2025 Housing Market
Written By: Andrew Dehan
Source: bankrate.com
The housing market in 2025 could have a more favorable outlook than much of 2024 had, due to improving mortgage rates and inventory levels. Home prices, mortgage rates, inventory levels and more will all shape housing affordability moving into 2025. Curious where these trends may go? Read on to learn what the experts predict for the 2025 housing market.
What will happen to the housing market in 2025?
After rising just above 8 percent in October 2023, the average 30-year mortgage rate has dipped to 6.84 percent as of early December 2024 — an improvement, to be sure, but not the big drop many were hoping for. Many experts do foresee mortgage rates decreasing slowly over the next year, though.
“Lower interest rates will unleash some of the pent-up demand for housing in 2025,” says Bernard Markstein, president and chief economist for Markstein Advisors. “This will help keep mortgage rates above their ultra-low rate of just a few years ago, [but] rates will be lower than current levels.”
Housing inventories have also been improving of late, with a 4.2-month supply at the end of October 2024, according to existing-home-sales data from the National Association of Realtors (NAR). While that is still below the 5 to 6 months typically needed for a balanced market, it’s a significant improvement from the 2.9-month supply seen back in February. And there’s growing optimism among homebuilders, too, with lower interest rates granting more potential access to capital.
Political implications
On top of typical housing concerns, there’s also the question of how the incoming presidential administration could impact housing. “Investors are anticipating that if President-elect Donald Trump implements a significant portion of his proposed tax cuts and tariffs, and the economy stays strong, the Fed will only cut its policy rate twice in 2025, keeping mortgage rates high,” Redfin economists Daryl Fairweather and Chen Zhao said in their 2025 predictions. As for new construction, they say, “the Republican sweep of the White House, Senate and House has improved builder confidence by bringing renewed optimism that regulatory burdens may ease.”
Will home sales decline?
The volume of homes sold fell off in 2024, with NAR’s existing-home sales numbers finally rising slightly in October for the first time since back in 2021. Many buyers have been staying on the sidelines, anticipating lower mortgage rates to come in 2025 and hoping for prices to moderate.
“Home sales have been essentially stuck at around a four-million-unit pace for the past 12 months, but factors usually associated with higher home sales are developing,” NAR Chief Economist Lawrence Yun said in an October statement. “There are more inventory choices for consumers, lower mortgage rates than a year ago and continued job additions to the economy.”
In fact, CoreLogic, a real estate data firm, predicts total home sales will increase by 9 percent in 2025 compared to 2024, according to chief economist Selma Hepp. “In addition to lower mortgage rates helping drive home-sale activity next year,” she says, “greater availability of homes for sale will help homebuyers’ choices and improve affordability, as it reduces the probability of bidding wars and escalating home-price appreciation.”
The lower rates go, the more likely we’ll be to see homeowners locked into lower rates finally feel comfortable about selling their current home to buy a new one. “Roughly 70 percent of mortgage debt is currently below a 5 percent interest rate,” says Nina Gidwaney, head of refinance and home equity at Chase Home Lending. “If rates continue to decline, we’ll likely see the lock-in effect soften, and consumers will be more willing to purchase a home and take on a higher rate than they currently have.”
Will housing inventory increase?
Inventory has been rising, albeit slowly. But if it is to grow meaningfully in 2025, don’t expect it to come from existing homes, says Greg McBride, CFA, Bankrate’s chief financial analyst. “Mortgage rates won’t fall enough [in 2025] to spur an increase in existing-home inventory, with most of the increase in inventory seen in the market coming from new construction,” says McBride.
The National Association of Home Builders (NAHB) regularly surveys builders for its monthly Housing Market Index (HMI). The HMI data released in October found that more than half of builders surveyed had a positive outlook for new home sales in the next six months. “While housing affordability remains low, builders are feeling more optimistic about 2025 market conditions,” said Carl Harris, NAHB chairman, in a recent statement.
Will home prices go down?
The median sale price for an existing home in the U.S. hit a record-high $426,900 in June 2024, according to NAR. While it has since dipped slightly, it remains higher than last year. These rising prices are likely to continue in 2025, but at a slower pace. CoreLogic predicts that home-price appreciation will slow to an average growth of 2 percent for 2025, as compared to 4.5 percent growth in 2024, according to Hepp.
Markets with greater inventory are the ones most likely to see home prices drop, Hepp adds, while popular regions with less new inventory, particularly in the West and Northeast, will continue to see steady price increases. The top markets for price increases in the next year include Miami, Boston and Denver, CoreLogic forecasts. Markets that it predicts will be most susceptible to price decreases include Atlanta and Salt Lake City.
McBride agrees that, while overall prices are not likely to go down in 2025, they won’t rise quite as much: “Home-price appreciation will be particularly tepid, with many markets seeing little or no change in prices,” he says.
Will 2025 be a buyer’s or seller’s market?
While the housing market improved for buyers over the course of 2024, it remains tight enough that 2025 is likely to remain a seller’s market in most areas. The good news is that inventories and demand appear to be coming more into balance, but “many regions remain significantly undersupplied, making it difficult to experience a buyer’s market,” says Hepp.
According to McBride, “Most areas will still lean toward a seller’s market due to limited inventory. However, those markets that have seen a surge in inventory will definitely be more of a buyer’s market and will be susceptible to price declines.”
