Mortgage rates will continue to average above 6% next year and home prices will continue to rise, Realtor.com®’s economic research team predicts in its new 2025 housing forecast.
The report predicts that mortgage rates will average 6.3% through 2025 and end the year at 6.2%. This is a lower rate than the 6.7% average expected through 2024 to the end of the year, but still well above the historical average of 4% recorded from 2013 to 2019.
Home prices will rise by an additional 3.7% by next year, after rising 4% this year and 1.1% in 2023, the forecast shows. Pre-owned home sales are forecast to reach 4.07 million, a 1.5% gain from this year, but still sluggish compared to the 2013-19 historical average of 5.28 million.
The supply of homes for sale, a constant challenge for home buyers in recent years, will continue to improve, growing by 11.7% through 2025, the forecast predicts. New home construction will also continue to expand, rising 13.8% from 2024 to 1.1 million new units started next year, according to the forecast.
“This past year brought us a surprising upward trend in home price growth despite continued high mortgage rates and rising inventory,” Realtor.com economists wrote. “Mortgage rates are expected to keep mortgage payments essentially unchanged in 2025, despite continued house price growth.”
Forecast for home buyers in 2025
The outlook for potential homebuyers is mixed, with the forecast predicting that mortgage rates will remain high even as other buyer-friendly elements take shape in the housing market.
“Homebuyers hoping for a steady return to September’s near 6% mortgage rates are likely to be disappointed,” the report says, with rates forecast to average 6.3% through 2025. “There will be volatility around this average, so buyers can get a lucky break, but our advice is to plan and budget for the 6% average range.
As measured by the typical share of income spent on home payments, affordability remains near record lows.
The forecast predicts slight improvements in affordability in 2025, but any gains are likely to come from rising wages or increased disposable income from tax cuts, rather than falling home prices.
On the positive side, the report notes recent changes favoring buyers, such as an increasing supply of homes for sale and an increase in the number of discounted listings.
The supply of homes on the market has recently increased to levels not seen since December 2019, shortly before the start of the COVID-19 pandemic. And roughly 20% of listings are now seeing price reductions, signaling a market turning more in favor of buyers.
In October, the top markets with at least half of the active listings on sale included Cincinnati, Salt Lake City, Denver, Phoenix and Indianapolis. The top 10 markets for the share of markdown listings were located in Ohio, Indiana or Illinois – led by Urbana, OH, with a markdown rate of 71%.
The forecast notes that, overall, buyers should expect a friendlier and less competitive housing market than in years past, albeit one that remains expensive due to still high mortgage rates and home prices.
“While more inventory means buyers will likely have more time to make purchase decisions in 2025, in any market, a buyer who acts quickly will have a higher chance of making the winning bid ,” says Realtor.com Chief Economist Danielle Hale. “For this reason, it is wise to prepare financially and for the house search in general.”
Forecast for home sellers in 2025
The forecast predicts that continued constraints on supply inventory and strong demand, particularly in desirable locations, could give sellers the upper hand in price negotiations in certain areas.
Realtor.com’s latest Market Heat Report for October showed that many of the top markets for buyer demand were in the Northeast and Midwest — led by Manchester, NH, for the 10th month in a row.
“As noted above, the market is shifting from a strong sellers’ market to one in which buyers and sellers have more balanced market power,” the forecast report said. “As a result, sellers will need to price carefully to attract buyers, especially in markets where affordability is an issue.”
The report recommends that flexible selling strategies, such as offering incentives to buyers, can help sellers stand out in a more competitive market.
“While there is the potential for a favorable market for sellers, the overall landscape will largely depend on how economic conditions, interest rates and housing supply evolve over the first few months of the year,” the report said.
Rent trends in 2025
New projects forecast asking rents to fall slightly by 0.1% in 2025, after rising 1.2% in 2023 and falling 0.2% this year.
Rent growth remains soft compared to the 5.2% average annual growth seen from 2013 to 2019. This is largely due to the influx of new multifamily housing built in recent years, easing supply problems in some cities.
“While the rental vacancy rate is at its highest level since the start of the pandemic, it remains somewhat below the 7.2% average seen from 2013 to 2019. Looking ahead, a strong pipeline of multifamily construction is expected to continue to drive rental supply growth in 2025, which is likely to push the vacancy rate back toward its long-term average,” the report said.
“Looking ahead to 2025, recent construction trends suggest that all four regions will see continued growth in rental stocks, with the South leading the way with an annual growth rate of 1.5%, followed by the West (1.2%) , Midwest (0.9%) and Northeast (0.7%),” the authors add. “Thus, southern rental markets are likely to retain a relative affordability advantage in 2025.”
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