Welcome to our in-depth real estate market update for May 2025! At the Shepherd Real Estate Team, we’re committed to empowering our clients with the most accurate and actionable insights to navigate today’s complex housing landscape. As we close out May, our proprietary data paints a detailed picture of a market in transition—cooling in some areas but still resilient in others. Whether you’re a first-time buyer, a seasoned seller, an investor, or simply curious about real estate trends, this comprehensive report is designed to guide your next steps.
Home Prices: A Cooling Trend with Regional Nuances
Our April 2025 data reveals a significant shift in the housing market, with home prices declining month-over-month in 27 out of 50 states and over 60% of U.S. counties. The typical U.S. home price in March 2025 stood at approximately $361,000, but our updated forecast projects a -1.7% decline in home prices from March 2025 to March 2026. This marks our first negative price outlook in years, driven by persistent affordability challenges that are tempering buyer demand.
Regionally, the picture is varied. Sun Belt markets, particularly along the Gulf Coast, are experiencing the most pronounced softening after years of explosive growth during the pandemic. Cities like Tampa and Phoenix, once darlings of the real estate boom, are seeing increased inventory and slower price appreciation. Conversely, the Northeast and Midwest—markets like Boston, Minneapolis, and Cleveland—are holding steadier, buoyed by tighter inventories and sustained demand. This divergence underscores the importance of local expertise when making real estate decisions.
For buyers, this cooling trend could translate into slightly more negotiating power, especially in overbuilt Sun Belt regions. However, don’t expect a fire sale—low supply continues to provide a floor for prices, preventing sharp declines.
What This Means for You:
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Buyers: Focus on well-priced homes and be prepared to negotiate, particularly in markets showing signs of softening. Consider working with a local agent to identify undervalued properties or motivated sellers.
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Sellers: Price your home competitively to attract cautious buyers. Highlight upgrades, energy-efficient features, or desirable locations to differentiate your property in a cooling market.
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Investors: Look for opportunities in markets with softening prices but strong long-term growth potential, such as secondary cities in the Midwest.
Inventory: Tight Supply Persists, but Cracks Are Forming
Inventory remains a defining factor in today’s market. Our April 2025 data shows active listings were only 2.9% higher than April 2024 and a striking 45.8% below April 2019 levels, reflecting a chronic shortage of available homes. In Orange County, for example, inventory reached 3,203 homes in April, with 677 new listings added in a single week—a welcome increase but still insufficient to meet demand.
Nationally, our market temperature index registered at 55 in May 2025, signaling a seller’s market despite cooling trends. This score reflects a balance of buyer interest and limited supply, keeping competition alive for well-priced homes. However, the gradual rise in listings is giving buyers more breathing room compared to the frenzied markets of 2021–2023. In some regions, homes are staying on the market longer, with days on market declining only slightly in competitive areas.
The tight supply is partly due to the “lock-in effect,” where homeowners with low mortgage rates (often below 4%) are reluctant to sell and face today’s higher rates. This dynamic continues to constrain inventory, supporting prices even as demand softens.
What This Means for You:
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Buyers: Act decisively on properties that meet your needs, as desirable homes are still selling quickly. Work with an agent to set up alerts for new listings in your target area.
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Sellers: Avoid overpricing, as buyers are more discerning. Professional staging, high-quality photos, and targeted marketing can help your home stand out.
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Homeowners: If you’re considering selling, evaluate your equity position. Our team can provide a free market analysis to assess your home’s value in today’s market.
Mortgage Rates: A Barrier to Affordability
Mortgage rates remain a significant hurdle for buyers. Our April 2025 data reports the average 30-year fixed-rate mortgage at 6.34%, a slight dip from March’s 6.54%. Industry projections suggest rates will stabilize around 6.5% through 2025, with potential for modest declines if economic conditions improve. However, rates are unlikely to return to the sub-3% levels of 2020–2021 anytime soon.
High rates have eroded affordability, with a mortgage payment on a typical $361,000 home requiring about 35.3% of median household income (assuming a 20% down payment). This exceeds the 30% affordability threshold, pricing out many first-time buyers and delaying the spring buying season’s momentum. The result is a cautious buyer pool, with some opting to rent or wait for better conditions.
What This Means for You:
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Buyers: Shop around for the best rates and explore creative financing options, such as adjustable-rate mortgages, FHA loans, or lender credits. A 20% down payment ($72,000 on a typical home) can help avoid private mortgage insurance (PMI).
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Sellers: Be patient, as high rates are reducing the number of qualified buyers. Consider offering concessions, like covering closing costs, to attract offers.
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First-Time Buyers: Look into down payment assistance programs or co-buying arrangements to overcome affordability barriers. Our team can connect you with trusted lenders to explore these options.
Rental Market: Steady Demand, Slower Growth
For those considering renting or investing, our data highlights a slowdown in rental price growth. In April 2025, asking rents increased 0.6% month-over-month (consistent with seasonal trends) and 5.3% year-over-year, but the pace is decelerating compared to the double-digit jumps of prior years. We project single-family rents to rise 3.7% and multifamily rents 3.1% in 2025, driven by sustained demand from households priced out of homeownership.
The rental market remains robust, particularly in urban and suburban areas with job growth. However, increased multifamily construction in some markets is easing pressure on rents, offering tenants more choices and occasional concessions, such as a free month’s rent.
What This Means for You:
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Renters: Expect moderate rent increases but negotiate where possible, especially in markets with rising apartment supply. Ask about move-in specials or flexible lease terms.
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Investors: Rental properties continue to offer stable cash flow, particularly in high-demand areas. Our team can help you identify turnkey rental opportunities or properties with strong appreciation potential.
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Landlords: Maintain competitive pricing and invest in minor upgrades (e.g., modern appliances) to attract quality tenants in a softening rental market.
Construction and Foreclosures: A Tale of Slowdowns and Stability
Construction activity is waning, with single-family housing starts dropping 14.2% month-over-month and 9.7% year-over-year in March 2025, according to our data. This slowdown reflects builders’ caution amid high interest rates and construction costs, which could further tighten inventory in the coming years. Meanwhile, completions rose modestly by 0.9% month-over-month, offering a small boost to supply.
Foreclosure activity is up but not alarming. Our data shows 68,794 properties entered foreclosure in Q1 2025, a 14% increase from Q4 2024 and 2% from Q1 2024. However, completed foreclosures (REOs) declined 4% year-over-year, and levels remain well below historical peaks. In Orange County, for instance, only five homes sold at foreclosure auction in April 2025, despite media narratives about rising distress. Most distressed properties are being absorbed by well-funded investors before hitting the retail market.
What This Means for You:
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Buyers: Foreclosure deals are rare and highly competitive, often requiring cash offers. Focus on traditional listings or new-construction homes for better opportunities.
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Homeowners: Leverage your equity to avoid financial distress. If you’re struggling, contact our team to explore options like selling or refinancing before foreclosure becomes a risk.
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Investors: Monitor foreclosure auctions for potential deals, but be prepared to act quickly. Our team can provide real-time alerts on distressed properties in your market.
The Bigger Picture: Why Real Estate Remains a Smart Investment
Despite economic headwinds, real estate continues to be a cornerstone of wealth-building. Homeownership offers stability, tax benefits, and the potential for long-term appreciation. Our data underscores that record-low supply acts as a buffer against sharp price declines, even as affordability challenges persist. Today’s homeowners also benefit from strong equity positions, reducing the risk of a 2008-style crash.
At the Shepherd Real Estate Team, we believe real estate decisions should align with your personal goals. National trends provide a backdrop, but local dynamics drive outcomes. Whether you’re in a resilient Midwest market, a softening Sun Belt region, or a competitive coastal hub, our team’s expertise ensures you’re positioned for success.
Market Outlook: What to Watch in the Coming Months
Looking ahead, several factors will shape the market:
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Mortgage Rates: A sustained drop below 6% could reignite buyer demand, potentially pushing prices up in low-inventory markets.
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Economic Conditions: Job growth and inflation trends will influence buyer confidence. A stronger economy could bolster the market, while uncertainty may prolong caution.
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Policy Changes: Potential shifts in housing policy or tax incentives could impact affordability, particularly for first-time buyers.
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Regional Shifts: Keep an eye on secondary markets (e.g., Raleigh, Boise) that are gaining traction as alternatives to pricey coastal cities.
Partner with the Shepherd Real Estate Team
At the Shepherd Real Estate Team, we’re more than just agents—we’re your trusted partners in achieving your real estate goals. Whether you’re buying your dream home, selling to capitalize on equity, or investing to build wealth, our data-driven approach and local expertise set us apart. Here’s how we can help:
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Buyers: Access exclusive listings, negotiate the best terms, and navigate financing with our network of trusted lenders.
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Sellers: Maximize your home’s value with tailored pricing strategies, professional marketing, and expert staging advice.
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Investors: Identify high-yield rental properties or undervalued assets with our proprietary market analysis tools.
Ready to take the next step? Contact us today for a no-obligation consultation, a free home valuation, or a curated list of ready-to-rent investment properties. Visit our website or call us to connect with one of our experienced agents.
Darren Shepherd
Shepherd Real Estate Team
Sources: Shepherd Real Estate Team Proprietary Data, ResiClub, Forbes, Ramsey Solutions, OCREI
