housing market predictions for 2025: when will home prices drop?
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By Robin Rothstein | Published on April 7, 2025
As we move into spring, the housing market remains challenging, with record-high home prices and stubbornly elevated mortgage rates prolonging buyer struggles.
Yet, positive signals have emerged in the form of a deceleration in home price growth and decreasing mortgage rates.
Even so, the high cost of homeownership will likely remain the norm in the coming months. These high costs are sustained, in part, by Trump administration tariff and immigration policies that are expected to fuel inflation and raise home builder costs.
Housing Market Forecast 2025
U.S. home prices posted a 4.1% annual gain in January, up marginally from 3.9% annual growth in December, according to the latest S&P CoreLogic Case-Shiller Home Price Index, which tracks single-family home values.
Although home price growth continues, the pace has decelerated, with most experts expecting further slowdowns as inventory expands and mortgage rates stay elevated.
Although this home price growth slowdown won’t improve affordability enough for many would-be buyers, there is a glimmer of hope as regional variations continue to make some markets more affordable than others.
“Relatively strong construction activity in the South and West have helped take some pressure off of home prices,” wrote Hannah Jones, senior economic research analyst at Realtor.com, in emailed comments.
Though areas of the Midwest saw some of the highest price gains, home values in this region did not accelerate as sharply during the pandemic as they did elsewhere. As a result, many local markets remain among the most budget-friendly for home buyers.
Current Events Impacting Certain Markets
Additionally, experts say markets impacted by current events are seeing changing conditions.
“Wildfires in Los Angeles have already driven rents higher, and home prices also likely will be pushed up in the metro itself and the surrounding area as displaced homeowners search for new homes,” said Lisa Sturtevant, chief economist at BrightMLS, in an emailed statement. Sturtevant also pointed to increased listing activity in Washington, D.C., amid job eliminations and return-to-office mandates.
Will the Housing Market Crash in 2025?
With record-high home prices still trending upward in many markets, you may be concerned that we’re in a bubble that’s prime 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 as we look ahead to 2025.
“[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.
What’s the Monthly Mortgage Payment for New Homeowners in 2025?
A typical home in February 2025 cost roughly $357,000, according to Zillow data. Buyers who put down 20% on a typical home and financed at a 6.76% mortgage rate—the average 30-year fixed mortgage rate the last week of February—have a monthly principal and interest payment of $1,854.
In contrast, homeowners who bought a typical home at the same time in 2024, when the typical price was around $348,000 and the mortgage rate was 6.94%, are paying $1,841 a month.
Paying $13 a month more today may not seem substantial, but it adds up to close to $7,200 more in mortgage payments over the life of a 30-year loan. Even a slightly lower mortgage rate can offer some savings.
Can We Expect a Housing Market Recovery in 2025?
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
Mortgage rates also need to decline. While rates have been firmly stuck above 6.5% for over five months, experts are hopeful for some improvement over the year, assuming the Federal Reserve further cuts its key interest rate, which could indirectly cause mortgage rates to fall.
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.
Residential Real Estate Stats: Existing, New and Pending Home Sales
With peak home-buying season underway, signs of budding activity are starting to appear. Even so, it’s unclear if this is a sign the housing market is emerging from a deep freeze or if still-high rates and home prices amid economic uncertainty will ultimately keep buyers and sellers on ice.
Existing-Home Sales
Existing-home sales—including completed transactions of single-family homes, townhomes, condominiums and co-ops—rose in February as mortgage rates gradually cooled to 6.76% by the end of February.
Monthly existing-home sales rose 4.2%, putting the seasonally adjusted annual sales rate at 4.26 million, up from 4.08 million from the month before, according to the latest report from the National Association of Realtors (NAR). Year-over-year sales slid 1.2%.
Even as existing-home sales have perked up, Lawrence Yun, chief economist at NAR, noted at the trade association’s recent quarterly real estate forecast summit in March that activity has remained at 30-year lows the past two years.
However, Yun is hopeful the increasing supply will boost activity.
Resale inventory jumped 5.1% from last month and is up a whopping 17% from a year ago. Existing unsold inventory stands at a 3.5-month supply at the current monthly sales pace. Most experts consider a balanced market to be between four and six months.
Meanwhile, home prices are also on an upward climb. The national median resale home price rose 3.8% to $398,400 compared to a year ago, marking the 20th straight month of year-over-year price growth. All four major U.S. regions notched median home price increases.
New Home Sales
New homes also experienced a turnaround after a down January, with sales rising month-over-month as mortgage rates declined.
February sales of newly constructed single-family houses increased 1.8% from January and 5.1% compared to a year ago, according to the latest U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD) data.
New home inventory sits at a healthy 8.9-month supply. However, with tariffs adding to builder costs, expect a slowdown in new construction and dwindling stock.
Even so, if resale supply continues to grow, new homes will have to remain competitive, which could mean lower prices or more incentives.
Sales of newly built homes make up roughly 10% of total home sales.
Pending Home Sales
NAR’s Pending Homes Sales Index rose 2% in February, suggesting that the mortgage rate thaw was enough to coax some prospective buyers off the sidelines.
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.
Still, annual pending transactions are down 3.6% and activity remains at historic lows, as most would-be buyers remain frozen out of the market.
“A meaningful decline in mortgage rates would help both demand and supply—demand by boosting affordability, and supply by lessening the power of the mortgage rate lock-in effect,” Yun said in the report. “But the current high national debt will prevent mortgage rates from falling drastically—and certainly not to the 4%-to-5% range seen during President Trump’s first term.”
Will Buyers Finally Get a Break This Spring?
Although home prices and mortgage rates are showing signs of gradual easing, other recent data paints a bleak picture—especially for lower-income earners.
Median-priced homes remain less affordable compared to historical averages in 97% of U.S. counties, according to first-quarter 2025 analysis released by Attom. Moreover, the report reveals that homeowners are putting 32% of their income toward housing expenses. Lenders’ preferred income percentage threshold is 28%, and borrowers shelling out more than 30% are considered cost-burdened.
Monthly mortgage payments (including both principal and interest) skyrocketed, soaring to over 113% since the Covid-19 pandemic, according to recent Zillow housing market data. Add property taxes and homeowners’ insurance, and it’s understandable why homeownership is unattainable for many.
“If history is a good guide, prices will rise as we head into the peak buying season that’s about to start, which will worsen affordability measures,” said Rob Barber, Attom’s CEO, in the report.
Housing Inventory Forecast: When Will There Be Sufficient Supply To Reduce Prices?
Despite more resale and new homes entering the market, overall for-sale housing stock remains well below historical averages. Thanks to multiple headwinds, a severe inventory deficit will likely remain for some time.
For one, many homeowners remain “locked in” at ultra-low mortgage rates, unwilling to exchange for a higher rate in a high-priced housing market. Consequently, demand continues to outpace housing supply—and likely will until mortgage rates resume their descent enough to loosen the lock-in effect.
“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.
To help expand supply and lower housing costs, President Trump issued a memorandum expressing support for rolling back construction and opening limited portions of federal land for housing development.
In the meantime, the administration’s implementation of tariffs and stricter immigration policies have begun pushing up new home construction costs.
Here’s what the latest home values look like around the country.
Home Builder Sentiment Sinks Lower
Builder sentiment continues to trend down amid economic uncertainty and tariffs that have begun to impact builder costs.
Builder Confidence Buckles Further Amid Economic Pressures
According to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence sank from 42 to 39 in March. A reading of 50 or above means more builders see good conditions ahead for new construction.
Builder confidence had been slowly rising since September as the Fed began cutting its benchmark interest rate. However, uncertainty amid potential tariffs and stalled inflation progress continues to throw a wet blanket on builder outlook.
“Builders continue to face elevated building material costs that are exacerbated by tariff issues, as well as other supply-side challenges that include labor and lot shortages,” said Chairman Buddy Hughes, chairman of NAHB, in a press statement.
And these added costs are substantial—not the news home buyers are already struggling with affordability want to hear.
“Data from the HMI March survey reveals that builders estimate a typical cost effect from recent tariff actions at $9,200 per home,” said Robert Dietz, chief economist at NAHB, in the report.
New Home Starts and Completions Rise Monthly, But Signs of Strain Loom
Despite eroding builder confidence, single-family building starts and completions were up, but annual declines could be signs that a slowdown is on the horizon.
Housing starts rose 11.4% month-over-month in February but dipped 2.3% from a year ago, according to the latest U.S. Census Bureau and HUD data. Meanwhile, new home completions increased 7.1% month-over-month but decreased 1% from January 2024.
Still, even with completed homes lagging compared to last year, the monthly increase should boost buyer hopes ahead of the spring home-buying season.
“With existing home inventory also growing and nearly reaching pre-pandemic levels, buyers have many more options to choose from than they did a few years ago, and at better prices,” said Joel Berner, senior economist at Realtor.com.
Will There Be a Foreclosure Surge in 2025? Here’s What Experts Say
Lenders began foreclosures on 22,730 properties nationwide in February, up 8% from the previous month and 1% from last year, according to real estate data firm Attom.
Completed foreclosure data followed a similar monthly and annual trend, with real estate-owned properties, or REOs, inching up just shy of 2% compared to the previous month but declining 11% from a year ago. REOs are homes that didn’t sell at foreclosure auctions, with mortgage lenders ultimately taking possession.
Foreclosure Watchers Continue To Monitor Economic Factors
Foreclosure activity remains at historic lows. Still, with foreclosure starts up in recent months, real estate analysts remain vigilant—keeping a close eye on multiple economic variables that could introduce stress in the housing market.
“February’s rise in foreclosure filings suggests evolving market pressures,” said Barber, in the report. “While some increase may reflect seasonal trends, the uptick in foreclosure starts both month-over-month and year-over-year signals potential shifts.”
Foreclosure activity in 2024 was 35% below 2019 levels before the Covid-19 pandemic emerged and upended the housing market, according to Attom data. Foreclosure filings last year were also down close to 90% compared to 2010, when they peaked at nearly 2.9 million.
Home Equity Levels Continue to Keep Foreclosures in Check
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.
Homeowner equity grew by approximately $2.8 trillion between the fourth quarters of 2023 and 2024, according to data from the Federal Reserve Bank of St. Louis. As a result, total homeowner equity now stands at nearly $35 trillion—roughly $22.2 trillion higher than the same period five years ago, marking a nearly 45% increase.
This increase has boosted the percentage of equity-rich mortgages (when an outstanding mortgage balance is at or below 50% of a home’s value). Over 47% of mortgaged homes were equity-rich during the fourth quarter of 2024. In early 2020, this figure was 26.5%, according to Attom’s latest U.S. Home Equity and Underwater Report.
“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
Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.
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.