Original article written by Ashley Fahey for Austin Business Journal
More rate volatility, more affordability challenges — but slightly more inventory.
Those are some of the predictions among housing economists for the 2025 for-sale housing market. Beset by continued home-price appreciation, scarce inventory and a mortgage lock-in effect — not to mention sweeping industrywide changes — buying and owning a home continues to be out of reach for many.
Here’s what to expect in the U.S. housing market next year.
Inventory and home sales
The biggest potential for relief in 2025 could come from an uptick in inventory.
While many existing homeowners are carrying a mortgage rate of 4% or less, life events and a broader acceptance that rates likely won’t drop down to those levels again anytime soon have started to unlock supply.
Life events — more than mortgage rates — continue to be the primary reason people list their homes, said Kara Ng, senior economist at Zillow Group Inc. (Nasdaq: ZG). As an example, Ng said she and her husband had to sell their two-bedroom condo after having a baby because it no longer accommodated their needs.
“As time marches on, life events will push [homeowners] to sell,” Ng said, which will then lead to more listings.
New construction is also helping with supply. New single-family home inventory in October was up 8.8% compared to a year earlier, representing 9.5 months’ supply at the current building pace, according to the National Association of Home Builders. That’s well above the five to six months’ supply that’s viewed as the benchmark for a balanced market.
Realtor.com is predicting the supply of homes for sale will rise 11.7% next year. New construction will grow even more, increasing 13.8% from 2024 to 1.1 million new starts next year.
“Inventory will be the brightest spot for consumers,” said Danielle Hale, chief economist at Realtor.com. She added while homes could take a little longer to sell in 2025, that’s helpful for especially first-time homebuyers to take their time in making a decision.
The supply of homes on the market has grown to levels not seen since December 2019, according to Realtor.com, and roughly 20% of listings now are seeing price reductions.
Still, a substantial share of homeowners — 84% as of last month, by Realtor.com’s estimation — have a mortgage rate of less than 6%. While that’s down from 89% in the second quarter of this year, it’s still a vast majority of current homeowners. By the end of 2025, that share may decline to 75%, Hale said.
Redfin Corp. (Nasdaq: RDFN) is anticipating home sales to tick up next year by between 2% and 9%, ending 2025 at an annualized rate of between 4.1 million and 4.4 million.
The firm in a report said there’s an “unusually wide” range for its sales forecast next year because while high housing costs may price out some would-be buyers, there’s also a fair amount of pent-up demand in the market.
Sales of previously owned homes are projected by Realtor.com to increase to 4.07 million. That’s a 1.5% gain from this year but still below the 2013-19 average of 5.28 million homes. Zillow is expecting 4.3 million existing-home sales in 2025, up slightly from 4.1 million in 2023 and a projected 4 million in 2024.
Mortgage rates
One wild card for the 2025 housing market is the direction in which mortgage rates will move.
Most economists aren’t expecting a substantial drop in rates, if any, which means buyers will continue to face elevated rates when compared to pre-pandemic lows, paired with continued growth in home prices.
Ng said it’s hard to predict mortgage rates, but Zillow is broadly forecasting continued volatility next year: It’s likely rates will fall, then rise, then fall again before the end of 2025.
That’s a trajectory similar to what’s occurred this year. The 30-year fixed-rate mortgage peaked at 6.44% in April before steadily declining to this year’s low of 5.15% in September, according to Freddie Mac data. Rates have since been on the rise again, reaching 6.1% in late November.
Realtor.com is predicting mortgage rates will average 6.3% across 2025 and end the year at 6.2%. That’s less than the 6.7% average expected at the end of 2024 but still well above the 4% average seen between 2013 and 2019.
Redfin is forecasting rates will remain in the high 6% range throughout 2025. But, as other housing economists have noted, much will hinge on President-elect Donald Trump’s economic plans, including any actions on tax cuts and tariffs. Those decisions could influence inflation, the national deficit and whether the Federal Reserve issues any additional interest-rate cuts — all of which could then impact mortgage rates.
“Mortgage rates in [Trump’s] first term [at 4%] were the good old days,” said Lawrence Yun, chief economist at the National Association of Realtors, during an NAR conference in Boston last month. “Are we going to go back to 4%? Per my forecast, unfortunately, we will not. It’s more likely that we’ll go back to 6%. That will be the new normal, bouncing around 5.5% and 6.5%.”
Redfin economists wrote in a report that any year in which the presidential administration changes is unpredictable, “and this one may be especially unpredictable.”
Home prices
Beyond mortgage rates, which directly influence how much a prospective homebuyer can afford, home prices are expected to keep rising next year.
Zillow is forecasting 2.6% growth in home values in 2025, while Realtor.com is expecting home prices to grow an additional 3.7% through next year — a slight decrease from the 4% rise expected by the end of this year but up from 1.1% growth in 2023.
Redfin also is predicting the median home price nationally to end 2025 at 4% higher than this year. Yun at the NAR conference last month said he predicted the median home price nationally will be 2% higher in 2025.
“For first-time buyers, it will continue to be challenging,” Hale said. “When we look nationwide, we see more households being added to the U.S. economy but a growing number of them will be renter households. The homeownership rate will actually decline.”
