Predictions for the 2025 Housing Market- The Good, the Bad, and the Challenging

The 2025 housing market promises significant changes. While affordability remains a pressing issue, there are signs of relief with declining mortgage rates and a potential increase in seller activity. I want to note that I do not have a crystal ball and I can’t tell the future, but here we go anyways!

Here are my overall predictions for the 2025 housing market:

Home Sales Growth: I am expecting a 10% year-over-year in home sales this year when compared with 2024.

Mortgage Rates: Rates for 30-year fixed mortgages will lower to the 6% range (high 5’s, low 6’s) then will stay somewhat consistent there.

Median Home Prices will Increase: A 2-4% rise when compared to 2024 prices.

Growth in Multi-generational Homes: More families will move in together, driven by cost-saving needs and family caregiving.

Rise in All-Cash Purchases: Cash buyers will maintain a strong presence, supported by accumulated equity.

Increased Seller Activity: A higher number of listings as homeowners feel more confident in market stability.

Demand for Smaller Homes: Smaller, affordable homes will gain popularity as buyers embrace sustainability.

Now onto the nitty-gritty details surrounding my predictions:

Affordability Challenges
Affordability is still the housing market’s biggest hurdle. Mortgage rates are currently close to 7% and record-high home prices have driven monthly payments higher than ever. The quickest solution would be lower interest rates, which some experts forecast could fall into the 5% range if economic conditions improve.

Hope for Lower Mortgage Rates
Mortgage rates are trending downward after peaking in 2023. The Federal Reserve’s recent rate cuts are expected to contribute further to this decline. Rates for 30-year fixed mortgages dropped from 7.79% in late 2023 to 6.12% by the end of 2024, with further reductions anticipated. However, rates are very unlikely to return to the 2-3% range seen in 2021.

Mortgage rates may see fluctuations throughout 2025. Buyers should prepare for a bumpy ride on the way down, with refinancing opportunities arising during dips. Ultimately though, more stable rates right around 6% will provide some relief.

Sellers May Return to the Market
Seller reluctance has been a hallmark of the post-pandemic housing market. However, inventory is rebounding, growing for 12 consecutive months through October 2024. While still below historical norms, this trend offers hope for a more balanced market in 2025.

Zillow forecasts a slight increase in existing home sales to 4.3 million in 2025, up from 4.1 million in 2023. With more homes on the market, buyers will have more time to weigh their options and greater leverage in negotiations.

Evolving Buyer Trends
New data from NAR highlights notable shifts in buyer behavior:

All-Cash Purchases: Record equity gains have driven all-cash buyers to account for 26% of sales, with 31% of repeat buyers paying in cash.

Multigenerational Homes: Cost savings and caregiving needs have boosted multigenerational home purchases to 17%—an all-time high.

Older First-Time Buyers: The median age of first-time buyers rose to 38, with many relying on financial gifts or inheritance.

Urban Comeback: City living is regaining popularity, marking the largest urban migration in a decade.

Smaller Homes in Demand: Buyers are leaning into smaller, more sustainable homes. Listings featuring “cozy” designs have risen by 35% year-over-year, reflecting a shift away from expansive open floor plans.

Home Prices Stabilize
After years of rapid growth, home prices are expected to rise modestly by 2% annually in 2025 and 2026. Median prices are projected to reach $410,700 in 2025 and $420,000 in 2026. This slower pace may ease affordability challenges while still providing value growth for homeowners. Personally, I see home prices growing faster than expected; closer to 4% annually.

Final Thoughts
As 2025 unfolds, the housing market will likely bring both opportunities and challenges. Staying informed and adaptable will be key. Whether you’re buying, selling, or advising clients, understanding these trends will help you succeed in this dynamic environment.

The good news in all of this: There are a lot of great options on the market, and rate buy downs help reduce interest rates. Ask me how expert negotiation skills can increase the affordability of your next home.

If you have any questions, I would love to hear them! Put them in the comments below.