Despite the setbacks we saw this year, 2025 will likely see many of the same trends come true that were initially predicted for 2024, Windermere’s Principal Economist Jeff Tucker writes.
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Coming into 2024, most economists were optimistic that housing was about to turn the corner and that sales activity would recover, fueled by falling mortgage rates. Those hopes were dashed by the stubborn increase in mortgage rates through May, which threw cold water on buyers hoping for a break after 2023’s punishing conditions.
Fortunes began to turn in the late summer and fall, though, fulfilling a glimmer of the rosy picture originally projected for 2024. We saw mortgage rates drop to almost 6 percent by mid-September, triggering an unusual burst of sales activity in the fall.
Mortgage rates later rebounded amid the uncertainty of the election and the stubbornly difficult “last mile” of inflation reduction. Still, despite this, I believe we are poised for many of the same trends originally predicted for 2024 to come to fruition in 2025.
This includes further modest declines in interest rates, which, in concert with inventory finally approaching normal levels, will help fuel a welcome recovery in existing home sales after a year and a half of rock-bottom sales activity. That healthy supply of listings will also help keep a lid on price growth, but not push it negative for the country at large.
Watch the video above, or read below for the rest of my 2025 housing predictions.
1. Interest rates will decline
I expect interest rates to fall to around 6.5 percent in 2025, but in a gradual zigzag fashion. Temporary factors, like election uncertainty, higher Treasury debt issuance and market volatility, helped push mortgage rates back up by almost one full point last fall.
But the big picture hasn’t changed that much. We are still in the cooldown phase of an economic cycle, with decelerating inflation, a slowing job market, and the Fed cutting short-term rates. Still, if we’ve learned one thing in the past two years, it’s that interest rates never get to where they’re going in a straight line.
2. Existing-home sales will pick up
Existing-home sales have bottomed out and will pick up by as much as 10 percent year over year in 2025. Sales volume was held back by the low inventory of homes on the market in 2022 and 2023, but we saw sellers return in 2024, and buyer activity really started picking back up as well in the fall.
Buyers and sellers feel less uncertainty now and are getting more comfortable with the new normal range for interest rates, all of which is helping to thaw the market.
3. Home prices will not fall
Broadly speaking, U.S. home prices will not fall in 2025, but they’ll only rise by around 2 percent to 4 percent. The past three years have seen a roller coaster of gains and slowdowns when it comes to home prices, thanks to the fluctuation in interest rates and the changing supply of available homes for sale.
Now that inventory is back to a balanced level, especially in the Western United States, 2025 should see a more consistent market, causing prices to stabilize.
4. Affordability will start to improve
This might be surprising given the prediction that home prices will not fall, but affordability will gradually start to improve in 2025.
The main reasons for this are declining interest rates and rising incomes. The median U.S. household saw their income climb $10,000 over 2022 and 2023, from $70,000 to $80,000. Wages continued growing rapidly in 2024 and are expected to do the same in 2025. Those higher incomes and borrowing at somewhat lower interest rates are helping home buyers start to catch up with all the home price growth that has happened since 2020.
5. More parents will help with down payments
I believe parents helping with down payments will become more common and more important than ever in 2025. That’s because the high price of homes today means that homeownership feels out of reach for many first-time homebuyers.
However, those same high prices also mean that the baby boomer generation has a lot of home equity. So, as they discuss homeownership with their adult children, many parents see a down payment gift as one of the most meaningful ways to help them gain access to the American dream.
This is a picture of a housing market gradually settling into a new normal after several abnormal years. A bunch of superlatives will be fading in the rearview mirror, like “fastest price appreciation ever,” “lowest inventory ever,” “fewest new listings ever,” and “highest interest rates in 20 years.” This is a normalizing market, and that includes Americans learning to live with the new normal.
All right, those are my top five predictions for 2025, based on what I’m seeing in the market right now. I look forward to seeing how the new year plays out in the housing market and analyzing it on behalf of Windermere Real Estate.
Jeff Tucker is the Principal Economist for Windermere Real Estate in Seattle, Washington. Connect with him on X or Facebook.