Despite this year’s setbacks, many of the same trends originally predicted for 2024 are likely to materialize in 2025, wrote Jeff Tucker, chief economist for the City of Windermere. There is.
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Heading into 2024, most economists were optimistic that the housing market would turn around and that lower mortgage rates would revive sales activity. Those hopes were dashed by a stubborn rise in mortgage rates through May, throwing cold water on buyers who were hoping for a break from the rough patch in 2023.
However, in late summer and autumn, fortunes began to change, and the rosy picture originally predicted for 2024 glimmered into reality. Mortgage rates had fallen to nearly 6% by mid-September, sparking an unusual surge in sales activity in the fall.
Mortgage rates have since recovered amid election uncertainty and the “last mile” of reining in inflation remains difficult. Yet, despite this, I believe that many of the same trends originally predicted in 2024 are poised to materialize in 2025.
This includes a further modest decline in interest rates, combined with inventory finally approaching normal levels, and a welcome recovery in existing home sales after a year and a half of rock-bottom sales activity. will be promoted. A healthy supply of properties will also help limit price increases, but will not be negative for the country as a whole.
For the rest of my 2025 housing predictions, watch the video above or read below.
1. Interest rates will fall.
I expect interest rates to fall to around 6.5% in 2025, but gradually zigzag. Temporary factors such as election uncertainty, increased Treasury bond issuance and market volatility pushed mortgage rates up almost 1 percentage point last fall.
But the overall picture hasn’t changed much. We are still in the cool-down phase of the business cycle, with slowing inflation, a slowing job market, and the Fed cutting short-term interest rates. Still, if there’s one thing we’ve learned over the past two years, it’s that interest rates never rise in a straight line.
2. Used home sales will recover
Sales of existing homes have bottomed out and are expected to increase by up to 10% year-on-year in 2025. In 2022 and 2023, a low inventory of homes on the market held back sales volume, but sellers returned in 2024, and buyer activity picked up in earnest in the fall. I started.
Buyers and sellers are now experiencing less uncertainty and are getting used to the new normal range of interest rates, all of which is helping the market thaw.
3. Housing prices will not fall
Broadly speaking, U.S. home prices will not fall in 2025, but will only rise by about 2% to 4%. The past three years have seen a roller coaster of rises and falls when it comes to home prices, thanks to fluctuating interest rates and changes in the supply of homes available for sale.
With inventories now returning to balanced levels, especially in the western United States, 2025 should bring more stability to the market and stable prices.
4. Affordability begins to improve
This may be surprising given predictions that house prices will not fall, but in 2025 house prices will begin to gradually improve.
The main reasons are lower interest rates and higher incomes. The median U.S. household saw its income increase by $10,000 from 2022 to 2023, from $70,000 to $80,000. Wages will continue to grow rapidly in 2024, and similar growth is expected in 2025. With these higher incomes and borrowing at slightly lower interest rates, homebuyers are beginning to catch up with the rise in home prices that has occurred since 2020.
5. More parents will help with the down payment.
I believe that in 2025, it will be more common and more important than ever for parents to help with down payments. Because today’s high home prices make homeownership feel out of reach for many first-time homebuyers.
But similarly high prices also mean baby boomers have more housing equity. So when discussing homeownership with their adult children, many parents consider the gift of a down payment to be one of the most meaningful ways to gain access to the American Dream.
It’s a picture of how the housing market is gradually settling into a new normal after several abnormal years. Superlatives such as “fastest price increase in history,” “lowest inventory in history,” “lowest new public offering in history,” and “highest interest rates in 20 years” will fade in the rearview mirror. This is a normalizing market, and that includes Americans learning to live in a new normal.
got it. These are my top 5 predictions for 2025 based on what I’m currently seeing in the market. On behalf of Windermere Real Estate, I look forward to analyzing how the new year unfolds in the housing market.
Jeff Tucker is principal economist at Windermere Real Estate in Seattle, Washington. Connect with him on X or Facebook.
