Housing Market Predictions For 2025: When Will Home Prices Drop?

As 2025 gets underway, the housing market remains challenging, with stubbornly high home prices and mortgage rates prolonging buyer struggles. Mortgage rates hover closer to 7% than 6%—far from what most economists and analysts forecasted—within range of the rates we saw this time last year. Sky-high home prices also continue to ascend, especially in popular areas of the country.

Nonetheless, the home price surge that ignited in 2020 has noticeably lost steam over the past year. Prices even declined in some markets, thanks to increasing inventory and softer demand due to affordability challenges. Experts project this deceleration will persist in 2025.

Even so, enduringly high home prices and mortgage rates will likely be the norm for at least the coming months, sustaining the affordability gap between prospective buyers with the means to re-enter the market and those left out in the cold.

Housing Market Forecast 2025

U.S. home prices posted a 3.9% annual gain in December 2024, up from 3.7% annual growth in November, according to the latest S&P CoreLogic Case-Shiller Home Price Index, which tracks single-family home values.

Though the housing market continues to see price growth, the size of the increases has largely decelerated. Most experts expect further slowing in 2025 amid growing inventory and still-high mortgage rates.

“While our National Index continues to trend above inflation, we are a few years removed from peak home price appreciation of 18.9% observed in 2021 and are seeing below-trend growth over the history of the index,” said Brian D. Luke, chartered financial analyst, head of commodities, real and digital assets at S&P Dow Jones Indices.

Nonetheless, market conditions vary widely depending on the region, with the Northeast boasting above-trend home price growth, led by New York City, Chicago and Boston, according to S&P Dow Jones’ latest release.

Current Events Impacting Certain Markets

Additionally, experts say markets impacted by current events are seeing changing conditions.

“Wildfires in Los Angeles have already driven rents higher, and home prices also likely will be pushed up in the metro itself and the surrounding area as displaced homeowners search for new homes,” said Lisa Sturtevant, chief economist at BrightMLS, in an emailed statement. Sturtevant also pointed to increased listing activity in Washington, D.C., amid job eliminations and return-to-office mandates.

Buyer Conditions Unlikely To Improve Much Anytime Soon

Even with the slowing pace, home prices remain out of reach for many would-be buyers. Median existing-home prices have surged by roughly 38% over the past five years amid rising mortgage rates, which remain elevated.

Consequently, monthly mortgage payments (including both principal and interest) skyrocketed between 2020 and 2025, jumping by over 96%, according to recent Zillow housing market data. Add property taxes and homeowners insurance, and it’s understandable why homeownership is unattainable for many—and remains so for at least the near future.

“The divide in the housing market persists as buyers in the low-to-mid price range largely keep to the sidelines while buyer activity in the high-to-luxury price range carries on, skewing sale prices higher,” said Hannah Jones, senior economic research analyst at Realtor.com, in an emailed statement. “Lower mortgage rates are not likely going to be achieved in the short term, meaning affordability challenges are likely to persist in the coming months.”

Will the Housing Market Crash in 2025?

With record-high home prices still trending upward in many markets, you may be concerned that we’re in a bubble that’s prime to pop, as it did in the 2008 financial crisis. However, the likelihood of a housing market crash (a rapid drop in unsustainably high home prices due to waning demand) remains low as we look ahead to 2025.

“[T]he record low supply of houses on the market protects against a market crash,” says Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a nonqualified mortgage lender.

Experts are also quick to point out that today’s homeowners are on much more secure footing than those coming out of the 2008 financial crisis, with many having substantial home equity. What’s more, a record number of homeowners today are mortgage-free.

What’s the Monthly Mortgage Payment for New Homeowners in 2025?

A typical home in January 2025 cost roughly $355,000, according to Zillow data. Those who put down 20% on a typical home at a 6.95% mortgage rate—the average 30-year fixed mortgage rate the last week of January—have a monthly principal and interest payment of $1,879.

In contrast, homeowners who bought a typical home at the same time last year when the price was around $346,000 and the mortgage rate was 6.69% are paying $1,784 a month.

Paying $95 a month more today may not seem substantial at first glance. However, the difference adds up to $34,400 more in mortgage payments over the life of the loan.

Can We Expect a Housing Market Recovery in 2025?

At a minimum, for a housing recovery to occur, two primary conditions must improve.

Housing Inventory Needs To Increase

“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” Keith Gumbinger, vice president at online mortgage company HSH.com, tells Forbes Advisor. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”

Mortgage Rates Need To Fall

Mortgage rates also need to decline. Although rate movements have been uncooperative in recent months, experts are hopeful for some improvement over the next year.

Even so, Gumbinger warns that rates cooling too quickly could create a surge in demand that would wipe away any inventory gains, causing home prices to surge. He adds that mortgage rates eventually returning to a more “normal” upper-4%-to-lower-5% range would be helpful to the housing market but predicts it could be a while before we return to those rates.

Frozen Market Forecasted Through Spring Home-buying Season and Beyond

Despite gradual improvements in home prices and more consumers accepting that mortgage rates above 6% are here to stay for the time being, demand remains suppressed. As such, experts don’t expect much movement in the housing market this year.

In its latest housing market outlook, analysts from J.P. Morgan point out that existing inventory and home sales sit at historically low levels. They forecast the housing market to remain frozen throughout 2025:

“Some growth is still expected, but at a very subdued pace of 3% or less. And though housing inventory is creeping back up, it still remains below the historical averages.”

Residential Real Estate Stats: Existing, New and Pending Home Sales

One month into 2025 the housing market is in a deep freeze, with existing, new and pending home sales all declining along with the temperatures.

Existing-Home Sales

Existing home sales—including completed transactions of single-family homes, townhomes, condominiums and co-ops—sagged in January as mortgage rates hovered near and crossed over the 7% mark. By the last week of the month, the average mortgage rate for a 30-year loan was 6.95%.

Monthly existing home sales fell 4.9%, putting the seasonally adjusted annual sales rate at 4.08 million. This is down from 4.29 million in December, according to the latest report from the National Association of Realtors (NAR). While sales remain weak, they are still above the 14-year low of 3.83 million this past September.

Still, amid this dismal sales news, year-over-year sales were a bright spot. They rose 2% from January 2024, marking the fourth consecutive month of annual sales increases.

This latest sales slip comes as home prices continue to swell. The national median resale home price progressed 4.8% to $396,900 compared to a year ago, marking the 19th straight month of year-over-year price growth. All four major U.S. regions notched median home price increases.

Affordability Challenges Will Persist for Less Qualified Would-Be Buyers

Along with high home prices, experts blame stubbornly high mortgage rates for creating an increasing chasm between those who can and can’t afford a home.

“Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve,” said Lawrence Yun, chief economist at NAR, in response to the latest data. “When combined with elevated home prices, housing affordability remains a major challenge.”

Inventory perked up a bit more, rising 3.5% between December 2024 and January 2025 and 16.8% from a year ago. At the current monthly sales pace, unsold, existing inventory stands at a 3.5-months’ supply—up from 3.2 months in December and three months a year ago. Most experts consider a balanced market between four and six months.

However, not all hopeful buyers will benefit from these inventory improvements.

“More housing supply allows strongly qualified buyers to enter the market,” Yun said. “But for many consumers, both increased inventory and lower mortgage rates are necessary for them to purchase a different home or become first-time homeowners.”

New Home Sales

Things on the new homes front didn’t fare well either, with sales slumping month-over-month amid deteriorating affordability and a below-average cold January.

January 2025 sales of newly constructed single-family houses fell 10.5% compared to December 2024 and 1.1% compared to a year ago, according to the latest U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD) data.

New construction has been the housing market’s knight in shining armor over the past few years, buffering record-low existing-home inventory. However, with resale stock gradually picking up and builders facing housing cost headwinds due to high interest rates, new home sales could continue to see a slowdown in the coming months.

Recent Home Sales Data

Pending Home Sales

Prospective buyers gave the housing market the cold shoulder the first month of the new year as mortgage rates rose to the high 6% range, surpassing 7% for one week in the middle of the month before retreating.

NAR’s Pending Homes Sales Index dropped 4.6% in January 2025 compared to December 2024, resulting in a 70.6 index reading—an all-time low. An index measure of 100 is equal to the level of contract activity in 2001.

Pending transactions also fell by 5.2% year-over-year, with all four major U.S. regions experiencing declines. Note that a pending home sale marks the point in the purchase transaction when the buyer and seller agree on price and terms. This is considered a leading indicator of a closed existing home sale within the next one to two months.

“It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months,” said Yun in the report. “Even a slight reduction in mortgage rates will likely ignite buyer interest, given rising incomes, increased jobs and more inventory choices.”

As mortgage rates crept up, resale supply broadened—helping to temper existing home price growth and improve affordability. Annual gains were especially strong in the pricier Northeast and West regions, which Yun explains was the result of a record-high stock market giving high-end home buyers a boost.

Housing Inventory Forecast: When Will There Be Sufficient Supply To Reduce Prices?

Despite more resale and new homes entering the market, for-sale inventory remains well below historical averages, according to multiple reports. Thanks to multiple headwinds, a severe inventory deficit will likely remain for some time.

For one, many homeowners remain “locked in” at ultra-low mortgage rates, unwilling to exchange for a higher rate in a high-priced housing market. Consequently, demand continues to outpace housing supply—and likely will until mortgage rates resume their descent enough to loosen the lock-in effect.

“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.

Meanwhile, President Trump issued a memorandum signaling his readiness to lower housing costs and expand supply. During his re-election campaign, the president expressed support for rolling back regulations to facilitate new home construction and plans to open limited portions of federal land for housing development.

Yet, while industry stakeholders have applauded the president for his commitment to improving housing affordability and inventory, analysts say they’re unlikely to significantly move the needle toward creating a more affordable and balanced housing market. This could be particularly true if the administration moves forward with tariffs that could severely impact construction costs.

Here’s what the latest home values look like around the country.

Home Builder Sentiment Reverses Course Amid Tariff Concerns

Builder sentiment was on course to cross over into positive outlook territory until concerns surrounding the Trump Administration’s potential economic policies prompted a U-turn.

Builder Confidence Craters

According to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence sank from 47 to 42 in February. A reading of 50 or above means more builders see good conditions ahead for new construction.

Builder confidence had been slowly rising since September, when the Fed finally began cutting its benchmark interest rate. However, fresh uncertainty surrounding the possible implementation of tariffs amid stalled inflation progress has dampened builder outlook.

“While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI,” said Carl Harris, chairman of NAHB, in a press statement. “Uncertainty on the tariff front helped push builders’ expectations for future sales volume down to the lowest level since December 2023.

New Home Building Permits Stall as Housing Starts Fall

Amid eroding builder confidence, single-family building permits were flat in January, with new home building showing signs of a slowdown.

Housing starts for single-family homes in January fell 8.4% month-over-month and 1.8% from a year ago, according to the latest data from the U.S. Census Bureau and HUD. Meanwhile, some good news ahead of spring home-buying season—new home completions rose 7.1% month-over-month and 8.9% from January 2024.

“Builders are exercising caution in January 2025, responding to the overall slow home sales market of 2024, in which fewer existing homes were sold than in any year since 1996,” said Joel Berner, senior economist at Realtor.com, in an emailed statement. “The uptick in completions is good news for buyers, who continue to see more options available to them both overall and among newly-built homes.”

Will There Be a Foreclosure Surge in 2025? Here’s What Experts Say

Lenders began foreclosures on 20,994 properties nationwide in January, up 8% from the previous month but down 4% from last year, according to real estate data firm Attom.

Completed foreclosure data was also somewhat mixed, with real estate-owned properties, or REOs, inching up nearly 1% compared to the previous month but down 25% from a year ago. REOs are homes that didn’t sell at foreclosure auctions, with mortgage lenders ultimately taking possession.

Experts Monitor Economic Factors That May Trigger Foreclosure Upticks

Foreclosure activity remains at historic lows. Still, with foreclosure starts up last month, experts remain vigilant—monitoring multiple economic variables that could introduce stress in the housing market.

“It’s too early to know if 2025 will shift from the general 2024 trends of a continued decline in foreclosure activity,” said Rob Barber, CEO at Attom, in a report. “We will keep a close eye on the market to see how interest rates, inflation, employment shifts and other market dynamics impact foreclosures in 2025.”

Foreclosure activity in 2024 was 35% below 2019 levels before the Covid-19 pandemic emerged and upended the housing market, according to Attom data. Foreclosure filings last year were also down close to 90% compared to 2010, when they peaked at nearly 2.9 million.

Home Equity Levels Impact Foreclosure Levels

Sharga explains that a significant factor contributing to today’s comparatively low levels of foreclosure activity is that homeowners—including those in foreclosure—possess an unprecedented amount of home equity.

Homeowners with mortgages—61.2% per American Community Survey 2023 data—saw a collective increase of $425 billion in home equity in the third quarter of 2024, according to the latest CoreLogic home equity report. This lifts total net homeowner equity by 2.5% year-over-year to more than $17.5 trillion.

This increase in equity has helped increase the percentage of equity-rich mortgages (when an outstanding mortgage balance is at or below 50% of a home’s value) Over 47% of mortgaged homes were equity-rich during the fourth quarter of 2024. This figure was only 26.5% in early 2020, according to Attom’s latest U.S. Home Equity and Underwater Report.

“For a homeowner in the early stage of foreclosure, that equity helps them avoid a foreclosure sale, either by leveraging the equity to pay down past due mortgage bills, or by selling their property in order to protect the equity they’d otherwise lose at the auction,” Sharga says.

Will 2025 Be a Good Year To Buy a Home?

Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.

Use a mortgage calculator to estimate your monthly housing costs based on your down payment. But if you’re trying to predict what might happen in 2025, experts say this is probably not the best home-buying strategy.

“The housing market—like so many other markets—is almost impossible to time,“ Orphe Divounguy, senior macroeconomist at Zillow Home Loans, says. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs and that they can afford.”

Gumbinger agrees it’s hard to tell would-be homeowners to wait for better conditions.

“More often, it seems the case that home prices generally keep rising, so the goalposts for amassing a down payment keep moving, and there’s no guarantee that tomorrow’s conditions will be all that much better in the aggregate than today’s.”

Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth.

Pro Tips for Buyers and Sellers

Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.

Pro Tips for Buying in Today’s Real Estate Market

Hannah Jones, a senior economic research analyst at Realtor.com, offers this expert advice to aspiring buyers:

• Know your budget. Instead of focusing on price, figure out how much you can afford as a monthly payment. Your monthly housing payment is influenced by the price of the home, your down payment, mortgage rate, loan term, home insurance and property taxes.
• Be flexible about home size and location. Perhaps your budget is sufficient for a small home in your perfect neighborhood, or a larger, newer home further out. Understanding your priorities and having some flexibility can help you move quickly when a suitable home enters the market.
• Keep an eye on the market where you hope to buy. Determine the area’s available inventory and price levels. Also, pay attention to how quickly homes sell. Not only will you be tuned in when something great hits the market, you can feel more confident moving forward with purchasing a well-priced home. A real estate agent can help with this.
• Don’t be discouraged. Purchasing a home is one of the largest financial decisions you’ll ever make. Approaching the market confidently, armed with good information and grounded expectations will take you far. Don’t let the hustle of the market convince you to buy something that’s not in your budget, or not right for your lifestyle.

Pro Tips for Selling in Today’s Real Estate Market

Gary Ashton, founder of The Ashton Real Estate Group of RE/MAX Advantage, has this expert advice for sellers:

• Research comparable home prices in your area. Sellers need to have the most up-to-date pricing intel on comparable homes selling in their market. Know the market competition and price the home competitively. In addition, understand that in some price points it’s a buyer’s market—you’ll need to be prepared to make some concessions.
• Make sure your home is in top-notch shape. Homes need to be in great condition to compete and create a strong “online curb appeal.” Well-maintained homes and attractive front yards are major features that buyers look for.
• Work with a local real estate agent. A real estate agent or team with a strong local marketing presence and access to major real estate portals can offer significant value and help you land a great deal.
• Don’t put off issues that require attention. Prepare the home by making any repairs or improvements. Removing any objections that buyers may see helps focus the buyer on the positive attributes of the home.

Frequently Asked Questions (FAQs)