than 80% of their local median income. Nearly half of California ADU owners said they've rented out their unit to short- or long-term tenants, according to one poll last year.

ADUs create opportunities for multiple generations of a family to live together, as they're often used to house aging parents or grandparents, or adult children. According to the poll of California ADU owners, 61% said they built their ADU to house a family member. ADUs are also often designed to be more accessible for those with limited mobility than other kinds of housing.

ADUs also help homeowners boost their property values and bring in a new source of income. In the biggest cities, the addition of an ADU increases a property's value by an average of 35%, according to a 2021 study by the National Association of Realtors.

Selma Hepp, chief economist at the property information and analytics firm CoreLogic, converted her backyard garage into a 500-square-foot studio apartment that she rents out on Airbnb. Hepp told Business Insider last year that she brought in about $3,000 per month in income from the ADU — enough to cover the monthly mortgage payments on her primary home.

Developers have also taken advantage of ADU legalization to build more density. In Austin, Texas, real-estate developer Scott Turner replaced a single-family home on a large corner lot with two single-family homes and two ADUs.

But ADUs can be costly to build. Construction typically runs between $60,000 and $285,000. On top of that, local regulations can slow down the approval and construction process, further raising costs.

Even as a real-estate industry professional, Hepp struggled to sort out the rules and regulations on ADU construction in LA.

"It was very stressful because every step of the way, I needed to figure out what the next step was, and it was sort of hard to get a straight answer," she said.

States jump on the ADU bandwagon

Fourteen states across the country have legalized ADUs. California led the charge and has passed a series of laws expanding and standardizing ADUs and, in some cases, helping pay for their construction. More than 60,000 ADUs have been permitted across the state since 2016.

Oregon and Washington have similarly seen spikes in ADU construction since liberalizing their laws. New York and Vermont have also offered subsidies for some homeowners to build ADUs. Freddie Mac reported in 2020 that the number of homes with ADUs in the US grew from 1.1 million in 2000 to more than 10 million in 2020.

But since most ADU legalization efforts have happened since 2022, their full effects are not yet evident in many places.

And ADU legalization alone isn't usually enough to prompt lots of new construction. In some cities and towns, local land-use laws, permitting, and other regulations have stood in the way. Owner-occupancy requirements, off-street parking mandates, and discretionary permit reviews are among the most burdensome rules.

In some cases, homeowners have successfully fought the regulations. Malibu homeowners Jason and Elizabeth Riddick fought a multi-year legal battle with their city over their plan to build a 460-square-foot ADU on their property. The couple ultimately prevailed, but Elizabeth Riddick insisted that the city is "not interested in supporting any type of additional housing."

But as ADUs catch on, pro-housing policymakers and experts say the incremental approach to building more homes is a first step towards solving the nation's housing shortage.

Nolan Gray, the research director at California YIMBY, called ADU legalization "the beachhead for broader reform" of housing policy because backyard homes tend to be popular with homeowners who've otherwise resisted new housing in their neighborhoods.

"You start to de-normalize this idea that 75% to 90% of the typical American city is going to be off limits to any form of multifamily," he said.

Have you built an ADU? Reach out to share your experience with this reporter at [email protected].

• The red-hot US housing market could cool off slightly in 2025, making it easier to buy a home.
• Expect stable or declining mortgage rates and more housing inventory, according to Redfin.
• However, it's still prohibitively difficult for younger homebuyers to break into the market.

The American dream of home ownership has become increasingly harder to achieve in the last few years. Home prices are elevated, mortgage rates are high, and housing supply is constrained. That's not to mention the growing threat of climate change, which is driving up housing costs such as insurance, HOA fees, and property taxes in high-risk states.

There's both some good and bad news on the horizon for homebuyers, according to housing market experts.

The good news? On the whole, it'll be easier to buy a house in 2025. But the bad news, for younger homebuyers at least, is that's mostly just the case for boomers. Homeownership is actually looking as distant as ever for first-time buyers, especially Gen Z and millennials.

3 reasons it'll be easier to buy a house in 2025

First, housing prices are projected to increase slower than in previous years. Redfin economists Daryl Fairweather and Chen Zhao predict that median US home-sale prices will rise by 4% in 2025. Goldman Sachs has a similar outlook for 2025, predicting that US home prices will increase by 4.4%. That's roughly in line with median wage growth. Considering that US home prices shot up over 40% between March 2020 and January 2024, this sanguine prediction is good news for prospective homebuyers.

Another impediment to homeownership has been high mortgage rates, which have more than doubled in the last few years. The average 30-year fixed mortgage rate has risen from below 3% in 2021 to around 7%.

While a 7% rate is still high historically, it's a sign of improvement from this housing cycle's high of 7.8% in October 2023. And rates could come down further in 2025, according to housing market experts. Redfin expects mortgage rates to stay the same or decrease next year. Realtor.com forecasts mortgage rates to end 2025 at 6.2%.

Lastly, experts predict that new housing inventory will hit the market, bringing relief on the supply side. A Republican sweep in Congress is a positive sign for homebuilders, as the construction industry will benefit from fewer regulations, according to Redfin.

In October before the election, Jeffery Roach, chief economist of LPL Financial, said that an increase in housing starts, or construction of new residential housing units, was a signal for more single-family homes hitting the market over the course of the next few quarters. According to Realtor.com, housing starts for new single-family homes could hit 1.1 million in 2025, a 13.8% increase.

All of these factors could improve the housing market going into 2025. Redfin predicts that home sales will increase anywhere between 2% and 9% next year.

No houses for young homebuyers

But unfortunately, if you're a first-time homebuyer, you're probably out of luck. Redfin doesn't expect the increase in home sales to be driven by young or working-class buyers. It's looking likely that any new housing inventory that hits the market will go toward older Americans first.

"Instead, affordable homes will be snapped up by older buyers who are priced out of higher price tiers," Fairweather and Zhao wrote in a recent report.

Indeed, first-time homebuyers are having unprecedented difficulty in the housing market. It's typically more difficult for first-time buyers to purchase a home because they don't have funds from selling a previous home to use for a down payment and mortgage payments, Redfin said in a June report, but today's housing environment is especially hostile towards young buyers.

Wages simply haven't kept up with the pace of home price increases over the past five years. According to Elijah de la Campa, a Redfin senior economist, the cost of starter homes have increased twice as fast as incomes during that time. Additionally, for Gen Z and millennials, student loans and credit card debt are emerging as roadblocks to homeownership, as it's difficult to qualify for mortgages with a poor credit score and high levels of debt.

As a result, the median age of first-time homebuyers is now 38, according to the National Association of Realtors — an all-time high. That's up from 35 in 2023. First-time homebuyers are also an increasingly smaller proportion of the market, at just 24% in the 12-month period ending in June 2024. The year prior, that proportion was 32%.

Comparatively, boomers have an advantage in the housing market. According to Edward Yardeni, president of financial research firm Yardeni Research, boomers own roughly half of the nation's net worth and homeowner equity, giving them a leg up in the housing market. Now, as boomers age and look to downsize their homes or move elsewhere for retirement, they can take advantage of the home equity they've amassed from years of home ownership.

"Gen Zers, meanwhile, will keep living with family or renting until well into their 30s," wrote Fairweather and Zhao.

• Fixer-uppers aren't the bargain they once were.
• Older homes are now nearly as expensive as new builds.
• The housing shortage and high mortgage rates have reduced existing home inventory.

If you're looking for a deal in the homebuying market, you might want to ditch the fixer-upper and spring for a brand-new home.

For the last half-century, newly-built homes in the US have sold for much more, on average, than older homes. But these days, new homes for sale are less expensive per square foot than existing homes. Overall, newly constructed homes are selling for just 3% more than older homes, down from an average of 16% more since 1968, The Wall Street Journal reported.

Prices for existing homes have risen as fewer of them are on the market. The inventory of existing homes being resold has fallen significantly in recent years. As of March 2024, the number of existing homes for sale had fallen to 1.1 million from 1.7 million in 2019, and sales of existing homes hit a near 30-year low last year, a Harvard report found earlier this year.

High mortgage rates could be exacerbating that shortage of existing homes, as many homeowners are putting off a move and waiting for the cost of a home loan and home prices to come down.

But this trend might be turning around. Sales of existing homes are on the rise in the Midwest, South, and West, the National Association of Realtors recently reported. "The worst of the downturn in home sales could be over, with increasing inventory leading to more transactions," NAR chief economist Lawrence Yun said in a statement.

As rates fell slightly this year, more homeowners put their homes up for sale and new home construction rose. The US is on track to build a record number of new multifamily units this year — about 500,000 Still, there's a long way to go to make up for the overall shortage in housing, which Freddie Mac recently reported was 3.7 million homes.

There are a slew of other factors at play, as well. The costs of building materials and construction labor are elevated, which makes repairing or renovating older homes much more expensive. And it doesn't help that US homes are older than ever. The median age of owner-occupied homes in the US has risen to 40 from 32 when the housing market collapsed in 2008.

New homes are getting smaller, too. The typical new build for sale in the first quarter of 2024 was 2,140 square feet, down from 2,256 square feet a year prior, according to Census data. Newly built homes peaked in size in 2015 at 2,689 and have been shrinking quite steadily since then. The share of newly constructed single-family homes with four bedrooms fell to 33% last year, the lowest level since 2012, the National Association of Homebuilders found. Meanwhile, the share of new single-family homes with two bedrooms or fewer grew to its highest level in that same period.

Did you choose between a new and an older home when purchasing? Share your story with this reporter at [email protected].

• US News & World Report created a list of the best places to live in the US in 2024.
• Factors such as housing affordability, job opportunities, and quality of life determined the list.
• Naples, Florida, tops 2024's list, followed by Boise, Idaho, and Colorado Springs, Colorado.

Deciding where to live isn't always easy.

Some people move multiple times in a decade, searching for new experiences or better opportunities. Others end up regretting relocating to their new homes.

While everyone's circumstances are unique, data can help narrow down the choices.

Every year, US News & World Report ranks 150 big cities based on factors including quality of life, schools, crime rates, employment opportunities, and housing affordability to find the best places to live in the United States.

For 2024's list, the South and the Midwest have the most cities ranked in the top 15.

Booming Boise, Idaho; outdoorsy Colorado Springs, Colorado; and the bustling banking hub of Charlotte, North Carolina, all consistently make the list of the best places to live. Newcomers include Austin, a growing tech hub, and two scenic South Carolina locales: Greenville and Charleston.

In addition to weighing job opportunities and housing costs, US News & World Report emphasizes each area's overall standard of living.

Here are the 15 best places to live in the US, according to US News & World Report. Residents find plenty to like about these cities, including relatively affordable homes, plenty of jobs, and lots of ways to spend their free time.

15. Lexington, Kentucky

Population of the metro area: 320,154

Median home price: $331,000

Median monthly rent: $1,600

Median household income: $66,392

Climate Vulnerability Index: 58th percentile (average vulnerability). This index shows areas of the US most likely to face challenges from climate change.

Known for: Home to over 450 horse farms, Lexington is known as the horse capital of the world. While it doesn't have the Kentucky Derby, Keeneland Race Track holds its own horse races twice a year.

14. Madison, Wisconsin

Population of the metro area: 280,305

Median home price: $415,000

Median monthly rent: $1,700

Median household income: $70,484

Climate Vulnerability Index: 6th percentile (lowest vulnerability)

Known for: Wisconsin's capital is also the state's second-largest city. Madison is a college town, offering plenty of chances to see concerts and sporting events.

13. Charleston, South Carolina

Population of the metro area: 155,369

Median home price: $617,500

Median monthly rent: $2,800

Median household income: $89,083

Climate Vulnerability Index: 55th percentile (average vulnerability)

Known for: With its cobblestone streets and 18th- and 19th-century buildings, Charleston is a dream for historic-architecture buffs. Plus, miles of beachy coastline are just a short trip from downtown.

12. Green Bay, Wisconsin

Population of the metro area: 105,744

Median home price: $318,000

Median monthly rent: $999

Median household income: $66,950

Climate Vulnerability Index: 15th percentile (lowest vulnerability)

Known for: Wisconsin's oldest city is home to the Green Bay Packers, a storied NFL team. Nature lovers can make the most of Green Bay's 25-mile Fox River State Trail, even in the winter.

11. Sarasota, Florida

Population of the metro area: 57,602

Median home price: $488,500

Median monthly rent: $2,800

Median household income: $68,870

Climate Vulnerability Index: 24th percentile (lower vulnerability)

Known for: Sarasota earned the nickname the Circus City because Ringling Bros. and Barnum & Bailey Circus moved its winter quarters to the beachy town in 1927. These days, the weather, leisurely pace of life, and lack of income tax all attract people to Florida. Sarasota, in particular, has become a magnet for workers, according to a January LinkedIn report.

10. Boulder, Colorado

Population of metro area: 105,898

Median home price: $945,000

Median monthly rent: $2,995

Median household income: $75,923

Climate Vulnerability Index: 12th percentile (lowest vulnerability)

Known for: Not far from the Rocky Mountains, Boulder is known for outdoorsy activities, including rock climbing, hiking, skiing, and cycling. The city's median age is 28.6, giving it a youthful, lively energy.

9. Austin

Population of metro area: 979,882

Median home price: $484,900

Median monthly rent: $2,000

Median household income: $91,501

Climate Vulnerability Index: 20th percentile (lower vulnerability)

Known for: An artsy, contemporary city, Austin is known for its vibrant nightlife, live music, eclectic cuisine, and college scene. It also has a long history of attracting tech giants, and even more companies have opened offices there since the pandemic. West Coasters in the industry have moved to the city, lured by the booming job market and comparatively low cost of living.

8. Virginia Beach, Virginia

Population of metro area: 453,649

Median home price: $384,500

Median monthly rent: $2,195

Median household income: $91,141

Climate Vulnerability Index: 18th percentile (lowest vulnerability)

Known for: Boasting a beloved boardwalk, Virginia Beach has miles of beaches, delectable seafood, and a mild climate. Murals, museums, and shops in the ViBe Creative District give the seaside destination some arty flair, too.

7. Huntsville, Alabama

Population of metro area: 225,564

Median home price: $315,000

Median monthly rent: $1,465

Median household income: $73,319

Climate Vulnerability Index: 54th percentile (average vulnerability)

Known for: Since the start of the US space program in the 1950s Huntsville has been a hub for the aerospace and defense industries. Today it's bursting with startups, alongside long-standing workplaces like NASA and Boeing. Jeff Bezos' Blue Origin also has a facility for building rocket engines in Huntsville.

6. Raleigh, North Carolina

Population of metro area: 482,295

Median home price: $450,000

Median monthly rent: $1,826

Median household income: $86,309

Climate Vulnerability Index: 13th percentile (lowest vulnerability)

Known for: This capital city has a busy downtown, free museums, and miles of hiking trails. Part of North Carolina's Research Triangle, Raleigh has a long history of fostering technology and science companies, creating a strong local economy.

5. Charlotte, North Carolina

Population of the metro area: 911,311

Median home price: $424,900

Median monthly rent: $1,950

Median household income: $80,581

Climate Vulnerability Index: 35th percentile (lower vulnerability)

Known for: Second only to New York, Charlotte is a bustling banking hub. Locals can root for the city's professional basketball, football, and soccer teams or soak up the art and food scenes.

4. Greenville, South Carolina

Population of the metro area: 72,824

Median home price: $366,500

Median monthly rent: $1,725

Median household income: $73,536

Climate Vulnerability Index: 55th percentile (average vulnerability)

Known for: In the foothills of the Blue Ridge Mountains, Greenville attracts new residents with its moderate climate, burgeoning food reputation, and natural beauty. Greenville is also home to several major corporations, including Michelin, GE, and Lockheed Martin.

3. Colorado Springs, Colorado

Population of the metro area: 488,664

Median home price: $440,000

Median monthly rent: $1,873

Median household income: $83,215

Climate Vulnerability Index: 34th percentile (average vulnerability)

Known for: The US Olympic and Paralympic Training Center is located in Colorado Springs, making the city especially attractive to athletes. There are hundreds of miles of trails for hiking and mountain biking, and white water rafting is a popular summer activity. From the Garden of the Gods to the iconic Pikes Peak, gorgeous natural sights adorn the area.

2. Boise, Idaho

Population of the metro area: 235,421

Median home price: $472,500

Median monthly rent: $1,774

Median household income: $79,977

Climate Vulnerability Index: 9th percentile (lowest vulnerability)

Known for: Thousands of new residents flocked to Idaho's capital in the past decade, making it the US's fastest-growing city in 2018. Boise blends sought-after amenities such as microbreweries and cider houses with nearby scenic state parks full of rivers, canyons, and mountains.

1. Naples, Florida

Population of the metro area: 19,704

Median home price: $629,500

Median monthly rent: $6,100

Median household income: $135,657

Climate Vulnerability Index: 32nd percentile (lower vulnerability)

Known for: Located on Florida's Gulf Coast, Naples is like a postcard come to life, with white-sand beaches, luxurious residences, and over 1,350 holes of golf. The city has long attracted wealthy residents who can afford the high housing costs. Right now a $295 million compound is up for grabs, the most expensive home for sale in the US.

Sources: Population and income data are from the US Census, median home price from Realtor.com, median rent from Zillow, and climate information from the Climate Vulnerability Index.

This story was originally published on May 15, 2024, and most recently updated on December 4.

• Housing market activity should rebound in the year ahead as mortgage rates fall.
• Buyers have been waiting for more affordable rates, as have sellers.
• Here are 16 cities set for double-digit property price growth, as forecasted by Realtor.com.

Homeowners and buyers may finally start making more deals in 2025, which could lift prices in some markets to unprecedented heights.

A years-long slump in home sales could end soon as mortgage rates fall below 6% and home inventory grows, Leo Pareja, the CEO of real-estate brokerage giant eXp Realty, said in a recent interview.

Pareja, who described his year-ahead housing market outlook as "cautiously optimistic," thinks home sales will rise 10% in 2025. That's far above Realtor.com's recent call for 1.5% sales growth due to a slight slide in mortgage rates.

If more homes come on the market and housing demand also rises, sales would certainly follow suit, though it's less clear what would happen to home prices. Realtor.com is predicting nationwide home prices climb to 3.7% — in line with the rate they've risen since 2012.

Realtor.com forecasted price and sales growth for the 100 largest US real-estate markets. Florida is home to nine of the 25 places expected to see the most price appreciation in 2025.

Below are the 16 metropolitan areas that are set for double-digit home price growth next year, based on Realtor.com's projections. The Sunshine State dominates the list with five names and a near miss with Jacksonville, which is seen rising 9.8%. Sales growth estimates are also listed.

1. Phoenix, Arizona

2025 price growth estimate: 13.2%

2025 sales growth estimate: 12.2%

Source: Realtor.com

2. Colorado Springs, Colorado

2025 price growth estimate: 12.7%

2025 sales growth estimate: 27.1%

Source: Realtor.com

3. Tucson, Arizona

2025 price growth estimate: 12.4%

2025 sales growth estimate: 12.5%

Source: Realtor.com

4. Boise City, Idaho

2025 price growth estimate: 12.3%

2025 sales growth estimate: 2%

Source: Realtor.com

5. Las Vegas, Nevada

2025 price growth estimate: 12.3%

2025 sales growth estimate: 5.5%

Source: Realtor.com

6. Orlando, Florida

2025 price growth estimate: 12.1%

2025 sales growth estimate: 15.2%

Source: Realtor.com

7. Ogden, Utah

2025 price growth estimate: 11.8%

2025 sales growth estimate: 2.2%

Source: Realtor.com

8. Tampa, Florida

2025 price growth estimate: 11.8%

2025 sales growth estimate: 9.1%

Source: Realtor.com

9. Deltona/Daytona Beach, Florida

2025 price growth estimate: 11.5%

2025 sales growth estimate: 7.2%

Source: Realtor.com

10. Memphis, Tennessee

2025 price growth estimate: 10.5%

2025 sales growth estimate: 8.3%

Source: Realtor.com

11. Sarasota, Florida

2025 price growth estimate: 10.4%

2025 sales growth estimate: 3.2%

Source: Realtor.com

12. Lakeland, Florida

2025 price growth estimate: 10.3%

2025 sales growth estimate: 10.6%

Source: Realtor.com

13. Atlanta, Georgia

2025 price growth estimate: 10.2%

2025 sales growth estimate: 15.1%

Source: Realtor.com

14. Austin, Texas

2025 price growth estimate: 10.2%

2025 sales growth estimate: 14.5%

Source: Realtor.com

15. Durham, North Carolina

2025 price growth estimate: 10.1%

2025 sales growth estimate: 14.1%

Source: Realtor.com

16. San Antonio, Texas

2025 price growth estimate: 10%

2025 sales growth estimate: 6.7%

Source: Realtor.com

• Realtor.com forecasts that home prices will rise slightly in 2025.
• Researchers expect mortgage rates to come down next year but still remain above 6%.
• There's a silver lining: Increased inventory and new construction may offer buyers some relief.

The housing market in 2024 hasn't been kind to those looking for a home: The age of the typical first-time homebuyer increased by three years, mortgage rates stayed firmly above 6%, and some people felt it would be more affordable to keep renting than to buy.

Although Realtor.com's housing forecast predicts some of the same for 2025, there are a few encouraging signs.

Home affordability has improved modestly after reaching the lowest level in decades last year, and transactions have picked up after an eerily quiet 2023.

Danielle Hale, the chief economist at the real-estate listings and data site, said a "Trump bump" could affect the housing market.

"For now, we expect a gradual improvement in housing market dynamics powered by broader economic factors," Hale said in the forecast. "The new administration's policies have the potential to enhance or hamper the housing recovery, and the details will matter."

Most consumers care about what will happen to home prices and mortgage rates, which directly affect their ability to buy a house.

With that in mind, here are five predictions for the housing market in 2025 from Realtor.com.

1. Home prices will drift higher

The median home sale price nationwide is up 32% since 2019, per the Federal Reserve Bank of St. Louis. However, it was $420,400 in the third quarter of 2024, down a bit from $435,400 a year earlier.

Buyers are holding out for more relief, but it might not come in 2025.

Barring a serious shock, home prices should continue to climb modestly. Realtor.com predicts that home sale prices will increase by 3.7% in 2025, which would be about a $15,000 jump.

"Prices are going to keep rising because we're not going to have a recession," Ralph McLaughlin, a senior economist at Realtor.com, said in an interview with Business Insider. "If you look at the times that home prices fall, it's typically only when there's a recession, and only when people are forced to sell."

Higher home prices may cause buyers to expand their house hunts to more affordable parts of their states or the country, like the Sunbelt. Twelve of the 16 cities that Realtor.com thinks will have double-digit price appreciation in 2025 are in the Southeast or Southwest.

2. Mortgage rates will stay above 6%

The average 30-year mortgage rate has dipped slightly, to 6.7% from a peak of 7.8% a year ago. Rates dropped to a historically low mark of 2.7% in 2021 and have mostly climbed since then. A pair of interest-rate cuts haven't significantly affected mortgage rates.

Next year's economy will be typified by lower interest rates and steady growth, Realtor.com predicted. The firm expects a rate cut in December and then a few more in early 2025.

That means Realtor.com researchers don't expect mortgage rates to drop dramatically next year, projecting that the 30-year will stay above the 6% threshold and be at 6.2% by the end of 2025.

3. Rents will be roughly the same

Rent growth may stall, as Realtor.com expects US apartment prices to fall 0.1%.

That's largely thanks to a major increase in rental unit inventory. Real-estate site Zumper found that the supply of new apartments in the US hit its highest level in five decades this summer.

"What we've seen over the past couple years is a large uptick in new multi-family construction, and they tend to be released all at once," McLaughlin said. "And so it can have very sharp and especially isolated impacts on rents — in particular — in urban areas where they are built."

Construction trends suggest the rental stock should increase in all parts of the country, but especially in the South, Realtor.com said. New homes and apartments could lead to lower rents in some cities and states.

Landlords may also struggle to raise rent substantially in a strong economy with lower mortgage rates, since renters could walk away from bidding wars and look at buying homes instead.

"When incomes grow enough in the rental segment, those renters tend to convert over to owners," McLaughlin said. "They typically won't use their incomes to bid up rents more — they'll just go and, if they can afford it, they'll go buy a house."

McLaughlin added: "Those that continue to stay renting, landlords don't have the ability necessarily to raise rents at the rates that price growth plays out in most markets."

Still, inventory increases may not translate to meaningful discounts on homes or rental units. Prices almost always rise over time along with the population size and money supply, so while apartments may be easier to find, those pining for pre-pandemic prices could be disappointed.

4. The market will be high on housing supply

Next year's housing market may be marked by sizable increases in home and apartment supply.

An 11.7% jump in existing home inventory and a 13.8% surge in single-family home starts will usher in the first "balanced" housing market in nine years, Realtor.com predicted. That would mean neither buyers nor sellers will have disproportionate leverage in 2025.

New single-family homes are expected to reach 1.1 million, the most since 2006. That should give prospective buyers more chances to score a home.

"While more inventory means buyers will likely have more time to make purchase decisions in 2025, in any market, a fast-acting buyer will have a higher likelihood of making the winning offer," Hale said in the report.

Homes have been in short supply for decades. Despite an uptick in construction, Freddie Mac estimated that the US needed 3.7 million more units to offset the shortage, as of last quarter.

Continued supply improvements mean there should be 4.1 months of homes available in 2025, up from 3.7 months now, Realtor.com said. The National Association of Realtors, a competing firm, reported last month that there was already 4.2 months' supply of existing homes available.

5. Home sales will surge

The housing boom during the pandemic devolved into a bust in 2022 and 2023 — a year in which home transactions reached their lowest levels in decades as housing affordability tanked.

Buyers and sellers are holding out for lower rates, and in the meantime, sales have stagnated.

"What I say to agents very often is, 'We're in a recession of transactions,' which is a different situation than the rest of the economy," Leo Pareja, the CEO of real-estate brokerage giant eXp Realty, said in a recent interview with Business Insider.

Many would-be buyers have been priced out of the market, while those hoping to move were reluctant to sacrifice their modest mortgages. In fact, about 84% of US mortgages are at rates below 5%, Pareja said. For that reason, many baby boomers have held onto their homes, giving younger buyers fewer options.

"If you're locked in at a 3.5% rate — even if you found your dream home, swapping that for a 6.8% rate is virtually impossible," Pareja said.

Lower mortgage rates and higher supply should spark a turnaround for home transactions. Pareja and his colleagues at eXp see sales activity rising 10% next year — far above Realtor.com's 1.5% forecast.

While the housing market overall may still favor sellers, more homes for sale can help buyers secure better deals and more concessions.

President-elect Donald Trump's policies may also be a tailwind for sales activity. Stock-market strategists mostly agree that tax cuts and deregulation will boost business confidence, and McLaughlin suspects that could rub off on homebuyers.

"If you're talking about the resale market, the existing-homes market, it's hard not to become optimistic about just the broader economy, because of things like tax cuts and other benefits to households that might put more money in their pocket at the end of the day," McLaughlin said.

He added, "That might encourage them to go out and either buy a home if they don't currently own one — or grade up to a house maybe they've been waiting to over the last few years."

• Rents are dropping in Southern and Sun Belt cities after a surge in new apartment construction.
• Meanwhile rents are still going up in Midwestern and Northeastern cities.
• Rents are still quite elevated over pre-pandemic levels in most places, hurting affordability.

Communities across the country have struggled with soaring rents over the last few years. But recently, that story has begun to change.

While rents are continuing to rise, particularly in the Northeast and Midwest, they're falling in markets across the South and Sun Belt. One likely reason? A ton of new apartments.

The US is on track to build a record number of new multifamily units this year — about 500,000, thanks in large part to Southern and Sunbelt metros like Dallas, Phoenix, Raleigh, Charlotte, Nashville, and Austin. Two-thirds of the 1.8 million apartments built over the last five years were located in the Sun Belt, the real estate analytics firm CoStar recently reported.

The building boom was made possible in part by less restrictive land-use laws and other regulations governing construction, experts say.

The new supply of apartments is expected to keep rents relatively flat in the Southeast and Southwest next year, even as the rate of new multifamily construction is expected to slow significantly, said Jay Lybik, director of multifamily analytics at CoStar.

Rents fell in 15 of 21 Southern markets — falling across the region by 1.4% — over the last year, Harvard's Joint Center for Housing Studies reported this fall. Meanwhile, rents in Midwestern markets have increased by 2.7% and by 2.4% in the Northeast.

But renters in booming Sun Belt and Southern cities still face affordability issues. Rents remain far higher in most places than they were pre-pandemic. Nationwide, the average rent of main residences in cities was up about 27% between October 2019 and October 2024; in the South comparable rents grew 33% over that period.

One factor impacting affordability is that because the cost of land, building materials, and labor are elevated, developers are mostly building luxury apartments rather than mid-priced or affordable units, Lybik said.

"They're building at the top end of the price point, and so you're not getting the full impact of housing at different price levels throughout the entire market," Lybik said. Markets that are seeing more affordable apartments being built "tend to be very, very far out geographically from an urban core."

Multifamily rental housing also disproportionately caters to small households of one or two people. Markets with an abundance of studio and one-bedroom apartments may still suffer from a shortage of other types of housing, like larger for-sale homes suitable for families, Lybik said.

At the same time, rent is expected to continue climbing in the Northeast and Midwest, Lybik said. Cities from Cleveland to Boston aren't building enough new multifamily housing to keep up with a resurgence in demand in walkable, high-density neighborhoods in urban cores. Over the last year, average rent rose the most among submarkets tracked by CoStar in South Cleveland and the East Village in Manhattan.

"Cleveland has not seen very much new construction coming online, and Cleveland has been very aggressive in trying to really make their downtown and the areas adjacent to their downtown very highly amenitized, very livable, and they've definitely become very popular," Lybik said.

• Trump's Interior Secretary pick illustrates bipartisan support for housing deregulation.
• North Dakota Gov. Doug Burgum has won praise from YIMBYs and progressive urbanists.
• Bipartisan consensus on deregulation aims to boost housing supply and reduce costs.

It's hard to find a policy issue these days that doesn't deeply polarize Americans and their elected representatives. But housing — and building more of it — is a rare exception.

One of President-elect Donald Trump's cabinet appointees exemplifies this trend. North Dakota Gov. Doug Burgum, Trump's nominee for Secretary of the Interior and "energy czar," won praise from pro-housing advocates from both parties earlier this year when he made the case for denser, more walkable, mixed-use communities. As a state leader, Burgum has for years pushed for more housing construction, walkability, and density in cities like Fargo and Bismarck.

"He's been a champion of zoning reform and parking reform and transportation reform," Chuck Marohn, the founder of the urbanism nonprofit Strong Towns, told Business Insider. "He reflects a growing percentage of even Republican governors who don't think a war with cities is a good idea."

There's a growing belief across the political spectrum that skyrocketing home prices and rents are driven by a shortage of housing — and that government regulation is making it harder to address that shortage. The pro-development "Yes In My Backyard" — or "YIMBY" — movement has helped popularize this view, and it's attracted enthusiastic followers among free-market conservatives and progressive Democrats alike.

If Burgum is confirmed, he'll likely focus largely on maximizing US oil and gas production and stripping away regulations many progressives support, but he might also have a role to play in Trump's promise to deregulate and open up federal land for homebuilding.

A bipartisan consensus around making it easier to build

While builders and those in the construction industry have long complained about regulatory hurdles, their concerns weren't reflected among policymakers and the media until housing became unaffordable even for the elite, Marohn argued.

There was a turning point when college-educated millennials began struggling with the high cost of housing, while similar Americans "in prior generations, at this point in their life, would have been in homes, had some equity, not stretched so thin, starting to build some wealth," Marohn said. At the same time, the housing shortage has begun to impact communities across the country rather than just large coastal metros.

It's led to a rare cross-party alliance. "You have the intellectual elite of the progressive side of the ledger kind of merging with what I would describe as the lunch pail builder, developer on the conservative side of the equation," Marohn said.

These days, there's widespread agreement among pro-development conservatives and progressives alike that "government is the problem" and "if industry was allowed to build they would build a lot more, and that would make prices go down," said Bryan Caplan, an economics professor at George Mason University.

While Republicans use language about private property rights, free markets, and deregulation to make a case for YIMBY policies, Democrats talk about racial equity and environmental sustainability, Nolan Gray, research director for California YIMBY said.

"It's a funny situation now because you have Republicans and Democrats basically pushing for broadly the same policies but using radically different rhetoric," Gray said.

Popular deregulatory policies include legalizing accessory dwelling units, eliminating minimum lot size requirements, and rezoning to allow for mixed-use development and more housing near transit.

"In very blue places, upzoning or streamlining permit approvals may not even be called deregulation, whereas in redder places, people are more likely to lean into cutting red tape and property rights and letting the market work," Emily Hamilton, a housing researcher at the libertarian-leaning Mercatus Center at George Mason University, told Business Insider.

Burgum is an example of how a Republican governor can pursue YIMBY policy through a conservative lens, framing his support for denser housing and more walkable communities as good economic policy.

The billionaire, former software entrepreneur, oil executive, and real estate developer has championed rebuilding North Dakota's urban cores while in office. "If you want to recruit people here, you need attractive cities," Burgum said when he was first running for governor in 2016. This month, he proposed nearly $100 million in funding to encourage housing development in the state.

Three years ago, when Mark Goff and Phillip Engel had their first viewing of Château Avensac in the south of France, only one thing prevented the California couple from putting in an offer: Was it old enough?

The gate tower, supporting walls, and stone bridge at the estate's entrance date back to the original medieval castle built in 1320. But the main building — a 48-room château with sweeping views of the Gers, the rural, foie-gras-producing region of southwest France — was rebuilt in the 1820s. "The idea of the royals and the nobles, to us, is a very romantic idea," Goff says. "That's why we love 'Bridgerton.'"

In the end, they decided there was "just enough 14th-century château stuff going on" to fulfill their fantasies and make it their new home. The place was certainly big enough to host weddings and artist retreats, a business the couple was counting on to help pay for the extensive renovations that would be required. By the fall of 2021, Château Avensac was theirs for $1.2 million.

That's when reality set in.

The château had exposed electrical wiring, "nonexistent" plumbing, and stone walls that retained moisture. Everywhere they looked, there was something in need of work. So far, they've spent $500,000 updating the château's electricity, heat, and plumbing, fortifying the foundations, and replacing the roof. They've budgeted for $500,000 more. "Everyone said, 'You have to assume everything is going to be double what you expect.' And they were kind of right," Engel says. "We didn't really listen to that part."

All across France, there's a glut of châteaus for sale. While the average asking price is $2 million, smaller châteaus can go for a couple hundred thousand. A few, like the palatial mansion nicknamed the "Little Versailles of the Pyrenees," are even being given away. But there's a reason they're on the market: The properties are huge money pits.

Real estate agents say buyers should expect to set aside as much as 1.5% of the purchase price for annual maintenance, and significantly more if the château requires extensive renovations. And if the place is classified as a historic monument, as some 15,000 are, add to the process a small mountain of French bureaucracy. Plans require approval by the French minister of culture, and work must be done by designated specialists. In all of France, there are just 31 architects accredited to run these projects. What's more, the places tend to be woefully outdated and incredibly isolated.

"It's true, you can buy a château in France for nothing," says Adrian Leeds, an American real estate agent who's been in France for 30 years. "There's a reason for that: because nobody wants them!"

That is, the French don't want them. Americans very much do. "There was a razzia" — a plundering raid — "right after the pandemic," says Gonzague Le Nail, a French real-estate agent who specializes in châteaus. Most of the interest used to come from foreign buyers in the market for a second home, but now, Le Nail says, it's from families looking to relocate to the French countryside and use the château as their primary residence. Half the châteaus around Paris are foreign-owned, and inquiries from Americans are up across France.

The day they signed the deed of sale, Goff and Engel invited over all 74 residents of the town of Avensac and served them Champagne, impressing their new neighbors with the decidedly un-aristocratic sensibility they brought to their aristocratic new digs. A few months later, they hosted a "spooky Halloween" party. "They're very open, very nice, and very low-key," says Mayor Michel Tarrible, who's been a recipient of the couple's homemade cookies.

This was not Goff and Engel's first time taking on an extreme fixer-upper. In 2009, they bought a place in Sonoma County, north of San Francisco, that took a decade to renovate. They did much of the work themselves, much of it at night and on weekends. Goff documented the process on his blog. (Goff is a graphic designer, while Engel works in tech.) They ultimately sold the house for twice what they had put in.

Around 2020, Goff happened upon a #chateaulife vlog on YouTube, where a family was documenting the highs and lows of buying and renovating a château. He couldn't believe how cheap the properties were going for, and he pitched Engel on the idea of moving abroad.

"In California you can flip houses and make a lot of money," Goff says. "I knew going into this that it's not going to be like that. You do it because you want to live this kind of rustic, ruined lifestyle in the south of France."

Another chatelain, Abigail Carter, describes a similar trajectory: She had some experience transforming old, dilapidated homes when, as she puts it, she became "obsessed" with buying a château in France.

Originally from Canada, Carter and her husband lived in a succession of fixer-uppers in London, Massachusetts, and New Jersey as they moved around for work and grew their family. After her husband died in the September 11, 2001, attacks — he was visiting a trade show at the World Trade Center that day — Carter relocated to Seattle with their two kids. By 2021 she was living in a converted firehouse she'd renovated and wondering what was next for her.

She found her answer bingeing #chateaulife vlogs on YouTube. "For less than half of what you would pay here for a house, you can get an entire château," she recalls thinking. "I decided not buying a château in France was going to be more detrimental to my health than buying one."

Carter made two visits to France before finding a property she felt she could handle on her own. Château de Borie, a 12-bedroom château near Agen, had been vacant for four years. "It was almost like 'The Grinch Who Stole Christmas' with all the wires hanging," Carter recalls. But the place had good bones. Carter closed on the place in 2022, paying $610,000 and budgeting another $200,000 for furnishings and renovations.

Panic kicked in almost immediately. "My God," she remembers thinking. "What am I doing? Why am I doing this?"

Last year, an enormous cliff above Carter's property split open and rained rubble down on her property. It will likely take tens of thousands of euros to remove the debris and secure what remains of the cliff. "The cliff has been there for 300 years and it's been fine," she says. "Of course, I've owned it for a year and a half and this thing comes down on me."

But the experience has also been thrilling. "I'm bringing this house up in terms of its elegance again," she says. "French style doesn't change. It's very understated and very elegant."

Recently, a young family from Paris inherited a nearby château and began coming down for weekends. Carter says it's slowly dawning on them what it will cost to maintain it.

"They love it, but it's crumbling — literally crumbling," Carter says.

For many French sellers, what strikes Americans as romantic has come to feel like a curse. Château de l'Espinay, a 15-room manor in Brittany, has been in the family of Williams Henrys d'Aubigny for 250 years. His father, on his deathbed, made him promise never to sell. But at 79, he's overwhelmed by the time and money the property requires. He has no children of his own, and none of his younger relatives have any interest in moving to northwestern France to take over the place.

Henrys d'Aubigny, like many French owners who feel weighed down by history, is desperate to sell. But he's also prone to overvaluing what that history is worth. It's been five years since he listed the château for $2.7 million, and he still doesn't have a buyer. He estimates it needs $100,000 worth of renovations, though his real-estate agent says it's more like $1 million. There's mold, and only one functioning bathroom. The place is so expensive to heat that Henrys d'Aubigny sleeps in a guest cottage during the winter.

"He's very, very attached to his château," his agent says. "It's all he talks about. He thinks you can't put a price on culture."

For years, Henrys d'Aubigny has been holding out for a buyer who will love the place as much as he does. But then a couple from Ohio bought a château up the road; he came to admire their commitment and tasteful renovation. He now says his preferred buyer is "an American who's got a lot of money."

Most of the Americans who take on a château aren't looking for a European life of leisure. Their goal is to start a business. Carter, who just hosted her first retreat at Château de Borie, eventually hopes to generate $60,000 a year by marketing the romance of rural France to Americans and Canadians. She plans to host creative retreats for painters and writers, and "healing" retreats for widows. On her website, she sells château-themed T-shirts and art prints, and she has amassed 48,000 subscribers on her Chateau Chronicles channel on YouTube. In a recent video, she toured the grounds of her château and wondered aloud how this was all "somehow mine."

At Château Avensac, things have turned out to be even more difficult than Goff and Engel bargained for. Two years ago, Goff woke up from spinal surgery paralyzed from the chest down. The condition is temporary, but regaining the use of his legs has been a slow and difficult process, requiring five or six days a week of physical therapy. A wheelchair isn't the best way to move around a 48-room château, but Goff is making do.

Goff and Engel say they're on track to soft-launch their events business in 2025. They've also started selling château swag on their website, and they've set up a Patreon account so their fans can support the work they're doing to reclaim a part of France's history and culture.

"I live in a château," Engel reminds himself when he's feeling overwhelmed. "Yes, it's a crumbling château. But it's still a château. And there's something very romantic about that."

• Barbara Corcoran says it's "disturbing" how young people are being locked out of the housing market.
• The "Shark Tank" investor pointed to first-time buyers getting older and losing out to cash buyers.
• Corcoran said Trump-fueled inflation and stubborn rates are risks, and she doesn't see a bubble.

High prices, steep mortgage rates, and fierce competition are locking young people out of becoming homeowners, Barbara Corcoran says.

The "Shark Tank" investor and real-estate tycoon pointed to "disturbing" data from the 2024 NAR Profile of Home Buyers and Sellers during a recent interview on "Cavuto: Coast to Coast" on the Fox Business Network.

The founder of The Corcoran Group said the share of first-time buyers dropped from 32% last year to a record low of 24%. The percentage of cash buyers — who tend to be investors or second-home buyers — hit a record high of 26%. Plus, the median age of first-time buyers climbed from 35 to 38.

The report suggests that first-time buyers are increasingly being outbid by investors or people buying second or third homes who are paying in cash, and many are having to wait until they're nearly 40 to become homeowners.

All about that rate

The median sale price for existing homes rose 4% to $407,200 in October, marking the 16th straight month of year-over-year price gains, per the National Association of Realtors. Sales did rise 2.9% from a year earlier, the first year-over-year increase since the summer of 2021.

Corcoran said transactions had picked up because buyers were used to higher rates and "got tired of waiting" for them to dip. Yet she emphasized that a significant fall in rates would be "incredible" for home sales.

"Anything with a 5% in front of it is going to make this market go ballistic," she said.

Bankrate data shows the average 30-year mortgage rate soared from 3.2% at the end of 2021 to a two-decade high of 7.9% in October last year, but has since dropped to 6.9%.

President-elect Trump's plans to cut taxes and impose tariffs have stoked fears that price growth could accelerate, pushing rates higher. "Inflation is on everyone's mind and I think it's risky," Corcoran said.

She predicted mortgage rates would hover around 6% or go lower. Any rise "would slow down the market, it would slow down the whole economy, it would slow down all the support services for the housing market — it would be a terrible thing."

Corcoran also dismissed concerns that the housing market is overheated and headed for a slump. She cited the low percentage of home purchases made as investments, saying a surfeit of investors "creates a bubble big time."

"This is nothing like the last bubble," she said. "I don't see a bubble at all."

• US home prices and rents have soared in part because of a shortage of housing.
• There are four key obstacles to building more housing, according to one industry leader.
• These are the cost of land, a shortage of construction workers, regulations, and NIMBYism.

The US is suffering from a deep shortage of homes, and it's driving sky-high home prices and rents.

The laws of supply and demand explain it: the supply shortage — estimates of which range from 2.8 million homes to more than 7 million homes — coupled with an uptick in demand in recent years has sent prices soaring.

The leader of the top trade association and lobby for the home construction industry thinks there are a few key obstacles to fixing that shortage. Jim Tobin, CEO of the National Association of Home Builders, blamed the high cost of land, a shortage of skilled construction workers, burdensome government regulations, and the anti-development "Not in My Backyard" sentiment for the home shortage.

Cost of land

The cost of land — a significant portion of the cost of a home —has risen significantly in many places in recent years as its availability has plummeted, exacerbated by high demand for housing and restrictive land-use laws that prohibit dense development.

At least 75% of residential neighborhoods in many major US cities like Los Angeles, Seattle, and Chicago are zoned exclusively for detached single-family homes. This means that as demand for housing increases, these communities can't accommodate many additional homes. As demand overwhelms the supply of land, prices rise.

"We just hear more and more that it's harder to find affordable pieces of land to develop for housing," Tobin said.

A worker shortage

A national shortage of construction workers — estimated at around 500,000 workers this year — has also driven up the cost of building new housing and renovating existing homes, Tobin said, noting that skilled workers in residential construction are in particularly short supply.

Fewer construction workers means less — and slower — residential construction and higher wages for workers, which in turn leads to higher home prices. The worker shortage has mounted as policymakers have emphasized college over the trades, and a wave of experienced workers retired during the pandemic, industry experts said.

Lots of regulations

Tobin also pointed out that builders face a significant regulatory burden. Rising demand for housing in recent years has run headlong into a web of local, state, and federal regulations — from restrictive single-family zoning to energy code requirements — that slow down or kill residential construction in communities across the country, he said. When it comes to housing, state and local governments control the majority of regulations that most inflate housing costs by limiting or slowing down construction, but federal regulations also play a role.

"Those delays all add up to more costs and less availability," Tobin said. "We need all options on the table when it comes to increasing housing supply, which means allowing more density in suburbs or cities."

'NIMBY' opposition

Many of these restrictive regulations are bolstered by local opposition to new housing — epitomized by "NIMBY," or "Not in my backyard," sentiment, Tobin said. Many local homeowners oppose new construction for the simple reason that additional housing in their community would depress their home values, he argued.

"One of the challenges we have in localities across the country are people that already have theirs, and they don't want anybody to have theirs," Tobin said. "We have local government officials that won't back more housing development because they're afraid of the backlash from local constituents."

The future of housing

Tobin said the strength of the overall economy and interest rates will also play a major role in determining housing costs over the next few years. He expects mortgage rates to settle into a "new normal" of about 5 to 5.5% by 2026, lower than the current 30-year fixed rate of 6.79% but above the pre-pandemic average.

Looking to next year, Tobin said he expects President-elect Donald Trump to have a mixed impact on housing costs. He's optimistic Trump will roll back some federal regulations and open up some federal land for new housing, but he's concerned about mass deportations potentially shrinking the already scarce supply of workers, and new tariffs inflating the cost of building materials.

Tobin said he plans on working with Trump's transition team, the new administration, and Congress to advocate for tariff policies that don't send building costs surging. "I would certainly welcome an increase in domestic industry when it comes to building materials," Tobin said, "but tariffs only work if that is the outcome."