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- Recently, mortgage rates have been going down. But home prices remain elevated.
- Hopeful buyers should start preparing as early as possible by saving money and improving their credit.
- Look into affordable mortgage programs and down payment assistance to boost affordability.
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.
Fortunately, housing market conditions have improved slightly in the last few months, and they should ease further in 2025 now that the Federal Reserve has started cutting rates. If you're planning to buy or sell soon, here's what you need to know about housing market predictions in 2024 and 2025, and how you can prepare.
Overview of the housing market
The average home value in the U.S. is $361,282, according to Zillow — up 2.9% year over year. Last month, average 30-year mortgage rates fell to 5.74%, the lowest they've been in over two years. Rates have been slightly higher in recent weeks, but remain relatively low.
For the past couple of years, mortgage rates have been elevated while home prices have 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 affordability has slowly been increasing as mortgage rates have trended down, and they may drop further next year.
Key factors influencing housing market trends
The housing market is impacted by many different factors, including macroeconomic forces, trends in new home construction, and current mortgage rates.
Right now, a few of the biggest forces influencing the housing market include the economy, mortgage rates, and low housing supply.
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 just 2.5% year over year in August 2024, down from June 2022's 9.1% peak. Because inflation has decelerated so much, the Fed has started lowering its benchmark rate, cutting the federal funds rate by 50 basis points at its September meeting. And it's expected to cut rates more this year.
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
Even though mortgage rates have been trending down for several months now, homebuying demand has yet to pick up. Some would-be buyers may simply be unable to afford to buy at current rate levels, while others are waiting for rates to drop more so they can save money or enjoy increased buying power.
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.
Low inventory
A recent Zillow analysis found that the U.S. is 4.5 million homes short of a healthy housing supply. When a housing market doesn't have enough homes to meet the needs of the people living in that market, home prices and rent costs tend to go up.
Housing market forecasts for 2024 and 2025
Mortgage rates have dropped a lot this year and may continue to come down in 2025, which will undoubtedly improve affordability for borrowers. But with that will come increased demand. This will keep home prices high and likely push them up even further in 2025. Finding a home in your price range may become even trickier, and you may need to make a lot of offers on homes before you get one accepted.
Home price predictions
Experts generally expect home prices to continue increasing, but the pace of those increases should slow in 2025.
- Fannie Mae sees home prices rising 6.1% year over year by the end of 2024. In 2025, home price growth could slow to 3% year over year.
- The Mortgage Bankers Association believes prices could rise 3.9% this year. By 2025 it sees price growth slowing to 2.7% year over year.
- The National Association of Realtors thinks existing-home prices will increase 3.8% overall by the end of 2024, and that they'll increase by just 2% year over year by the end of 2025.
Mortgage rate predictions
Mortgage rates have dropped quite a bit recently, with 30-year rates falling below 6% for the first time since early 2023, according to Zillow data.
We may not see mortgage rates drop much further this year since economic conditions have remained stable and future Fed cuts are already priced in. However, rates should go down in 2025.
Housing inventory forecast
For housing market conditions to improve, housing supply needs to increase. As 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 end the year down 5.8% but increase 1.4% next year, driven largely by the construction of multifamily homes. The MBA says starts will rise 4.4% in 2025 and 1% in 2026.
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.
Additionally, though home prices are unlikely to drop significantly, mortgage rates should. The lower your mortgage rate, the more you can afford to borrow, boosting your buying power even as home prices rise.
As builders add more housing supply over time, price increases should moderate and competition among buyers should ease as well. But it may take several years before we start to see the effects of this.
Is it a good time to buy a house now?
Whether it's a good time to buy a house depends on a lot of different factors, including current mortgage rates, local housing market conditions, and your financial situation.
Mortgage rates are down, which means it could be a good time to buy a house if you can afford to do so. You may also want to talk to a real estate agent about the current dynamics of your local housing market. If your market has a number of available homes in your price range and little competition, you could potentially get a good deal by buying now.
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 this year 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, conditions may be better in 2025. Mortgage rates are likely to be even lower than they are now, which will 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 2024 and 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 fall 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 2024 or 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 3% and 6% 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.
Housing market predictions FAQs
There probably won't be a housing recession in 2024 based on current expectations, as limited inventory is likely to push prices up further. Once rates drop, more buyers should re-enter the market as well.
In general, 2024 has been tough for homebuyers due to high home prices and high mortgage rates. But as rates drop, those tough conditions have been easing.
Unfortunately, it can be challenging to make accurate housing market predictions because the market is always evolving and responding to what's going on in the world around it. Economic or world events, for example, can cause the housing market to change suddenly and unexpectedly.
Yes, 2025 may be a better year to buy a house. Mortgage rates are expected to drop further, which should help improve affordability and bring more sellers back onto the market, increasing supply.
It's generally better to time your home purchase based on what makes sense for your current life circumstances, rather than waiting for the perfect opportunity to buy a house, which may never come.
