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The housing market in 2024 hasn't been kind to those looking for a home: The age of the typical first-time homebuyer increased by three years, mortgage rates stayed firmly above 6%, and some people felt it would be more affordable to keep renting than to buy.
Although Realtor.com's housing forecast predicts some of the same for 2025, there are a few encouraging signs.
Home affordability has improved modestly after reaching the lowest level in decades last year, and transactions have picked up after an eerily quiet 2023.
Danielle Hale, the chief economist at the real-estate listings and data site, said a "Trump bump" could affect the housing market.
"For now, we expect a gradual improvement in housing market dynamics powered by broader economic factors," Hale said in the forecast. "The new administration's policies have the potential to enhance or hamper the housing recovery, and the details will matter."
Most consumers care about what will happen to home prices and mortgage rates, which directly affect their ability to buy a house.
With that in mind, here are five predictions for the housing market in 2025 from Realtor.com.
The median home sale price nationwide is up 32% since 2019, per the Federal Reserve Bank of St. Louis. However, it was $420,400 in the third quarter of 2024, down a bit from $435,400 a year earlier.
Buyers are holding out for more relief, but it might not come in 2025.
Federal Reserve Bank of St. Louis
Barring a serious shock, home prices should continue to climb modestly. Realtor.com predicts that home sale prices will increase by 3.7% in 2025, which would be about a $15,000 jump.
Federal Reserve Bank of St. Louis
"Prices are going to keep rising because we're not going to have a recession," Ralph McLaughlin, a senior economist at Realtor.com, said in an interview with Business Insider. "If you look at the times that home prices fall, it's typically only when there's a recession, and only when people are forced to sell."
Higher home prices may cause buyers to expand their house hunts to more affordable parts of their states or the country, like the Sunbelt. Twelve of the 16 cities that Realtor.com thinks will have double-digit price appreciation in 2025 are in the Southeast or Southwest.
The average 30-year mortgage rate has dipped slightly, to 6.7% from a peak of 7.8% a year ago. Rates dropped to a historically low mark of 2.7% in 2021 and have mostly climbed since then. A pair of interest-rate cuts haven't significantly affected mortgage rates.
Next year's economy will be typified by lower interest rates and steady growth, Realtor.com predicted. The firm expects a rate cut in December and then a few more in early 2025.
That means Realtor.com researchers don't expect mortgage rates to drop dramatically next year, projecting that the 30-year will stay above the 6% threshold and be at 6.2% by the end of 2025.
Freddie Mac
Rent growth may stall, as Realtor.com expects US apartment prices to fall 0.1%.
That's largely thanks to a major increase in rental unit inventory. Real-estate site Zumper found that the supply of new apartments in the US hit its highest level in five decades this summer.
"What we've seen over the past couple years is a large uptick in new multi-family construction, and they tend to be released all at once," McLaughlin said. "And so it can have very sharp and especially isolated impacts on rents — in particular — in urban areas where they are built."
Construction trends suggest the rental stock should increase in all parts of the country, but especially in the South, Realtor.com said. New homes and apartments could lead to lower rents in some cities and states.
Landlords may also struggle to raise rent substantially in a strong economy with lower mortgage rates, since renters could walk away from bidding wars and look at buying homes instead.
"When incomes grow enough in the rental segment, those renters tend to convert over to owners," McLaughlin said. "They typically won't use their incomes to bid up rents more — they'll just go and, if they can afford it, they'll go buy a house."
McLaughlin added: "Those that continue to stay renting, landlords don't have the ability necessarily to raise rents at the rates that price growth plays out in most markets."
Still, inventory increases may not translate to meaningful discounts on homes or rental units. Prices almost always rise over time along with the population size and money supply, so while apartments may be easier to find, those pining for pre-pandemic prices could be disappointed.
Next year's housing market may be marked by sizable increases in home and apartment supply.
An 11.7% jump in existing home inventory and a 13.8% surge in single-family home starts will usher in the first "balanced" housing market in nine years, Realtor.com predicted. That would mean neither buyers nor sellers will have disproportionate leverage in 2025.
New single-family homes are expected to reach 1.1 million, the most since 2006. That should give prospective buyers more chances to score a home.
"While more inventory means buyers will likely have more time to make purchase decisions in 2025, in any market, a fast-acting buyer will have a higher likelihood of making the winning offer," Hale said in the report.
Homes have been in short supply for decades. Despite an uptick in construction, Freddie Mac estimated that the US needed 3.7 million more units to offset the shortage, as of last quarter.
Continued supply improvements mean there should be 4.1 months of homes available in 2025, up from 3.7 months now, Realtor.com said. The National Association of Realtors, a competing firm, reported last month that there was already 4.2 months' supply of existing homes available.
Realtor.com
The housing boom during the pandemic devolved into a bust in 2022 and 2023 — a year in which home transactions reached their lowest levels in decades as housing affordability tanked.
Buyers and sellers are holding out for lower rates, and in the meantime, sales have stagnated.
"What I say to agents very often is, 'We're in a recession of transactions,' which is a different situation than the rest of the economy," Leo Pareja, the CEO of real-estate brokerage giant eXp Realty, said in a recent interview with Business Insider.
Many would-be buyers have been priced out of the market, while those hoping to move were reluctant to sacrifice their modest mortgages. In fact, about 84% of US mortgages are at rates below 5%, Pareja said. For that reason, many baby boomers have held onto their homes, giving younger buyers fewer options.
"If you're locked in at a 3.5% rate — even if you found your dream home, swapping that for a 6.8% rate is virtually impossible," Pareja said.
Lower mortgage rates and higher supply should spark a turnaround for home transactions. Pareja and his colleagues at eXp see sales activity rising 10% next year — far above Realtor.com's 1.5% forecast.
While the housing market overall may still favor sellers, more homes for sale can help buyers secure better deals and more concessions.
President-elect Donald Trump's policies may also be a tailwind for sales activity. Stock-market strategists mostly agree that tax cuts and deregulation will boost business confidence, and McLaughlin suspects that could rub off on homebuyers.
"If you're talking about the resale market, the existing-homes market, it's hard not to become optimistic about just the broader economy, because of things like tax cuts and other benefits to households that might put more money in their pocket at the end of the day," McLaughlin said.
He added, "That might encourage them to go out and either buy a home if they don't currently own one — or grade up to a house maybe they've been waiting to over the last few years."
