By: Chris Webb, Economics Instructor ECPI University Virginia Beach, VA
Real estate agents, mortgage professionals, and others tied to the real estate market will always tell you that it is a good time to buy. Since the COVID-19 pandemic, they were correct and by a wide margin. Home values in Lynchburg since early 2020 have increased by nearly 50 percent. But what would an economist say the Lynchburg housing market looks like? Unlike mainstream economists, I know economic models are built on information from the past. This is why economists are rarely accurate in forecasting. I study housing here in Lynchburg and use my economics background to track trends, not to forecast.
Is 2025 going to continue the post-Covid trend? We’ll see, but first let’s examine 2024 to have a baseline understanding.
2024 Review
As time passes from the pre-pandemic levels of 2019, the market dynamics show tempered demand. Prices are up, but not as much as they were closer to the pandemic. The trend is still up since 2020, but it did moderate in 2024 to an approximate 3 percent overall price increase. This should be good for buyers as the days for multiple offers on home purchases are gone, right? Well, it depends.
The 2025 Situation
First, mainstream media has a binary approach when it comes to housing. They report that it can either shoot up or crash. The economics show neither,
but of the two, prices rising seems more likely than a crash (which is defined as a 20 percent decline).
When aiming to forecast the housing market for 2025, it’s important to consider the aggregation of multiple segments in the macroeconomic market. For example, the entry-level market differs from the move-up market. Entry-level homes (single-family homes only) are roughly 60 to 90 percent of the median sales price ($149K to $223K of the $248,390 listed on Zillow). As of January 3rd there are thirty-five homes on the market in this range. Half of these homes are in zip code 24501, which has the lowest population growth in the city, while 24502 has only seven listings in this price range and a higher population growth. If someone is looking to buy in 24502, they could see multiple offers from other prospective buyers. Sales in this range will maintain price levels and maybe even rise based on these market fundamentals.
The move-up buyer is different. They have a home and are looking to move up for some reason, such as an expanding family or changing work situations. These buyers are looking for a home that is 85 to 150 percent of the median price range ($211K – $375K). As of this writing, in 24502 there are thirty-seven of these listings—well above the seven in the entry-level range. Transactions here will stay low because of what many are calling the “lock-in effect.” The lock-in effect refers to a group of homeowners who purchased homes prior to an increase in interest rates. A move-up buyer in this lock-in effect group could see double the monthly cost by leaving their entry-level home. The homeowners here are just not moving, and this could cause price drops for sellers in this market, because there is not as much demand for the move-up home. It is important to note that when a price drops on a listing it does not mean a sale is imminent. Instead, it might indicate the demand in the segment is not consistent. Sellers in this segment might simply remove the listing altogether and wait for market conditions to improve.
Rates – Higher All Year
Unfortunately, rates in 2025 will likely persist at the higher levels. The Federal Reserve is focused on unemployment now but keeping an eye on inflation. This is important because one recent report shows housing sensitivity from both mortgage rates and the misunderstanding of real estate sales in the inflation metrics. When house values shot up, but rents did not follow, it may have tricked the Federal Reserve into thinking inflation is lower than it really is. This creates uncertainty with the Federal Reserve, and it will likely keep rates higher in 2025.
Two Lynchburg Markets, But One Direction
To review, the 2025 Lynchburg housing market will most likely see steady pricing throughout the year due to the entry-level market having persistent sales while the move-up market will see fewer sales. The entry-level price will push up the overall median price in Lynchburg, and if any movement occurs in the move-up buyer, prices will go up significantly more; this is why a price increase is more likely. Higher rates will persist, and the local market will not see drastic swings like other areas of the US. Keep an eye on the national media, but in the end all real estate is local—so keep a closer eye on your street.
References
Banerjee, R., Gorea, D., Igan, D., & Pinter, G. (2024). BIS Quarterly Review, December 2024.
Bank for International Settlements. Retrieved from https://www.bis.org/publ/qtrpdf/
r_qt2412c.htm
Lambert, L. (2025, January 2). 73% of U.S. Mortgage Borrowers Currently Have an Interest Rate Below 5.0%. ResiClub Analytics. Retrieved from https://www.resiclubanalytics.com/
p/73-of-u-s-mortgage-borrowers-currently-have-an-interest-rate-below-5-0
U.S. Census Bureau. (2020). American Community Survey 5-Year Estimates, 2020. Retrieved from https://api.census.gov/data/2020/acs/acs5/subject
U.S. Census Bureau. (2023). American Community Survey 5-Year Estimates, 2023.
Retrieved from https://api.census.gov/data/2023/acs/acs5/subject
Zillow Research. (2025). Housing Market Trends in Lynchburg, Virginia. Zillow.
