The Mansion BoHousing market forecast: 2025 housing market predictionsom

                                        BY Molly Grace

Thanks to climbing home prices and high mortgage rates, it’s been a tough few years for the housing market, leaving many hopeful homebuyers eager to get off the sidelines and into a home.

Housing market conditions appear to be easing somewhat now that we’re in the middle of the typical homebuying season, but affordability remains a challenge. And with so much uncertainty around tariffs and their impact on the economy, it’s hard to say for sure what will happen to the market this year and in the years to come.

If you’re planning to buy or sell soon, here’s what you need to know about the latest predictions for the housing market in 2025 and beyond, and how you can prepare.

Overview of the housing market
The median existing home price in the U.S. is $403,700, according to the National Association of Realtors — up 2.7% year over year. In April, 30-year mortgage rates averaged 6.71%, up from the previous month, according to Zillow data.

For the past few years, mortgage rates have been elevated while home prices continued to climb, creating an affordability problem for homebuyers. The high cost of purchasing a new home has kept many would-be home sellers out of the market as well, further curbing an already-limited housing supply.

Overall, it hasn’t been an easy few years for hopeful homebuyers, particularly first-time homebuyers, who often have less buying power and benefit most from lower mortgage rates and stable home prices. But conditions may improve somewhat this year.

Key factors influencing housing market trends
The housing market is affected by many different factors, including macroeconomic forces, trends in new home construction, and current mortgage rates.

The economy and Federal Reserve policy
As inflation rose to record highs in 2022, the Federal Reserve started aggressively raising the federal funds rate in an attempt to bring it back down. This helped push mortgage rates up.

Since then, inflation has slowed significantly, with the consumer price index rising 2.4% year over year in March, way down from June 2022’s 9.1% peak. Because inflation has decelerated so much, the Fed started lowering its benchmark rate last year, cutting the federal funds rate by 50 basis points at its September meeting and then by 25 basis points in both November and December.

But the Fed is holding rates steady for now while it assesses the effects of this administration’s trade policy on the economy. Tariffs are expected to both push inflation back up and slow economic growth.

Though mortgage rates don’t directly follow the federal funds rate, they often trend up or down based on how investors believe Fed moves will impact the broader economy.

Mortgage rates
Because mortgage rates have been elevated, homebuying demand has remained relatively subdued recently. This has also kept many would-be sellers from listing their homes, since they don’t want to give up their low mortgage rates.

Sometimes, high mortgage rates can help put downward pressure on home prices, or at least keep them from rising as quickly. But because the U.S. has too little housing inventory, home prices have continued to increase in recent years.

In 2025, mortgage rates are expected to go down a little bit. By the end of the year, rates may end up in the low-to-mid 6% range. But this hinges on inflation continuing to come down. If it reaccelerates, expect rates to go up.

Housing demand
The housing market is driven by supply and demand. When demand goes up, more buyers are competing over the market’s available inventory, pushing prices up. When demand goes down, prices may moderate or fall.

Housing demand has remained relatively low this year, thanks to high prices and high rates. This has kept prices from rising too quickly. But if rates go down this year, demand could rise, pushing prices up faster.

Real estate inventory
Real estate inventory refers to the housing supply. If there are fewer homes on the market than there are buyers, home prices rise. If there are more homes on the market than buyers, prices go down.

A recent Zillow analysis found that the U.S. is 4.5 million homes short of a healthy housing supply. This is why home prices and rent costs have gone up in recent years.

Fortunately, inventory has been improving. According to Realtor.com, inventory was up over 30% year over year in April, the 18th consecutive month of supply growth.

Housing market forecasts for 2025
Mortgage rates are expected to ease while price growth moderates in 2025, which should improve affordability for borrowers.

Home price predictions
Experts generally expect home prices to increase over the next few years, but the pace of those increases should slow.

.  Fannie Mae sees home prices rising 4.1% year over year in 2025 and 2% in 2026.
.  The Mortgage Bankers Association sees price growth slowing to 1.3% year over year in 2025 and 0.3% in 2026.
.  The National Association of Realtors thinks median home prices will increase 3% in 2025 and 4% in 2026.

Home prices are unlikely to drop significantly anytime soon. But as the market continues to normalize, buying a house should get a bit more affordable thanks to lower rates and higher inventory. And some regions of the country may see some small decreases.

Right now, we’re still recovering from the super-hot market of the pandemic, when home prices rose extremely fast. In the future, homebuyers can expect prices to rise at a more moderate rate.

Housing inventory forecast
For housing market conditions to improve, housing supply needs to increase. If mortgage rates decrease, more sellers should come onto the market and list their homes, increasing the number of for-sale homes available.

In terms of new home construction, Fannie Mae expects the number of housing starts to drop slightly in 2025 before increasing in 2026. The MBA says starts will remain flat in 2025 and inch up in 2026.

Real estate forecast for the next 5 years
Because the housing market is so heavily influenced by what’s going on in the economy, it’s hard to say for sure what conditions will look like five years from now.

We do know that the U.S. has a chronic supply shortage, so that will likely continue to be a problem — though it could improve as more politicians and local governments tackle supply issues. Mortgage rates dropping to a more normal level may also help as more sellers return to the market, providing an increase in inventory.

Is it true that it will never be a good time to buy a house?
There’s a lot of pessimism around homebuying that’s led many would-be buyers to resign themselves to a life of renting. While buying a home is certainly much more expensive now than it has been in the past, there are still opportunities for people to become homeowners, especially with how many first-time homebuyer mortgages and down payment assistance programs have become available in recent years.

It’s now possible to get a mortgage with just 1% down and use down payment and closing cost assistance to limit the amount of cash you need to purchase a home.

Is it a good time to buy a house now?
Whether it’s a good time to buy depends on a lot of different factors, including current mortgage rates, local housing market conditions, and your financial situation. But housing market conditions have improved somewhat, so now could be a good time to buy a house.

You may want to talk to a real estate agent about the current dynamics of your local housing market. Find out how many homes are available in your price range and when the best time to buy is in your area.

What home sellers should know about the current housing market
Many would-be sellers who are holding onto historically low mortgage rates have refrained from listing their homes since rates have been so high. But as mortgage rates trend down, giving up their current mortgage won’t be as big of a deal.

If you’re considering selling, this may be a good year to do it. Mortgage rates are expected to ease, which should improve demand and make it easier to sell your home for its full price (or more).

When will the ‘silver tsunami’ impact housing prices?
Even as mortgage rates drop, low supply will remain a problem for homebuyers. But we may see conditions shift in the coming years thanks to the so-called “silver tsunami,” which refers to the potential impacts of an increasing number of baby boomers aging out of their current homes.

How the ‘silver tsunami’ could affect first-time homebuyers
Baby boomers are currently holding onto a lot of real estate. But as they get older and pass away or move into long-term care facilities like nursing homes, more and more of that real estate will be put back on the market. Because those seniors aren’t looking to purchase another home to replace their current one, this adds new housing supply that wasn’t there before.

This could help make it easier for first-time homebuyers and other cash-strapped borrowers to get into a home, since it will ease competition and allow prices to rise at a more moderate pace. However, it may take at least a few more years before we begin to see the impact of this.

How to prepare to buy a house in 2025: 5 tips
Here’s what you should be doing to prepare for homeownership if you’re planning to buy soon.

1. Get your finances ready
Making sure your finances are in a good place can help you snag the best mortgage rate possible, no matter how average rates are trending.

One of the faster methods to get your credit score up is to lower your credit utilization. This will also decrease your debt-to-income ratio, which is another factor mortgage lenders look at when considering what rate to give you.

J.R. Russell, head of direct to consumer mortgage lending at Citi Mortgages, says homebuyers should consider paying off credit card balances to improve their scores.

“If you’re trying to pay off or pay down some credit cards, start with the cards or credit lines with the highest interest rates first,” Russell says. “Then, pay off the balances that are smallest. The good news is that if you do this, you’ll improve your debt load and your credit score.”

2. Look for affordable mortgages and other first-time homebuyer assistance
The key to affording homeownership for many buyers in 2025 will be utilizing mortgages geared toward first-time homebuyers and combining them with grants or other forms of down payment assistance.

“If you’re not sure that your down payment will be sufficient, take time to understand all of the available products that you may be eligible for through the FHA or VA, your bank, or other local institutions,” Russell says. “These programs may grant you access to down payment assistance and low-to-moderate income programs, among other game-changing resources.”

Conventional loans allow down payments as low as 3%, while FHA loans allow 3.5% down payments. USDA and VA loans allow no down payment.

Look into lenders that offer special mortgage programs that come with additional assistance. Rocket Mortgage, for example, offers a ONE+ mortgage that allows borrowers to put down just 1%, with the lender providing a 2% grant.

Bank of America, another popular lender for first-time buyers, offers a couple of different forms of down payment and closing cost assistance.

3. Time your purchase right
The best time to buy depends on each buyer’s priorities — so it’s important that you figure out yours.

If getting the lowest rate possible is most important to you, keep an eye on how rates and the economy are trending. Rates are expected to tick down in 2025, and inventory should improve too, giving you more homes to choose from. But you’ll likely be up against greater competition.

Buying during the offseason, such as the fall or winter months, can help you avoid competition and get a better price. But inventory is also lower during this time, so you may have a harder time finding a home that suits your needs.

4. But don’t rush
“Don’t put pressure on yourself to make any potentially hasty decisions on what may be your biggest asset and the largest financial decision of your life,” Russell says.

If you don’t feel ready to buy in 2025, there’s nothing wrong with waiting a bit to continue saving and working on your credit.

5. Build your savings
Whether you’re padding your mortgage down payment savings or contributing to your emergency fund, tucking away some extra cash now is vital if you plan on buying a home soon.

When you buy a house, you’ll need enough cash to cover both your down payment and closing costs, which can amount to between 2% and 5% of the loan amount. While many mortgage programs allow low down payments, the more you can put down, the better your interest rate will likely be. Plus, offers with larger down payments are often more attractive to home sellers, giving you a competitive edge in what will likely be a tough market.

Homeownership is also often more expensive than many first-time buyers realize, especially in the first year. Having some extra money set aside for unexpected costs will help ensure you don’t go into debt when your first big housing expense comes along.