2025 Housing Suds: Tastes Great or Less Filling?

Remember those classic Miller Lite commercials? Two sides passionately argue whether a light beer "tastes great" or is "less filling" never able to agree, always ending in a shouting match. So goes the housing market in 2025.  Same debate, different beverage.

The New York Times [1] recently captured our current predicament perfectly: homebuilders are offering incentives worth more than 13% of a home's cost (double the normal rate), as nearly 40% are cutting prices by an average of 5%.  Talk about “shrinkflation” the article references that they are building homes on lots that are 460 square feet smaller than just seven years ago.  Moreover, home sales are down 8.2% year-over-year, and inventory is at its highest level since 2019.  Ever wonder why it could never work the other way, where builders cut 13% from the list prices?  That will never happen!  While the pours are many, the collar always rises to the top. 

Do do not let the housing pundits tell you what you already know about it.  It’s unaffordable without a mortgage [2].  Like those old commercials, we've got two new teams screaming at each other plus a third option worth hearing out. 

Team “Less Waiting” (Lower Home Prices)

The very best way to make real estate zesty again, is to lower the price.  My uncle was a home builder in Colorado, and he once told me, “eventually everything sells.”  That may have worked in the 1980s in Parker, but today is era of buy now-pay later.  High mortgage rates aren't helping, inventory keeps climbing, and sellers are showing “bitter beer face.”

This is the crowd that's been waiting for affordability to return willing to buy it with both hands, and feet.  The only problem is they want home prices to drop enough that real estate becomes palatable for regular families again not just Blackrock and tech titans.

Here's why it’s the most likely outcome:

Inventory: Housing inventory has been climbing for 14 consecutive months. When you've got 17% [3] more homes on the market than last year, sellers are listening to offers.

Profitability: Major players like Lennar are still offering massive incentives. D.R. Horton reported home sale revenues dropping from $9.2 billion to $8.6 billion year-over-year. When the big guys are feeling pressure that should have a ripple effect, on suppliers and the industry.

Mentality: As one Zillow economist noted, "price cuts are the clearest signal sellers recognize the market has shifted" [4]. Once that mental shift happens, "tastes great" pricing becomes the new normal.

PBV [Probability By Volume]: The longer the rates stay with a six-handle [5], the longer it takes to sell a home.  Increased marketing times only invite competition, and force sellers to compete.  The Fed is not on a preset course; they are data first, cut rates later. Let’s set the line of 11:9 that lower prices bring relief.

Team "Great Rate!" (Lower Rates)

The next best way to enhance real estate taste - lower the payment.  The Fed has stated for years now that the current policy is “restrictive” [6]. They are 100 basis points closer to neutral, wherever neutral rests.  If the Fed pivots and mortgage rates drop to the mid-5s, everyone may grow beer muscles for bigger monthly payments.  Meaning, more house, more debt, more leverage- advantage sellers.

This is the camp that doesn't mind paying peak prices because the hangover comes 30 days later.  Lower rates are like light beer, sure, the total consumption might be the same, but it goes down easier, tricking you into drinking more.

Here's the less fulfilling scenario:

Fed Funds: Jerome Powell recently acknowledged that "the shifting balance of risks may warrant adjusting our policy stance." Meaning, prepare for the Fed to shift from neutral.  However, seeing is believing.

Demand: The NYT mentioned "a ton of pent-up demand" sitting on the sidelines. Drop rates by 150 basis points, and that means everyone is 150bps closer to qualifying.

Supply: How deep is this housing shortage [7]?  We have had solid inventory growth, but home prices are hardly “on sale.”  If more buyers come out from the woodwork, then more buyers are chasing the same homes means prices won't fall, enough!

PBV: Perhaps the less likely scenario, let’s set the line at 7:13.  It looks better by the day to those in the industry but akin to the classic "be careful what you wish for" outcome.  Lower monthly payments based on paying peak prices for the privilege.

Win, Lose, or Withdrawal!  The Meds Nobody Wants

It’s hard to turn off the lights and ask everyone to leave.  Hemmingway taught me, the sun also rises.  Least likely, but most rewarding, would let the economy and housing market work it out.  No Fed intervention.  No dramatic rate moves.  No price crashes.  Just... sobering up, allowing wages to slowly, painfully catch up to home prices while we all deleverage (debt withdrawal). This was the quasi-rebuttal Jerome Powell alluded to in past FOMC pressors [8]. The housing market is not part of the dual mandate.

Let's be honest this is the outcome nobody's rooting for, even though it might be the healthiest long-term.  We're addicted to leverage, love the idea of Fed intervention.  Salvation is just one or four hundred basis points away.  Besides, Home Equity and the National Debt are nearly at parody (opposite but equal).

The withdrawal symptoms include:

• Wage growth of 4-5% annually while home price appreciation slows to 2-3%

• Smaller homes on smaller lots becoming the new normal

• Cities relaxing building requirements

• Creative financing products keeping the addiction manageable

PBV: 1:9, at best.  Honestly, when has America ever chosen the sober option when debt is for dinner?

The Hangover

Here's the reality nobody talks about: everyone says they want "less waiting" pricing (lower home prices), but the minute they own real estate, they desperately want the "great rate" outcome (lower rates that drive prices up). It's like the aftertaste effect. You complain about expensive beer while you're buying it, but once it's in your system, you want everyone else to pay even more for the same brew.

That's why the "going sober" option feels so unappealing. It requires admitting we're addicted to debt, to Fed intervention, to the idea that asset prices only go up. Withdrawal in a consumer driven economy is uninspiring, uneventful, and unexciting.

Last Call

The essence of the “Lite” beer campaign was that it never resolved the argument.  It was tribal before tribal was a buzzword (ha)!  Both sides were right, and both sides were wrong, and they got you to pick a side. 

The housing market is the same way. Whether prices become more palatable or rates make consumption easier, the real winners are those who show restraint. 

Because at the end of the day, whether it tastes great or is less filling, the goal is getting it “right,” not “lite!”  In other words, it’s the right home at the right price with the right rate and the right time.  Those are odds you will have to calculate for yourself. 

Chin Chin!

References

1. The New York Times: [https://www.nytimes.com/2025/08/25/business/housing-market-builders-demand.html#:~:text=A%20slow%20start%20to%20the,and%20build%20on%20smaller%20lots.&text=High%20mortgage%20rates%2C%20anemic%20housing,or%20selling%20their%20existing%20one.]

2. National Association of Realtors: [https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index]

3. Realtor: [https://www.realtor.com/research/july-2025-data/]

4. Zillow: [https://www.zillow.com/learn/home-prices-falling/]

5. Freddie Mac: [https://www.freddiemac.com/pmms]

6. Federal Reserve: [https://www.federalreserve.gov/newsevents/speech/powell20250822a.htm]

7. Newsweek: [https://www.newsweek.com/map-shows-states-biggest-housing-shortages-2093408]

8. Fortune [https://fortune.com/2024/09/19/jerome-powell-fed-cant-fix-housing-crisis-mortgage-rates/]