Housing Market Predictions For 2025

Whether you’re looking to buy or refinance, it’s key to have your finger on the pulse of the housing market. But people don’t participate in real estate every day, so it makes sense to let the experts do the hard work. But even those who are steeped in the data aren’t oracles. You have to look at the opinions and ultimately make up your own mind based on your situation.

While new data points can always change things, we’ll go over some of the key questions you might have on your mind and the housing market predictions that analysts have on those topics.

Key Housing Market Takeaways

• Home inventory is expected to increase, but not so much for new homes.
• Mortgage rates are generally expected to fall, if only modestly.
• Home prices can be expected to rise, but at a slower pace than in recent years.

2024 Real Estate Trends

Before we move forward, let’s use 2024 as a baseline for where we’ve been. Here are the trends that defined the housing market last year. Because this was drafted before the holidays, the data collected for visuals is accurate as of the second week of December. By the way, if you’re curious, see how we did on our 2024 housing market predictions.

Mortgage Interest Rates

Mortgage rates in 2024 started at 6.62% for a 30-year fixed mortgage, according to the Freddie Mac Primary Mortgage Market Survey. As of mid-December, the rate was 6.6%. On the surface, that’s not much movement. But it was a roller coaster ride getting there. 

Rates were as high as 7.22% on May 2. The Federal Reserve didn’t pivot from a concern about tamping down inflation until mid-September, so for much of the year, rates were on the high side. That September timeframe was the height of mortgage rate exuberance. The Fed had just cut the range for the federal funds rate and the average 30-year rate was 6.08% on September 26. 

Home Prices

Our friends at Rocket Homes^SM keep track of monthly data around median list and sale prices for homes on the site.¹ I think the most remarkable thing about this data is how unremarkable it is. Yeah, I can explain if you’ll bear with me for a couple of paragraphs.

In January, the market was coolest, with the median list price being $360,023, but with the median home eventually selling for just $347,425. Things really heated up in June with kids out of school and the weather being good for open houses. The median list price was $392,538 and the median sale price ended up at $391,811. November was the latest data available, with the median list price being $374,069 and homes selling for $374,781. 

This represents a very typical pattern in that home prices are lower during the winter months. Not many people are trying to move during the holidays without being motivated, so the homes that are sold tend to go from lower prices. Many more buyers are out during the summer months and sellers can get a higher price typically.

But what’s special about this is that we haven’t had a normal housing market for a while. COVID-19 and the low rates coming out of it led to a couple of years of hotter than normal housing markets throughout the fall and into the winter. 2024 might be the year the real estate market got a reset.

The market might be settling in general. Driven by people being dissatisfied with their living spaces after spending so much time in them due to COVID-19, there was a housing inflation storm that came along with rapidly rising demand coupled with increased buying power due to low mortgage rates.

The Case-Shiller national index of home prices has risen 8.92% on an annualized basis over the last 5 years, as of September. But new to date, that number is only 4.92%. That’s a little below the longer-term 10-year average of 6.86%.

Housing Inventory

When it comes to housing inventory, the actual number of homes for sale tells you very little by itself. What’s important is how that supply compares to the level of demand. The traditional metric often used takes a look at months’ supply on the market. This measures how long it would take to sell out of home inventory if sales continued at their current pace.

There are a couple of very different stories here in terms of inventory for new construction or existing (preowned) homes. It’s usually said that the market is in healthy balance between buyers and sellers when there’s roughly 6 months’ worth of inventory. Although we’ve talked about a national picture, variations in regional housing inventory can greatly impact market prices.

The market for existing homes has typically held in the 3 – 4-month range. This means that the market has been weighted toward sellers for quite a while. In some ways, this is still the result of the pandemic. Mortgage rates were so low for a while after the pandemic that there was a boom in refinancing. Now people want to hold onto the rate as long as they can, and they aren’t selling.

New homes can be a bit of a different story. These inventory numbers are higher for a couple reasons:

First, many people consider existing homes before new ones because they tend to be slightly cheaper when looking at the median. Second, once built, new homes aren’t really taken off the market because the builder needs to recoup the cost. So inventory may naturally be higher in the winter months if homes are still sitting there but no one is looking.

Housing Market Predictions In 2025

With 2024 now in the rearview mirror, let’s look ahead to what several market participants think might happen in 2025. We’ve bucketed these into sections you can use to guide your decisions if you think you may enter the housing market.

What Factors Will Stabilize The Housing Market?

The housing market would benefit from a few factors to relieve the affordability challenges faced by some: more housing inventory, lower mortgage rates and moderating price growth. Let’s take a look.

Housing Inventory

When it comes to inventory, new homes are probably the best place to start because it’s stock that didn’t exist before. The National Association of Home Builders (NAHB) predicts a small 0.64% increase in single-family home starts to 1.011 million. Definitions are confusing, but a home with four units or fewer is a single-family home and you can get a residential mortgage.

Of course, that’s just shovels in the ground, but once you start to build a home, you don’t often stop, so it’s an indicator of supply.

Others have opinions on housing starts as well, with Fannie Mae seeing housing starts falling 1% to 995,000. The Mortgage Bankers Association (MBA) thinks single-family starts will be up 6.75% to 1.075 million. 

Of course, then there’s existing inventory. The National Association of REALTORS^® (NAR) tracks these on a regular basis and they think existing home sales will be up anywhere from 7% – 12% in 2025. Meanwhile, the NAHB predicts air 5.02% increase in existing sales to 3.85 million. The MBA thinks existing home sales will be up about 5.12%. Fannie Mae predicts a 4.8% increase to 4.251 million existing homes sold.

Freddie Mac doesn’t give specific numbers in their forecast or break it down by new vs. existing homes, but they do see inventory generally increasing.

Mortgage Rates

What about mortgage rates? Will consumers be able to find more affordable financing? That would be important for stability. Before we get there, let’s set some context.

First, these predictions were all made by experts prior to the Fed’s most recent meeting. The federal funds rate impacts loans across the spectrum in the U.S., mortgages included. They tend to follow the same general direction.

For 11 consecutive meetings, the Federal Reserve had been raising the federal funds rate to get a handle on inflation. If loans are more expensive, the theory goes that people will have less to spend and businesses are forced to moderate their prices. But that has a negative impact on the labor market because businesses don’t produce if people aren’t buying. It’s a catch-22.

Now officials have started lowering the target range for the rate again, coming down a full percentage point since September. But in their most recent projections, officials seem to think the longer-term rate will be higher than they previously thought. The expectation from the decision-makers is that the rate will be 0.5% higher than their September projection.

These predictions move the mortgage market because the vast majority of mortgages are packaged into bonds and sold to investors 60 days or more after you close your mortgage. The yields on these bonds are what underlie mortgage rates. People who price home loans are always trying to figure out what price investors will pay well into the future.

For this reason, waiting on the Fed decision isn’t as important as what the committee says about the future.

At the same time, mortgage rates aren’t as directly affected by the federal funds rate as some other interest rates because they’re longer-term. For an even closer indication on mortgage rates, you can look at the 10-year treasury yield. It’s not a perfect comparison, but the general rule is that the rate for a 30-year fixed will be around 2% higher than the 10-year yield.

As of this writing, the 10-year treasury is at 4.524% and the most recent mortgage right from Freddie Mac came in at 6.72% for the 30-year fixed.

As far as predictions for 2025 mortgage rates, NAR is predicting rates near 6%. Freddie Mac thinks there will be a gradual decline in mortgage rates. Meanwhile, Fannie Mae sees the 30-year fixed rate being around 6.4% in 2025. 

The NAHB is almost in lockstep at 6.36%. They also predict the 10-year yield will be 4.05%. The MBA has the 30-year fixed rate at 6.4% with the 10-year yield at 4.3%.

Home Prices

Home prices don’t require highly technical explanation in the way that the housing inventory and mortgage rates might, but prices are impacted by both the inventory available in your area and the mortgage rates generally available in the market.

The MBA chose to forecast price increases based on their expectation for the house price index from the Federal Housing Finance Agency. They see the FHFA index going up by 1.5%. The median price of an existing home would be $411,200 while new home prices would be $425,800 at the median.

Fannie Mae is predicting home prices up 3.6% for the year. NAR forecasts 2% price increases. Meanwhile, Freddie Mac says that while home prices will grow, it’s going to be at a slower pace.

Who Will Benefit In The 2025 Housing Market?

Given that the housing supply is at best expected to increase modestly, it’s likely to be a seller’s market across much of the country in 2025. This is also good news if you happen to be looking to refinance. Your property value is based on comparable homes that have sold recently. So any increase is a good one.

Should You Buy A House In 2025?

If you’re looking to buy, prices increasing sounds like bad news, but the reality is that house prices usually go up over time. It’s one of the things that makes buying a home a good investment in addition to being a place of your own. It’s inconvenient now, but you always want property values going up in the future.

Mortgage rates could be lower. That might be ideal. But that’s beyond your control. What is in your control is the amount of savings you have for a down payment and closing costs. Your credit score and down payment are two big factors in your interest rate. 

You can also make sure your credit is in shape by practicing habits like paying on time and carrying credit card balances that are no more than 30% of your limits.

If you’re looking to buy a house, the important thing is to focus on the payment. If you can afford the payment, that’s more important than the interest rate. If you keep your credit in good shape, you can always refinance later if rates fall. You should buy a house when you’re ready. Only you have a full understanding of your readiness personally and financially.

Is It A Good Time To Sell Your House?

You might think it’s a great time to sell your house if it’s a seller’s market in your area, but most people who sell their home have to then find their next home. It’s also probable that rates have gone up quite a bit since the last time you purchased a home or refinanced your current one, so you’ll want to make sure you can handle the payment.

The good news is you have an advantage here. If you’re selling your home and taking a sizable chunk of that money to put toward a down payment, you’ll have a lower monthly payment based on having a lower balance. But you shouldn’t sell your house just to sell your house. You need a reason and a plan for where you’ll be moving.

Real Estate Market FAQ

Now that we’ve gone over what experts expect to happen in the impact, let’s take a quick run through some questions that may still be running through your head.

Will housing prices drop in 2025?

While it’s impossible to say 100% what will happen, home prices rarely fall on a national basis. But there can be quite a bit of variation from market to market. You’ll have to keep a sharp eye on prices in your area. 

Will interest rates drop further in 2025?

Again, there’s no crystal ball in my hand. However, the Federal Reserve is expected to lower the target for federal funds rate by about 0.5% next year. Mortgage rates aren’t expected to move that much because other factors like investor demand for bonds are at play as well. But experts expect the move modestly lower.

Will inflation continue to impact rates in 2025?

Inflation always has an impact on interest rates. When price growth is lower across the economy, you can generally count on lower interest rates. When prices rise faster, interest rates get raised to put inflation in check. Absent some other economic shock, for rates to get under 6%, the federal funds rate would likely have to move down. That would mean the Fed was confident it was well on the way to the inflation target.

Should you wait to buy a house?

This question doesn’t have a blanket answer because it depends on your financial situation. If you feel like you need more time to save up for a down payment or getting your credit in order, you should wait. If you feel like you’re financially ready and can afford the payment, go ahead and get out there. There’s never a perfect time to buy.

The Bottom Line: 2025 May Be Your Year To Buy

Major housing market players are predicting a modest increase in home inventory and prices to go along with a slight decline in mortgage rates. If you’re looking to buy, think about your goals. What’s right for you and your loved ones? A Home Loan Expert can help you determine if you’re financially ready. If you buy now, you may be able to refinance later if rates drop. 

Ready to get started? Apply with Rocket Mortgage^® and gain a partner in your home buying journey.

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