It would be no exaggeration to say that the housing market in the last five years has been a roller coaster ride. Mortgage rates hit all-time lows, home prices hit all-time highs, and bidding wars ensued on the limited available inventory. The issues surrounding housing shortages and affordability became front and center in the news, at the dinner table, and around the proverbial office water cooler.
With the new year upon us, and the uncertainty of a new administration’s policies that will be in place, the age-old question of “What will the housing market do next year?” is back. To try to answer this question, we spoke with experts in the fields of economics and real estate, and we analyzed published reports and predictions from industry leaders. Below we break down the 2025 predictions for everything housing-related, from market shifts to home prices and mortgage rates to the rental market and more.
Will home inventory grow?
Prediction: Yes
Low interest rates dominated in 2020 and 2021 and quickly depleted available inventory. Inventory is finally back to levels seen in the first quarter of 2020, and Mike Simonse, Founder of Altos Research, predicts continued inventory growth in 2025, with about 17% more homes on the market by the end of next year.
The growth is expected in both the single-family and multi-family markets. Jennifer Coskren, the Director of wood products and timber at Fastmarket, forecasts there will be approximately 1.5 million units, with 1.1 million of those being single-family, and that both single and multi-family will be up around 11%.
Will mortgage rates fall?
Prediction: Yes
Mortgage rates took a dip in September to 6.08% for a fixed 30-year mortgage, which briefly brought the share of affordable listings to a 19-month high. It was short-lived, though, with rates ultimately climbing back up towards the 7% mark. More swings are expected during 2025 which may lead to opportunity and uncertainty for buyers and sellers alike; however, Steve Nicastro, Managing Editor at Clever Real Estate, puts it into some perspective for us. He told us: “I think the slight rate decrease will be enough for home buyers to consider buying in 2025, so we'll likely see a slight uptick in demand. I also believe that sellers will be more incentivized to sell and buy another home with rates improving.”
Forecasts for 2025 averages of the 30-year fixed mortgage rates vary between experts, with Fannie Mae expecting 6.2%, the MBA at 6.0%, and Wells Fargo forecasting 5.9%. Realtor.com’s forecast is in line with a 6.2% year-end expectation.
Ultimately, rates are affected by many things, and expert forecasts are based on a multitude of economic factors, including the potential impact Trump’s economic agenda may have on inflation. Jeff Lichtenstein, Broker and Owner of Echo Fine Properties Palm Beach Gardens Florida, told us “One thing to look for is if the secretary treasurer puts a cap on the 10-year yield (Mnuchin talked about this). In theory, that would limit the Fed from raising mortgage rates if tariffs caused inflation.”
Will home prices go down?
Prediction: No
We are expecting a slight rise in nominal home prices in 2025, albeit with some localized retreats.
It is anticipated that home prices will increase modestly in 2025. Zillow forecasts slower rises than in previous years with a 2.6% home value growth. Lawrence Yun, Chief Economist of the National Association of REALTORS®, appears aligned with this, predicting the 2025 median home price to be $410,700, which is up just 2% over 2024.
For buyers, the thought of yet another rise in home prices can be discouraging; however, there is a silver lining to 2025 expectations. Experts suggest that there will be more homes on the market, with the number of new single-family homes expected to increase by 13.8%. This is in comparison to a 4.4% increase in 2024, which was preceded by a decrease (-5.7%) in 2023.
Will the cost of building a new home go down?
Prediction: No
The cost of new homes soared during the pandemic as supply chain interruptions, material price increases, and labor shortages took hold. While the double-digit increases seen between 2020 and 2022 have appeared to steady themselves and returned to single-digit increases, it is predicted that prices will continue to increase in 2025.
Lumber prices have come back down from the highs experienced during the pandemic; however, as President-elect Trump takes office, there is concern regarding the future stability of these and other building material costs. Dietz remarked to Fixr.com that “Somewhat less than 10 percent of building materials for residential construction are imported, hence tariffs can have a negative impact on construction costs, including important items like lumber.” The concern is felt across the industry, but it is important to remember that uncertainty remains. Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), says “We don’t have enough details to put a fine point to it yet…there’s the risk that it could add to the cost of housing.”
In addition to proposed tariffs, the construction industry continues to face a significant labor shortage. A critical factor in handling this shortage will be attracting and retaining a skilled workforce, which will require a more appealing work culture as well as competitive compensation, each of which will cost money to employers. With labor costs accounting for anywhere between 30-50% of total construction expenses, this could also be a factor in continued home price increases.
Will homes get smaller?
Prediction: Yes
As builders continue to work towards eliminating the persistent housing shortage issues, and the expectation that home buyers will increasingly look towards smaller homes as both a more sustainable and affordable way to live, new construction offerings will vary more than in past years. It is predicted that a portion of new homes made available in 2025 will be built smaller than previously seen. This trend will help to keep home prices more affordable, especially for first-time home buyers.
Will renting be more affordable?
Prediction: No
A key factor determining rental affordability is the rental vacancy rate. From 2013 to 2019, the long-term vacancy rates stood at an average of 7.2%. That rate dipped to a low of 5.2% in 2022. In 2023, the rate began climbing back (6.5%) and it continues to do so. As of quarter three 2024, with the pace of newly completed multi-family homes reaching 658,000 units, the rate is up to 6.9%, its highest level since the start of the pandemic.
A higher rate means an expanded supply and more options to renters; however, the supply may be negated by the expectation of a growing renter population in 2025. Forecasts do indicate a slightly lower median asking rent in 2024 versus 2025 (-0.1%), but it is a negligible amount that likely would not have any positive effect on affordability. In addition, it is expected that competition for renters by property managers will fizzle in the second half of the year, likely making those highly sought-after concessions like free weeks of rent or free parking harder to come by.
If that weren’t enough, there are concerns about how proposed tariffs may impact rents moving into 2025. Seamus Nally, CEO of TurboTenant, told Fixr.com “I am anticipating less of an increase in housing inventory in 2025 than I may have predicted a few months back. The main reason for this is the proposed tariffs.” He goes on to explain that “These tariffs are also going to raise appliance prices, which could significantly impact not only home construction but even rent prices as well.”
Will the build-to-rent sector slow down?
Prediction: No
The built-to-rent (BTR) sector’s growth is highly dependent on access to land and the cost of capital. It is predicted that both of these factors will become more favorable in 2025 leading to an overall positive outlook, with the sector being more predictable and less crowded.
Access to land may become easier as we head into 2025. Nicastro told us that “There is potential for increased new construction activity in 2025 as President-elect Trump plans to reduce regulations that could make business easier for homebuilders.” In addition, advocacy groups are pushing for change and have already had success with some states introducing bills for reduced and relaxed zoning laws, paving the way for BTR developers.
The high cost of capital has stalled some projects in the BTR sector in recent years; however, it is predicted that should rate cuts from the Fed materialize, the cost of capital will decrease, enabling more deals to come to fruition as investor support rises.
Will home sales rise?
Prediction: Yes
With the expectation of additional inventory, including smaller homes, and the potential of lower mortgage rates, it is predicted that home sales will naturally rise.
Zillow suggests housing market activity will pick up with existing home sales increasing by about 7.5% from a projected 4 million in 2024 to 4.3 million in 2025. Yun’s sales projection is a bit higher, with existing home sales said to rise 9% in 2025 and new home sales to have an even higher increase of 11%.
Will buyers’ market shift?
Prediction: Yes
Findings from a recent report suggest that 13 major metropolitan areas have shifted to a buyer’s market and over a dozen are now considered market neutral. While some regions still clearly favor the seller, the shift in other pockets may begin to allow buyers more time to consider options.
Chris Heller, President of Movoto, recently told us “The Southwest's appeal—due to its affordability and lifestyle—could indeed shift some areas into a buyer’s market as inventory grows.”
With these shifts, a more balanced market is predicted. Months' supply, a key market balance indicator, is likely to improve from an average of 3.7 months in 2024 to 4.1 months in 2025. This will shift from a seller’s market (month’s supply < 4) to a balanced market (month’s supply from 4 to 6), ushering in the most balanced housing market in nine years.
In addition to regional shifts, it is expected that buyers will continue to shift from suburban neighborhoods, where many took refuge during the pandemic, back to cities. This shift is driven both by the return to in-person work mandates and Gen Z trends. Heller says ”For buyers, this could mean more negotiating power in suburban areas, while sellers in cities may benefit from higher demand and faster sales cycles.”
Conclusion
Looking ahead, 2025 may be more favorable to buyers than years past. While home prices and the cost of building are predicted to continue to rise, they are not the only driving factors. Home inventory will grow and will include more homes with smaller floor plans than in the past. Increased inventory and more affordable homes, coupled with predicted lower mortgage rates, will give buyers more options, more leverage, and improved access to capital.
Home sales are projected to rise, but the markets are expected to shift. More sales are forecast in the Southwest region in 2025 than in past years as neutral markets begin turning to more buyer-friendly ones.
Renters may face some mixed outcomes in 2025. Housing options will continue to expand as the BTR sector expects lower-cost capital and continued efforts to reduce zoning regulations, allowing for more communities and options to be available for renters; however, it is also expected that the renter population will grow in 2025. These two situations may cancel out any potential to improve affordability for renters as they make their way into the new year.