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With mortgage rates on the rise once again and home prices staying stubbornly high, the housing market is poised for another tough — although perhaps more balanced — year.
In its 2025 housing market forecast published Wednesday, real estate site Realtor.com (NWSA+1.60%) expects average mortgage rates to remain elevated at 6.3%, ticking down to 6.2% by the end of next year, and home prices to grow 3.7% — the thirteenth straight year of increases. However, it’s forecasting somewhat looser home inventory shifting market power towards buyers.
This year, the housing market has continued to become increasingly unaffordable for many Americans looking to buy a home, especially for the first time. In October, the median sale price for a home in the U.S. was $434,568, up 5.1% from the year before. Mortgage rates also reversed course after dropping in September, heading back up towards 7%.
But there could be some cause for optimism for the housing market next year, especially when it comes to prospective homebuyers. Existing home inventory will see a 11.7% increase, continuing 2024 growth. And single-family new homes will surge 13.8% to 1.1 million homes, in what would be the highest level since 2006.
Months supply, a key indicator of market balance, is expected to shift to an average of 4.1 months in 2025, from 3.7 months in 2024. While anything under four months is typically considered a seller’s market, four-to-six months of supply is widely seen as a balanced market, Realtor.com said.
Ralph McLaughlin, senior economist at Realtor.com, said that if prospective buyers can look past higher mortgage rates, the market will be ripe for picking out the perfect home. Additional inventory will give prospective buyers more choices than they’ve had in the past few years and more time to shop around, with sales moving at their slowest seasonal pace in five years, he said.
“Now is a great time to actually find that house and make smart choices, as opposed to being rushed and maybe overlooking things that you know you otherwise would have paid attention to in a normal or more balanced market,” McLaughlin said.
“At the end of the day, homebuyers are going to be much more married to their house in the long run than they will be married to their mortgage rate,” he said. “The mortgage rates come down to the next year or two. They can refinance. Take advantage of that.”
In fact, buyers next year could see the highest for-sale inventory since December 2019. Realtor.com estimates that nearly 20% of listings will see price cuts and home sales will grow 1.5% year over year to 4.07 million.
As of July 2023, there is a housing shortage of between 4 to 6 million homes in the U.S., according to one estimate from the National Association of Realtors. In October, single-family housing starts were 1.31 million, 3.1% under the revised September estimate of 1.35 million and 4% below 1.37 million a year prior, according to the latest Census Bureau data.
On the campaign trail, President-elect Donald Trump promised a number of housing policies aimed at spurring construction and lowering costs, including opening tracts of federal land for new builds and slashing red tape.
“We will eliminate regulations that drive up housing costs with the goal of cutting the cost of a new home in half,” Trump said in a speech at the Economic Club of New York on Sept. 5.
At an Arizona campaign rally that month, Trump said that his objective will be to “cut the cost of building a new home by 30% to 50%,” with much of that coming from reducing regulations.
But Trump’s other proposals, including tariffs and mass deportations, could drive home prices up, particularly for developments that have already started but that haven’t yet sourced lumber or labor, McLaughlin said.
Last week, Trump said he would impose additional 10% tariffs on goods from China and 25% tariffs on all products from America’s two largest trading partners, Mexico and Canada. Canada is the largest exporter of lumber to the U.S.
Whether any of these policies come to fruition remains to be seen, with any positive developments in the housing market largely being driven by things like lower interest rates and progress on inflation, according to Danielle Hale, chief economist at Realtor.com.
“The size and direction of a Trump bump will depend on what campaign proposals ultimately become policy and when,” she said. “For now, we expect a gradual improvement in housing market dynamics powered by broader economic factors.”
The Federal Reserve has already lowered interest rates by 75 basis points this year, with another 25-basis-point reduction largely expected in December. Rates are currently set at between 4.50% and 4.75%. Goldman Sachs (GS-0.16%) estimates that the federal funds rate will settle at 3.25%-3.5% following four rate cuts in 2025.
And in some good news for renters, rents will remain about the same with a small, 0.1% drop, Realtor.com forecasts. As of Nov. 23, the median rent in the U.S. is $2,033, up $33 from a year prior, according to Zillow (Z+0.17%).
This flatness is largely because of the rapid surge in rental prices over recent years, which McLaughlin said has hit an “affordability ceiling” for more renters who haven’t already transitioned to buying. That’s paired with slowing income growth that doesn’t support continued price growth, he said.