When it comes to home prices, there’s mixed news heading into 2025. The downside is that prices are expected to keep increasing. The good news is that they won’t rise as much as they have in recent years.
In aggregate, housing experts agree that home prices will continue to steadily climb next year unless there are major setbacks in the market, such as a highly unlikely housing crash. But the forecasts of how much prices will rise are within a tight range.
At the low end, the National Association of Realtors projects a year-over-year price increase of 2%, while Zillow expects an increase of 2.6%. On the higher end of the range are Realtor.com and Redfin, forecast year-over-year price growths of 3.7% and 4%, respectively.
Although higher home prices may seem like bad news for prospective buyers, it helps to put these relatively low growth projections in perspective: They are a marked improvement over the double-digit growth seen when the market became overheated during the pandemic. According to data analytics firm CoreLogic, home prices increased by more than 18% in 2021, the largest increase on record.
Housing affordability should improve next year
There are several factors that point to better homebuying conditions next year, despite rising prices. According to Leo Pareja, CEO of brokerage firm eXp Realty, the housing market is not one-size-fits-all, but very much driven by local conditions, such as how many homes are available in a particular location.
“[There’s] a very clear correlation between inventory and price appreciation,” Pareja says.
Steadily increasing inventory is a major factor in improving housing affordability. In areas where housing supply has improved, home price growth has begun to level off or even decrease. Pareja notes that, according to eXp Realty data, pandemic hotspots like Austin, Texas, and Boise, Idaho, have seen home prices drop from their pandemic highs because more homes are available for sale today.
Most experts consider a six-month supply of for-sale listings to be the best indication of a balanced market — one where there is enough supply to meet buyer demand and home prices are affordable for most of the homebuying population.
Nationally, we’re not there yet, but we’re making progress. Housing supply remains nearly 30% below pre-pandemic levels, but recent data suggests some parts of the country might be seeing a light at the end of the tunnel.
According to Realtor.com, the housing market is heading toward greater balance. There is currently about a four-month supply of homes on the market — a significant improvement over the record-low one month’s worth of inventory on the market in January 2022. A Realtor.com study of September price data found that, at the median, list prices decreased in more than half of the 50 largest cities in the country on a year-over-year basis. In some areas, like Miami, prices fell by more than 10%.
There are other positives heading into the new year. Mortgage rates are forecast to slowly decrease over the next 12 months, which will help improve affordability for borrowers. Buyers are likely to have more purchasing power, too. According to Orphe Divounguy, senior economist at Zillow, would-be homeowners will be in a better financial position because wages are expected to grow by around 4% year-over-year in 2025, outpacing both the expected rates of inflation and home price growth, thereby increasing buying power.
“If incomes continue to grow at a faster pace than prices and rents, and mortgage rates continue to move in the right direction, affordability improves,” Divounguy says.
Of course, nobody has a crystal ball when it comes to interest rates, inflation and wages, but experts say would-be homebuyers have reasons to be optimistic about 2025. “It’s just good news for the housing market going forward,” Divounguy says.
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