2025 Housing Market Forecast: When Could Home Prices Fall?

Housing Market Forecast: When Could Home Prices Fall?

The Current State of the 2025 Housing Market

The median sale price for an existing home in the U.S. hit a record-high $426,900 in June 2024, according to NAR. While it has since dipped, it remains higher than last year, and April 2025’s median of $414,000 set a record for the month. The reality is that after hoping for relief in 2025, many buyers are discovering that this year still presents significant challenges. In 2024, many prospective homebuyers chose to wait things out in the hopes that the coming year would bring a more advantageous market. But continued rising home prices and tight supply have meant that 2025 is still a tough time to buy. Current market conditions show that while inventory is slowly increasing, we’re still far from the balanced market that would provide meaningful relief to buyers.

After dipping as low as 6.2 percent in September 2024, the average 30-year mortgage rate rose back above 7 percent in early 2025. Previous predictions of lower rates in 2025 have shifted, with experts now predicting rates will moderate but not necessarily decrease in a substantial way. This shift in mortgage rate expectations has fundamentally changed the housing market dynamics that many anticipated for 2025.

What Major Economists Are Predicting About Price Declines

While Redfin economists expect the national median home price to decline 1%, prices will decline more in some metro areas and prices will likely continue rising in parts of the country where demand is holding up better, like the Midwest and the Northeast. Home prices are expected to decline nationwide because there are more home sellers than homebuyers in the market. This represents one of the few predictions from major real estate firms calling for actual price declines rather than just slower growth. According to Zillow’s Home Value and Home Sales Forecast for February 2025, the U.S. housing market is expected to see modest growth this year. Home values are projected to rise by approximately 0.9 percent, a downward revision from the previously anticipated 2.9 percent increase. Even this minimal growth shows how challenging it is for prices to actually fall in the current market environment.

“For the year ahead, we expect continued slowing in house prices,” Matthew Walsh, an economist at Moody’s Analytics, told Newsweek. “To put some numbers to it, by the end of 2025, we expect somewhere between 1 to 1.5 percent-year over-year price appreciation,” he said. This prediction aligns with the broader consensus that significant price drops are unlikely in the near term. Redfin’s outlook for 2025 is a little more negative: the real-estate brokerage expects home prices to rise 4 percent throughout 2025, because its experts don’t expect much more new inventory to land on the market. Kara Ng, a senior economist at Zillow, told Newsweek she expects home values to grow 2.2 percent in 2025 after rising 3 percent nationally this year so far.

The Mortgage Rate Reality That’s Preventing Price Drops

“The situation is not going to change until we get mortgage rates back down toward 5%, or even lower,” Sim said. “And we aren’t forecasting mortgage rates to breach 6% in 2025 — they should ease only slightly to 6.7% by the year end.” Based on this, demand looks set to remain at exceptionally low levels. This creates a unique market dynamic where high rates are simultaneously preventing buyers from entering the market and keeping sellers locked in their current homes. “The lack of supply is primarily a lock-in issue,” said John Sim, head of Securitized Products Research at J.P. Morgan. “More than 80% of borrowers are 100 basis points (bps) or more out-of-the-money. These are borrowers who have a significant disincentive to sell their home, and this is creating the dearth in supply.”

Zhao said that mortgage rates are likely to stay high in 2025, probably “bouncing around” 7 percent for the year. This means that the fundamental driver of housing market activity – affordability – won’t see significant improvement in 2025. For the housing market, mortgage rates make “a huge difference,” Zhao said. Higher mortgage rates can drive up the cost of borrowing and repayment. Let’s say you’re buying a house for $420,000, which is approximately the median home sales price in the U.S. A single percentage point increase can raise your monthly payment by hundreds of dollars a month.

Supply and Demand Dynamics That Support Continued Price Growth

Per NAR data, the inventory of unsold existing homes was at 1.18 million units in January 2025. While that’s up a significant 16.8 percent from one year earlier, it’s still only a 3.5-month supply, well below the 5 to 6 months a balanced market would typically require. This limited supply continues to provide underlying support for home prices, even as buyer demand has cooled. January 2025 marked the 15th straight month of inventory growth. Even better news: The number of homes on the market in January was 24.6% higher than a year earlier. However, this improvement is still far from the levels needed to create downward pressure on prices.

As of April 2025, the Federal Reserve Bank of St. Louis showed a housing supply of just over eight months. “In a normal market balanced between buyers and sellers, we would have a six-month supply of homes,” said Rick Sharga, founder and CEO of CJ Patrick Co., a market intelligence firm for real estate and mortgage companies. While this represents improvement from the severe inventory shortages of recent years, it’s still not enough to trigger price declines in most markets.

Regional Variations: Where Prices Might Actually Fall

McBride agrees that, while prices on a national basis are not likely to go down in 2025, they won’t rise quite as much: “Home-price appreciation will be tepid, when looked at from 35,000 feet, with many markets seeing little or no change in prices,” he says. “But rising inventory has some formerly hot real estate markets shifting from a seller’s market to a buyer’s market, and will be susceptible to price declines.” This suggests that while national averages may not show declines, specific markets could see meaningful price reductions. Certain regions, for example, small, affordable metros in the Midwest, may experience appreciation rates slightly higher than 5%, while others will see rates fall below 3%.

Kara Ng, senior economist at Zillow, told Newsweek affordability will drive competition in the 2025 housing market, with Buffalo at the top of Zillow’s list of the hottest markets. Other top markets include affordable cities like Indianapolis and Kansas City, as well as relatively lower-cost alternatives to pricier metro areas, such as Providence, Hartford and Philadelphia. This regional variation means that buyers in expensive coastal markets may see more price relief than those in already affordable areas.

Why Housing Market Crash Predictions Are Unlikely

Experts predict a modest rise in the U.S. housing market for 2025, with no significant crash anticipated. While experts don’t expect a crash, the possibility remains if there were a significant rise in mortgage rates or substantial job losses. The fundamental differences between today’s market and the conditions that led to the 2008 housing crash make a similar catastrophic decline highly unlikely. Despite the predicted slowdown, it is important to note that many experts do not expect a crash in the US housing market similar to the one seen in 2008. Lending standards have become more robust, which should help prevent widespread defaults and foreclosures. In addition, the current economic climate is much different than it was in 2008, with a strong labor market and a more stable financial sector.

The housing crash that started in 2007 and contributed to the global financial crisis continues to weigh heavily on the minds of many economists and consumers. But the factors that led to that crash are not in place today. “Literally everything is different about today’s housing market dynamics than the conditions that led to the housing crisis,” Sharga said. Current lending standards, buyer qualifications, and market fundamentals all point to a more stable environment despite the affordability challenges.

The Role of New Construction in Price Stabilization

For instance, 34 percent of builders cut home prices in May, according to the NAHB, with an average price reduction of 5 percent. Along with that, 61 percent of builders offered sales incentives to buyers. This suggests that new construction may be the first area where buyers can find price relief, even as existing home prices remain elevated. Sales of new homes, which continued to rise in 2024 due to builders’ ability to buy down mortgage rates to boost affordability, will expand on those gains throughout 2029 but continue to be limited by competition for buildable land and skilled labor.

“Tariffs on lumber are a near-term concern, with the existing duty rate expected to increase from a current 14.5 percent rate to nearly 40 percent later this year,” says Danushka Nanayakkara-Skillington, NAHB’s assistant VP for forecasting and analysis. “This is why regulatory reform that reduces the cost of land development, home construction and remodeling is now even more critical for improving housing attainability.” These policy factors could significantly impact new home construction costs and availability.

Economic Factors That Could Trigger Price Declines

According to recent projections, the Federal Reserve doesn’t see inflation subsiding to 2.0% on a consistent basis until early 2026. This will mean higher but gradually declining short-term interest rates throughout 2025. The timeline for meaningful interest rate relief continues to be pushed further into the future, making it less likely that 2025 will see significant price drops. Turning attention to Lawrence Yun from the NAR, he reiterates that a housing market crash in 2025 is unlikely. “A sharp rise in mortgage rates to around 9 percent, combined with significant net job losses, could put severe pressure on the housing market. However, both scenarios are unlikely, making a market crash unlikely.”

Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek: “The first few weeks of the new administration have proven to be disappointing for new home buyers. Interest rates remain stubbornly high, and the inflationary pressures on other expenses that keep many Americans from being able to save for a down payment are growing, not falling. Further problems could be caused by the potential tariffs.”

The Reality of Housing Market Predictions and Timing

Here’s the thing: Housing market predictions are about as reliable as weather forecasts. The real estate professionals make their best predictions based on data, but no one can know what’s going to happen with 100% accuracy. Still, even though the housing market is uncertain, you can listen to what the experts are saying and make some pretty good guesses. The complexity of predicting exact timing for price declines means that buyers waiting for dramatic drops may be disappointed. Still, for house hunters looking to buy soon, waiting until the end of the year for prices to fall slightly is unlikely to pay off. “We know there’s room to negotiate right now, so that’s the best way to take advantage of the changing market,” said Chen Zhao, Redfin’s head of economics research. “And the sooner you buy, the sooner you start to build equity.”

The housing market remains a complex ecosystem where multiple factors interact in ways that make precise predictions challenging. While some experts forecast minor price declines in specific markets, the overall consensus suggests that significant nationwide price drops in 2025 are unlikely given current supply constraints and economic conditions.