housing market predictions for 2025: when will home prices drop?
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By Robin Rothstein | Published on July 3, 2025
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.
Recent Home Sales 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.”
And speaking of home prices, here’s what the latest home values look like around the country.
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.
What’s Ahead for Foreclosures in the Second Half of 2025?
Lenders began foreclosures on 24,165 properties nationwide in May, down 4% from the previous month but up 8% from last year, according to real estate data firm Attom.
While data on foreclosure starts was mixed, completed foreclosure data revealed monthly and yearly gains, with real estate-owned properties, or REOs, rising 7% compared to April and surging 34% year-over-year. REOs are homes that didn’t sell at foreclosure auctions, with mortgage lenders ultimately taking possession.
Foreclosure Spike Puts Experts on Alert
The spike in REOs in recent months is starting to raise eyebrows.
Still, analysts remain uncertain whether this is an actual red flag or points more to a temporary systemic issue.
“[L]enders may still be working through a backlog of existing cases,” said Rob Barber, CEO at Attom, in the report. “We’ll be watching closely in the months ahead to see how these trends evolve.”
Although the rise in REOs is prompting some concern, foreclosure activity still remains historically low.
For context, Attom data shows 2024 foreclosure activity at 35% below 2019 levels, before the Covid-19 pandemic emerged and upended the housing market. 2024 foreclosure filings were down close to 90% compared to 2010, when they peaked at nearly 2.9 million.
Despite recent spikes in activity, home equity positions remain strong, serving as a buffer against a pronounced escalation of delinquencies.
Near-Record Home Equity Helps Curb Foreclosures
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.
Indeed, homeowner equity grew by nearly $600 billion between the first quarters of 2024 and 2025, according to data from the Federal Reserve Bank of St. Louis. Although down from the record-high of $35.6 trillion in second quarter of 2024, total homeowner equity stands at over $34.7 trillion—the fourth-highest value on record.
Elevated home equity levels continue to perpetuate a high percentage of equity-rich mortgages (when an outstanding mortgage balance is at or below 50% of a home’s estimated market value). Over 46% of mortgaged homes were equity-rich during the first quarter of 2025, according to Attom’s latest U.S. Home Equity and Underwater Report.
Although this percentage is below the 49.2% peak recorded in the second quarter of 2024 and 47.7% in the last quarter of 2024, the figure is still nearly double the 26.5% level posted in the first quarter of 2020, per Attom data.
“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
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.