As 2025 begins, the housing market remains challenging, with persistently high home prices and mortgage rates making it difficult for buyers. Mortgage rates are still hovering closer to 7% rather than 6%, defying earlier economic forecasts. Meanwhile, home prices continue to rise, especially in popular markets across the country.
However, the housing price surge that began in 2020 has noticeably slowed in the past year. Some markets have even experienced slight price declines due to increasing inventory and softened demand caused by affordability concerns. Experts predict this deceleration will continue throughout 2025.
Despite this, high home prices and mortgage rates are expected to persist in the coming months, maintaining the affordability gap between buyers who can re-enter the market and those who remain sidelined.
Housing Market Forecast for 2025
According to the latest S&P CoreLogic Case-Shiller Home Price Index, U.S. home prices saw a 3.9% annual gain in December 2024, slightly up from 3.7% in November. While home prices continue to grow, the rate of increase has significantly slowed compared to previous years.
“While our National Index continues to trend above inflation, we are far from the peak home price appreciation of 18.9% observed in 2021,” said Brian D. Luke, a chartered financial analyst and head of commodities, real and digital assets at S&P Dow Jones Indices.
Market conditions vary widely by region, with the Northeast experiencing above-trend growth, particularly in cities like New York, Chicago, and Boston.
Current Events Impacting Certain Markets
Some housing markets have been affected by external events. For instance, wildfires in Los Angeles have driven up rental prices and are expected to push home prices higher as displaced homeowners search for new properties. In Washington, D.C., increased listing activity has been observed due to job cuts and return-to-office mandates.
Will the Housing Market Crash in 2025?
With home prices still at record highs, some fear a potential housing market crash similar to 2008. However, experts consider a crash unlikely.
Tom Hutchens, executive vice president at Angel Oak Mortgage Solutions, notes that “the record low supply of homes on the market protects against a market crash.” Additionally, most homeowners today have strong financial standing, with many holding significant home equity or owning their homes outright.
Buyer Conditions: Little Relief in Sight
Even with the slowdown in price growth, home affordability remains a major challenge. Over the past five years, median home prices have surged by 38%, and mortgage rates have stayed high, making homeownership unattainable for many.
According to Zillow, monthly mortgage payments have skyrocketed by over 96% between 2020 and 2025. Combined with property taxes and homeowners insurance, the cost of owning a home has become increasingly burdensome.
“The divide in the housing market persists,” said Hannah Jones, senior economic research analyst at Realtor.com. “Lower mortgage rates are unlikely in the short term, meaning affordability challenges will continue.”
Mortgage Payments in 2025
As of January 2025, the typical home costs around $355,000. A buyer putting down 20% at a 6.95% mortgage rate would have a monthly principal and interest payment of $1,879. This is $95 more per month than in January 2024, adding up to an extra $34,400 over a 30-year loan.
Housing Market Recovery: What Needs to Change?
A full housing market recovery would require improvements in two key areas:
- Increased Housing Inventory – “To stabilize home prices, we need significantly more homes for sale,” says Keith Gumbinger, vice president at HSH.com.
- Lower Mortgage Rates – A return to a 4%-5% mortgage rate range would help affordability, though rapid rate cuts could also trigger a surge in demand, driving prices back up.
Market Outlook: A Slow Year Ahead
Despite gradual improvements, experts do not expect major changes in the housing market for 2025. J.P. Morgan analysts forecast the market to remain sluggish, with growth expected to stay below 3%.
Residential Real Estate Trends in 2025
Existing-Home Sales
In January 2025, existing-home sales dropped 4.9% from December, reaching an annual sales rate of 4.08 million. Though still above the 14-year low of 3.83 million recorded in September 2024, sales remain weak due to high mortgage rates. However, year-over-year sales rose by 2%, marking the fourth consecutive month of annual gains.
New Home Sales
Sales of newly built homes also declined in January, falling 10.5% from December 2024 and 1.1% from January 2024. Rising interest rates and affordability concerns have dampened demand, despite new construction playing a key role in supplementing the tight housing market.
Pending Home Sales
Pending home sales fell by 4.6% in January 2025, reaching a record low index reading of 70.6. This decline reflects suppressed buyer activity due to high mortgage rates.
“It’s unclear if the coldest January in 25 years contributed to fewer buyers, but even a slight mortgage rate reduction could reignite buyer interest,” said Lawrence Yun, chief economist at NAR.
Housing Inventory: Will Prices Drop?
While inventory levels are improving, they remain below historical norms. More resale and new homes are entering the market, but supply is still constrained. Many homeowners are unwilling to sell due to their locked-in low mortgage rates, further limiting availability.
What to Expect in the Coming Months
- Home price growth is expected to slow but not decline significantly.
- Mortgage rates will likely stay elevated, maintaining affordability challenges.
- Buyer activity will remain low unless interest rates drop.
- Inventory will continue to increase gradually, though not enough to drive down prices significantly.
Overall, while the housing market won’t crash, it will likely remain sluggish throughout 2025. Buyers hoping for significantly lower prices may have to wait longer before conditions improve.
