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

                                      By   Robin Rothstein

The much-anticipated spring home-buying season never bloomed. In truth, it hardly even budded.

Now, housing market stakeholders are looking to summer for a potential rebound, hoping that growing inventory and slower home price appreciation will entice buyers off the sidelines by offering more options and greater negotiating power.

Still, the economic landscape remains uncertain, with the threat of tariffs looming over consumers. New home builders are also losing confidence, signaling a construction slowdown ahead amid high costs and weakened demand.

Additionally, elevated mortgage rates and home prices have yet to decline, leaving many aspiring home shoppers discouraged amid affordability challenges that experts predict will likely persist throughout the year.

Housing Market Forecast 2025
U.S. home prices posted a 2.7% annual gain in April—the slowest annual appreciation since mid-2023—down from the 3.4% growth released in March, according to the latest S&P CoreLogic Case-Shiller Home Price Index, which tracks single-family home values and is calculated monthly using a three-month moving average.

This report reflects home sales from February through April. The period was marked by expanding inventory and a U-shaped movement in the average 30-year mortgage rate, which started at the upper 6% in February, dipped to the mid-6% range in March and climbed back up in April to nearly where it began.

Despite slowing price growth, the index still managed to reach another record high.

Yet, even as home affordability remains a challenge—and likely will for the foreseeable future—budget-conscious buyers still have options if they know where to look.

“We’re witnessing a housing market in transition,” said Nicholas Godec, head of fixed income tradables & commodities at S&P Dow Jones Indices, in the report. “The era of broad-based, rapid price appreciation appears over, replaced by a more selective environment where local fundamentals matter more than national trends.”

Those looking for better affordability can find homes under $300,000 in Midwest metro areas such as Detroit, Cleveland and Dayton, Ohio, according to a recent Redfin report ranking the 10 cheapest places to buy a home out of the 91 most populous U.S. metro areas. The metros of Buffalo, New York, St. Louis and Baton Rouge, Louisiana, with median prices under $300,000, also made the top 10.

Will the Housing Market Crash in 2025?
With record-high home prices still trending upward in many markets amid economic uncertainty, you may be concerned that we’re in a bubble that’s primed 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 in 2025.

Housing stock supply has risen substantially compared to last year, yet overall inventory is still well below pre-pandemic levels.

“[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.

When Will the Housing Market Recover?
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
Additionally, mortgage rates need to decline to see a meaningful increase in housing market activity.

However, with rates firmly stuck above 6.5% for over seven months, hopes are dwindling for much improvement over the remainder of the year. If the Federal Reserve cuts its key interest rate further, this could indirectly cause mortgage rates to fall—at least to some degree.

However, with so much economic uncertainty and volatility, what the Fed does next is difficult to predict.

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.

How Do Today’s Monthly Payments and Long-Term Interest Costs Compare to Last Year?
The Forbes Advisor mortgage calculator makes it easy for new homeowners to estimate what they’ll pay monthly and how much interest they’ll shell out in the long run.

For instance, a typical home in May 2025 cost roughly $368,000 according to Zillow data. Buyers who put down 20% on a typical home and financed at a 6.89% mortgage rate—the average 30-year fixed mortgage rate the last week of May—have a monthly principal and interest payment of $1,936.

In contrast, homeowners who bought a typical home at the same time in 2024, when the typical price was around $365,000 and the mortgage rate was 7.03%, are paying $1,948 a month.

In this scenario, new homeowners are paying $12 less each month and saving $6,583 in mortgage interest over the life of the loan compared to buyers who purchased homes a year ago. While not a significant difference, you can get a sense how the rate decline many are holding out for could significantly reduce monthly payments and bolster overall interest savings.

Remember, though, you’ll also need to pay monthly property taxes and insurance and potentially other costs such as homeowners association fees or additional homeowners insurance coverage. Entering those details into our calculator will give you a more accurate view of your monthly costs.

Residential Real Estate Stats: Existing, New and Pending Home Sales
The spring home-buying season died on the vine. However, there are some signs that sales activity could heat up this summer.

Here’s a look at what’s happening in the housing market.

Existing-Home Sales
Existing-home sales, which include completed transactions of single-family homes, townhomes, condominiums and co-ops, struggled to eke out a positive reading amid steep mortgage rates, record-high home prices and economic jitters.

The National Association of Realtors (NAR) reported that monthly sales rose just 0.8% in May, putting the seasonally adjusted annual sales rate at 4.03 million, up slightly from 4 million in April. Year-over-year sales slid 0.7%.

While sales remained anemic, inventory maintained its upward trajectory, reaching its highest level in five years.

Resale housing stock jumped 9% from the previous month and 20.3% from a year ago. Existing unsold inventory stands at a 4.6-month supply at the current monthly sales pace, up from 4.4 months in April. Most experts consider a balanced market to be between four and six months.

Meanwhile, home price growth continues, though the pace is decelerating. The national median resale home price rose 1.3% from a year ago to $422,800, marking the highest May on record and the 23rd straight month of year-over-year price growth.

However, regional price disparities remain pronounced. For example, the median resale home price in the Midwest rose 3.4% from a year ago to $326,400, compared to the West, which rose 0.5% to $633,500.

New Home Sales
Sales of newly built homes took a notable dip in May.

The latest U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD) data revealed that seasonally adjusted new home sales decreased 13.7% between April and May, and 6.3% compared to last year.

Only the Northeast saw a monthly and annualized sales increase, while the Midwest, South and West recorded decreases.

Monthly inventory rose from 8.3 months to 9.8 months supply, which also surpasses the 8.5-month level recorded a year ago.

“Taken together, increases in inventory and month’s supply, mirror the trend of softening demand in the existing home sale market,” said Jake Krimmel, senior economist at Realtor.com, in an emailed statement. “Whether the new and existing home sale markets continue to move in tandem will be something to watch going forward this summer.”

Yet, even as sales slumped, prices edged higher. The median new home sales price rose by 3.7% in May to $426,600 and 3% from a year ago, according to the data.

Pending Home Sales
While new and existing-home sales were subdued, a rise in contract signings provided some optimism.

NAR’s Pending Homes Sales Index rose 1.8% between April and May, with all four U.S. regions posting monthly increases. Compared to last year, pending transactions were up 1.1%, with the Midwest and South posting gains, while the Northeast and West recorded declines.

A pending home sale marks the point in the purchase transaction when the buyer and seller agree on price and terms and is considered a leading indicator of a closed existing home sale within the next one to two months.

So, how promising is this reading? Could it be that a housing market turnaround is finally around the corner?

“On one hand, May’s pending home sale increase could be a sign of buyers finally beginning to get off the sidelines as the market balances,” Krimmel said. “On the other, interest rates have been steadily rising throughout the spring home-buying season, and with the Federal Reserve holding steady, this could continue into the summer months.”

Housing Inventory Forecast: When Will There Be Sufficient Supply To Reduce Prices?
After several years of record-low inventory, the supply of homes has risen notably over the past year. If the trend continues, buyers sidelined by affordability challenges may find themselves with more options—as long as they know where to look

Here are factors impacting the inventory landscape.

The Lock-In Effect is Beginning To Unlock
Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm, tells Forbes Advisor that inventory is up over 33% from 2024 and appears to be on track to hit pre-pandemic levels by the end of the year, or possibly earlier.

There are multiple reasons for this improvement, one of which is the loosening of the “lock-in effect,” a situation where homeowners with ultra-low rates—such as the high-2% to 4% rates seen during the pandemic years—are disincentivised to sell due to their rates being well below current levels.

“Rate lock is still a legitimate concern, but becoming less of an issue over time,” says Sharga.

Indeed, according to real estate tech company Redfin, 82.8% of homeowners today have rates below 6% down from a high of 92.7% in mid-2022.

However, there are still many homeowners sitting on a good rate who need a major life event reason to sell, such as a job transfer, job loss, marriage, divorce or death, says Sharga.

What’s Driving the Inventory Growth? It Depends on the Region
The overall market still slightly favors sellers, as supply remains near the lower end of what’s considered a balanced market.

However, inventory levels vary widely by region. Markets like Austin and San Antonio, Texas, and Tampa, Florida, where prices surged during the pandemic, are seeing increased supply and slowing price growth.

“[T]here are a number of states, particularly Florida and Texas, which already have more for sale inventory than they did prior to the pandemic, and where demand has weakened,” says Sharga. “In those areas, the market is tilting in favor of buyers.”

On the flip side, areas in the Midwest and parts of the Northeast—such as Buffalo and Rochester, New York, Cleveland and Pittsburgh—that didn’t experience skyrocketing price increases and a surge in newly-built homes have lower inventory and face increased competition among buyers.

How Declining Mortgage Rates Could Impact Supply, Home Prices
Given the pent-up demand for homes, a decline in mortgage rates—especially a sharp one—could quickly shrink housing supply.

“We’re in an incredibly rate-sensitive environment today, and every time we’ve seen mortgage rates drop into the low-to-mid 6% range, we’ve seen an influx of buyers hit the market,” says Sharga.

Sharga adds that rates dropping to 6% would likely motivate more homeowners to sell. Even so, he says many buyers will still be shut out of the market due to other rising home-related costs.

“[H]ome prices have gone up almost 50% over the past five years, property taxes have risen along with them, and homeowner’s insurance premiums rose by 24% between 2020-2024,” says Sharga. “So even though there’s definitely some pent-up demand, a one-point dip in mortgage rates probably wouldn’t bring so many buyers to market that it would overwhelm the supply and cause another huge spike in home prices.”

Trade Policies and Economic Uncertainty Drag Down Builder Sentiment, New Home Construction
Builder sentiment declined again and new single-family housing starts slipped, as economic volatility and elevated mortgage rates continue to deter buyers and pressure builders.

Builder Confidence Sinks As Resale Inventory Grows and Buyers Pull Back
Builder sentiment continues to erode. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market index dropped from 34 to 32 in June—the third lowest reading since 2012—thanks to trade policy headwinds, elevated mortgage rates and economic jitters. A reading of 50 or above means more builders see good conditions ahead for new construction.

The last time a reading was above 50 was April 2024.

Could This Summer Be the Best Time To Snag a Hot Deal on a New Home?
However, bad news for builders is turning out to be good news for shoppers hoping to purchase a newly-built home.

“To help address affordability concerns and bring hesitant buyers off the fence, a growing number of builders are moving to cut prices,” Hughes said.

Indeed, the portion of builders offering price cuts in June rose from 34% in May to 37%, the highest figure since 2022, when NAHB began tracking this data monthly.

Builders have also been feeling the squeeze from the growing supply of resale homes, which has driven down existing-home prices, and added pressure on new home prices and sales.

New Home Starts Decline Amid Economy Worries, Tariffs and Buyer Pullback
Prospective home buyers, take heed: A slowdown in new construction activity appears to be underway.

Single-family housing starts edged up 0.4% in May from the previous month but dropped 7.3% from a year ago, according to the latest U.S. Census Bureau and HUD data. Completions jumped 8.1% from April to May, but were essentially flat compared to a year ago.

The decline in annualized housing starts coupled with sinking builder sentiment suggests buyers may face a smaller selection—and increased competition—this time next year.