The 2024 homebuying season was a tough one thanks to high mortgage rates and rising home prices. Will 2025 be any easier for homebuyers?
Because there’s so much uncertainty in the economy right now, it’s hard to say for sure what will happen with the housing market this year. Let’s take a look at the latest expert predictions for home prices and more.
Overview of current housing market conditions
Housing market activity was relatively subdued last year thanks to high mortgage rates and limited inventory.
In March, the average 30-year mortgage rate was 6.45%, according to Zillow data, a slight decrease from the previous month. But average home values are up, increasing 2.6% year over year to $357,138.
Rates are expected to ease a bit this year, and home price growth should moderate — but recent uncertainty around tariffs has made it less clear whether this forecast will hold.
Why are home prices so high?
Real estate is an appreciating asset, which means that home values typically increase over time. Though they do drop occasionally, like they did during the Great Recession, prices have historically trended up.
Home prices, like a lot of things, are driven by supply and demand. During the pandemic, demand for homes shot up as mortgage rates fell and buyers had more money to spend. As a result, prices started rising faster than normal.
Low supply only made affordability worse. Short-term trends may have played some part in this, since many sellers delayed listing their homes during the pandemic, either due to COVID concerns or out of a reluctance to enter a hot market as a buyer.
Together, these forces caused home prices to climb at an astonishing rate. Now that they’re so high, many are wondering if they’ll ever come back down. But because supply is chronically tight, any drops we might see would likely be relatively moderate.
Key trends shaping the housing market in 2025
Economic factors
The consumer price index, a key measure of inflation, peaked at 9.1% year over year in June 2022. This led the Federal Reserve to start aggressively raising the federal funds rate to bring inflation back down. High inflation and pressure from the Fed’s hikes helped push mortgage rates up, slowing homebuying demand.
Fortunately, inflation has since cooled substantially, rising 2.4% year over year in March 2025. The Fed started lowering its benchmark rate last year in response to slowing inflation. But until we get more clarity around how tariffs will impact the economy, the Fed is unlikely to resume lowering rates, since higher prices from tariffs are expected to push inflation up.
Mortgage rates
Though mortgage rates are down from when they peaked near 8% in October 2023, they’re still higher than what many homeowners and buyers are used to. From 2010 until 2020, the average 30-year mortgage rate was 4.09%, according to Freddie Mac data. Then, during the pandemic, rates dropped even lower, reaching an all-time low of 2.65% in January 2021.
Because rates have been so high in recent years, many would-be buyers have refrained from entering the market. This also kept sellers from listing their homes, since many have mortgages with low rates and are reluctant to give that up. This lock-in effect constrained housing supply and helped keep prices from falling, even as rates spiked.
Housing supply and demand
Low housing supply is a chronic problem in the U.S. And it’s a big part of why homeownership continues to get more expensive each year, even as demand has been sluggish.
Doug Duncan, Fannie Mae’s senior vice president and former chief economist, says most analysts believe the lack of supply has driven the dramatic price increases we’ve experienced over the past few years. From the start of 2020 to now, the average home price has grown by more than $100,000, according to Zillow data.
“Starting back in 2015, house prices since then have been appreciating at significantly faster than the long-term average,” Duncan says.
In its 2021 research note “Housing Supply: A Growing Deficit,” Freddie Mac estimated that the U.S. was 3.8 million units short of a healthy housing supply. The problem is especially pronounced when it comes to entry-level homes.
There are two main ways to add to the housing supply: listing existing homes for sale, and building new ones. Part of the problem is that the baby boomer generation is holding onto a lot of real estate, and they aren’t leaving their homes to live in retirement communities or assisted living facilities at the same rate previous generations have.
“Right now, the boomers are doing what they said they were going to do, which is aging in place,” Duncan says.
That’s not to say it’s a bad thing that older adults are able to remain independent for longer, often thanks to advances in technology and telehealth, but it cuts off a key source of inventory that isn’t added elsewhere. When younger adults sell their homes, for example, they’re typically also looking to buy another, increasing turnover, not supply.
The bigger problem is that new homes aren’t being constructed at a fast enough pace to meet demand. According to the Freddie Mac research note, “The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes.”
Duncan says that the Great Recession destroyed around 75% of the housing supply chain. During this time, nobody was building houses, so a lot of workers exited the industry, and many businesses shut down.
The supply chain is still recovering from this, and after decades of underbuilding entry-level homes, builders are having a hard time meeting demand for affordable inventory.
Predictions for 2025 housing market
Price trends: Will home prices drop in 2025?
Most major forecasts don’t expect home prices to drop in 2025, but they should moderate somewhat. Here’s where some of the major industry players think home prices will end up by the end of 2025 and 2026:
According to these forecasts, home prices could end 2025 between 1.3% and 3.5% higher than they were a year ago.
Of course, it’s hard to say with certainty what will happen in the coming months and years. But based on what we know right now, it’s unlikely that home prices will drop soon.
Local housing market forecasts
The U.S. housing market is made up of a bunch of smaller, local markets that all have their own trends and influences. So even though home values are expected to rise overall throughout the next couple of years, it’s possible prices could ease slightly in your area. This is especially true in places where home prices boomed during COVID-19 and are due for a correction.
For example, home prices in Austin have been steadily declining since they peaked in mid-2022 and are now down 4.2% year over year, according to Zillow.
You can use an online listing site like Zillow or Redfin to see what the housing market looks like near you, or talk to a local real estate agent to get a sense of how prices are likely to trend in your community in 2025 and beyond.
Is it a good time to buy a house?
So, is now a good time to buy a house? Duncan says that his answer to this question is the same now as it was 20 years ago: If it fits your budget, it’s the right time to buy.
“Because you don’t know whether interest rates are going to go up or down in the long term, and you’re simply making a housing decision, as opposed to an investment decision,” he says.
For most people, it’s not about trying to time the market.
“A lot of us are just buying a house to live in and take care of our household and family and all that,” Duncan says.
As mortgage rates go down this year, affordability may improve slightly for homebuyers. Inventory is also expected to grow, which should help moderate price growth and make finding a home easier. So 2025 could be a good year to buy a home if you’re considering it.
Just be sure to shop around and compare rates to find the best mortgage lender for you. By getting multiple quotes, you can ensure you get a good deal.
