Will Mortgage Rates and Home Prices Go Down Next Year?

Will Mortgage Rates and Home Prices Go Down Next Year? Your 2025 Real Estate Roadmap

The housing market, a persistent challenge for buyers and sellers, remains at a crossroads as we approach 2025. High mortgage rates, limited inventory, and record-breaking home prices have constrained sales. Could a shift be on the horizon next year? Here's what experts are saying about the road ahead for real estate.

Market Pressures Continue Nationwide

Despite glimmers of renewed buyer interest, including increased mortgage applications and online traffic, uncertainty looms. Glenn Kelman, CEO of Redfin, characterized the housing market as "very volatile," emphasizing that recovery remains difficult to predict.

The fundamental challenge? Americans aren't selling their homes. Existing home sales are on track to hit a 30-year low by the end of 2024. A survey by Fannie Mae reports that just 20% of Americans believe it’s a good time to buy, with many opting to rent longer instead.

What to Expect in 2025

Mortgage Rates: Staying Elevated

Mortgage rates are expected to hover above 6% throughout 2025. Fannie Mae projects an average rate of 6.5% in early 2025, potentially dipping to 6.3% by year’s end. While this marks a slight improvement from today’s rates of over 7%, it signals a "new normal" in borrowing costs.

Rates are unlikely to return to the 4% range, as Lawrence Yun, Chief Economist at the National Association of Realtors, recently noted. Instead, the real estate market will likely settle into a range between 5.5% and 6.5%.

Home Prices: Growth Slows but Continues

Home prices will remain high, with some moderation in growth. The American Enterprise Institute forecasts a 5.5% price increase in 2025, with the most significant growth likely in the Midwest and Northeast. Inventory shortages continue to drive these trends, though some southern markets, like Austin, Texas, are already seeing price declines.

For-Sale Listings: A Slow Climb

While inventory levels are beginning to rise, they remain below pre-pandemic norms. Builders are optimistic about increased construction in the wake of November's election results, which could lead to regulatory relief and a boost in new home supply.

Rents: Stability on the Horizon

Renters are finding modest relief as price growth slows, particularly in the Sun Belt. However, single-family rentals remain in high demand, which could push prices higher in that segment.

Home Insurance: Premiums Keep Rising

The cost of homeowners' insurance will likely climb further in 2025, though at a slower pace than in recent years. Natural disasters and inflation continue to strain the industry, especially in states like California and Florida.

Local Markets Vary

These trends reflect a nationwide outlook, but it’s important to note that local markets can vary significantly. Factors like regional employment trends, local housing supply, and buyer demand play a huge role in shaping your real estate experience. For a more accurate and detailed understanding of what’s happening in your area, consult a trusted real estate professional who can provide insight tailored to your market.

Looking Ahead

The 2025 housing market presents a complex landscape. Buyers may benefit from modestly lower mortgage rates and increased inventory, but affordability challenges persist. Meanwhile, sellers face fewer incentives to move, exacerbating inventory constraints.

With uncertainty surrounding economic policies and broader market dynamics, navigating the real estate market requires both strategy and local expertise. Be sure to rely on professionals for a clear perspective on what’s ahead in your community.