Fewer and fewer homeowners are feeling locked into their mortgage rates, experts say, and they predict the 2025 spring market could see more listings. iStock illustration

With more Federal Reserve rate cuts expected, some see positive signs that 2025 could see a more balanced housing market as the lock-in effect dwindles in Massachusetts.

As of Oct. 31, the year-to-date median home price for single-family homes in Massachusetts had increased from $570,000 to $616,925 year-over-year. Additionally, the year-to-date number of sales increased from 34,226 to 34,784.

Instead of seeing big sales increases in the spring, Massachusetts’ 2024 spring housing market started slow and got busier with time and into the summer, said Colleen Barry, CEO of Gibson Sotheby’s International Realty.

“2024 was definitely an improvement over the last year, but with an exceptionally slow start, and then the normal pause around elections in the holiday season, and then when we look at 2025 there are a ton of positive markers,” she said.

But a more balanced market doesn’t mean lower prices, experts said. While Gerry Bourgeois, senior advisor to the CEO and COO at Lamacchia Realty, doesn’t expect a stark increase in prices next year, the lack of supply in homes will continue to see prices tick upwards.

“I don’t see prices coming down,” he said. “They may moderate a little bit just because it’s just an affordability issue.”

Reduced Lock-In Effect

The average interest rate on a 30-year, fixed-rate mortgage has moderated from May’s 7.22 percent high, according to mortgage-buyer Freddie Mac.

If they keep on a downward trajectory in the coming months, fewer homeowners will be feeling the “lock-in” effect once the spring housing market comes around.

For a state that struggles with supply, this could help get more homes on the market in 2025, Barry said.

Lower interest rates will help buyers’ purchasing power, said Amy Wallick, 2024 president of the Massachusetts Association of Realtors and a Realtor at Lamacchia Realty’s Beverly office. And, she added, the housing market will start to see the effects of the lock-in effect dwindle over time.

“I think people that are kind of adjusting their mindset to this new climate of interest rates,” she said. “I think everyone that was taking advantage of those two and 3 percent rates. I think those people that maybe are locked into those rates, but have been thinking about moving, or have a need to move, are likely kind of getting a bit more comfortable with a higher interest rate on their next purchase.”

But Ryan Castle, CEO of the Cape Cod & Islands Association of Realtors also believes that Federal Reserve interest rate cuts – whether driven by an improving economy or forced by President-elect Donald Trump once he takes office – could increase demand and possibly lead to more prominent price increases

“I would expect, if rates start actually falling at any real clip, you’re going to see people get back into the marketplace, and that movement may trigger more demand – which may, you know, jump prices more sharply than their steady increase,” he said.

Fixing Supply a Long-Term Game

Overall, Barry expects to see more houses on the market and an increased amount of supply.

She applauded the work of Gov. Maura Healey for policies and initiatives such as the way her administration has implemented the MBTA Communities law that aim to help increase supply.

“There’s a lot of effort to try to increase housing because that’s been the primary struggle,” she said. “Everybody’s trying to solve this affordability issue. Really, at the heart of it is a lack of supply. Demand has continued to go up. Supply has lagged way behind, and there are so many reasons for that, but the governor, her office is really trying to see if they can increase housing quickly.”

But Massachusetts’ housing supply issues cannot be fixed in a year, Barry and other experts say.

The state has historically under-built relative to demand and despite limited reforms like the MBTA Communities law, restrictive zoning and other local policies make it hard to construct housing in most towns and cities.

“When developers build here, they tend to build something that’s at the higher end of the market, not necessarily more in the entry-level or in the mid-level of the market,” Barry said. “Those things really contribute to why we’re not going to suddenly see inventory coming on the market. We’re not going to suddenly see our supply problems over the last 30 years get solved in the next six months. It’s going to take a while.”

Sam Minton

Bourgeois, of Lamacchia Realty, believes that a faster way to fix Massachusetts’ lack of supply will only be found when substantially more homeowners start wanting to put their houses on the market.

“But in Massachusetts, what’s going to help with the inventory levels? It’s going to be just more people decided that it’s now time for them to sell, whether they’re going to cash out and retire, [and] move somewhere else,” he said.

With interest rates coming down and a potential increase in supply, experts believe that the market could shift towards the middle with sellers not having as much power over buyers. Still, sellers will have the upper hand in 2025.

Wallick said that the market is trending in the direction of a more balanced market but that lack of supply and high levels of demand will continue to give sellers the advantage.

“There’s still a lot of opportunity, if you will, for buyers,” she said. “If they’re in the right place, they can afford it, and that’s something that they’re ready to do. I still think there’s a lot of opportunity on that side as well.”