Over the past few years, the housing market has been — to put it in terribly non-technical terms — all over the place. During the peak of COVID-19, we saw interest rates plummet and home purchasing rates soar. Then interest rates skyrocketed and the feat of buying a home became more financially challenging for many Americans.
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This September, the Federal Reserve lowered interest rates (a move that signaled inflation was finally coming down to an economically healthy level). And then this month, there was another interest rate cut. So what does this mean for all the folks interested in buying or selling homes in 2025? And what other factors play a role here?
GOBankingRates spoke with Alexei Morgado, a real estate agent and the founder of Lexawise, to get a peek into an expert forecast for the housing market in 2025.
Mortgage Rates Could Drop a Bit — But Probably Not Enough
Mortgage rates could keep coming down, but don’t hold your breath for a freefall plunge. First-time homebuyers awaiting that big interest rate drop may be left very disappointed.
“This year, we’re fighting mortgage rates that have been hovering around 7%,” Morgado said. “They definitely feel the squeeze, especially first-time buyers.”
How much might mortgage interest rates drop by exactly?
“There is the tiniest of whispers that in 2025, there could be a rate reduction to around 5.5% or 6%,” Morgado said. “While that’s better, it certainly is higher than before the pandemic.”
As such, “affordability will remain one of the biggest barriers to entry, especially in the urban hotbeds,” Morgado said.
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Inventory Will Remain Tight for Buyers, and Owners Will Stay ‘Rate-Locked’
There’s a housing inventory shortage across the U.S. — a problem that drives up home prices regardless of the interest rate climate. Low inventory is expected to persist as a challenge for buyers and sellers in 2025.
“One of the biggest challenges I’ve noticed this year has been inventory,” Morgado said. “So many people are ‘rate-locked’ into their existing mortgages, refusing to sell and trade up to a more expensive loan. People who bought at 3% interest rates simply don’t want to sell now and take on a much higher loan. Builders are trying to keep up, but only so much is possible, and construction costs remain high. All this lack of inventory keeps prices high even when fewer homes are sold.”
Home Prices Will Rise Modestly — But We Probably Won’t See Bidding Wars
Low inventory puts pressure on home prices, driving them up. Morgado predicted that we will see modest increases in the availability of new homes in many areas — particularly in suburban and Sun Belt locations.
Too few homes for too many homebuyers will drive up list prices. But we probably won’t be seeing the bidding war frenzy we saw during the peak of the pandemic when interest rates were rock bottom.
“The crazy bidding wars common during the pandemic have cooled off,” Morgado said. “According to reports by the Federal Housing Finance Agency, house prices were up 5.7% over the last year. I’d say we’re going to see moderate price growth (maybe 3%-5% year-over-year), depending on the area.”
Some Areas Could See a Small, Correctional Decrease in Home Prices
Some areas will see some home price corrections; prices will go down modestly in these locations.
“Any cities that became too expensive will likely experience minor price decreases, but I really wouldn’t anticipate major crashes,” Morgado said. “The demand is still there; it’s just a little more cautious.”
More Homebuyers Will Invest In New Construction and the Suburbs
More and more of Morgado’s clients are opting for newly constructed homes because there’s just not much available on the resale market.
“New home sales jumped 8.8% at the start of 2024, showing this trend,” Morgado said. “Even builders are offering enticements like rate buy-downs to sweeten the deal. Plus, with remote work still a thing, buyers are branching out into smaller cities or suburbs where they get more house for their buck.”
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This article originally appeared on GOBankingRates.com: I’m a Real Estate Agent: This Is My Forecast for the Housing Market in 2025
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