It’s been another year of rising home prices in the U.S., as the country faces an ongoing supply shortage that has squeezed first-time homebuyers out of the market and homeowners to hold on to their properties as they wait for lower mortgage rates to sell.
Americans struggling to get on the property ladder because of high prices and high mortgages will be glad to hear that experts believe home appreciation will continue to slow down throughout 2025, but they will be sorry to hear that prices won’t stop rising.
After skyrocketing during the pandemic, home prices dropped briefly between late summer 2022 and spring 2023, giving homebuyers the illusion that the tide had finally turned. But since then, prices have climbed back, reaching levels close to the pandemic peaks.
As of November, the latest data available on Redfin, the median sale price of a home in the U.S. was $430,010, up 5.4 percent compared to a year earlier. According to Zillow’s data, the typical home value of a home in the nation was $357,469 in the same month, up 2.5 percent from November 2023.
The issue of the growing unaffordability of the U.S. housing market rose to the forefront of American politics during the presidential campaign and the November election, with both candidates promising to do something to fix the gap between supply and demand in the country that is keeping prices up.
But what will happen next year has more to do with what’s been put into motion in 2024 than whatever policy president elect Donald Trump might introduce after taking office in January.
Picking Up Where 2024 Left Off
“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.
“A lot of that is due to continued low demand while inventories start to come back online, in what I think is really a continuation of the trends that have started in the second half of this year,” Walsh added.
Homeowners who were postponing plans to move out and sell their properties for the past two to three years amid high interest rates now “have gone out and listed their properties,” according to Walsh.
“They have kind of come to terms with and become accustomed to these higher interest rates, and that has shown up in the inventory data as a bit more activity here,” the economist explained.
Walsh believes that this trend will continue at the same time as new construction finally reaches the market, adding up to the available inventory. “That’ll help recalibrate the wages and bring the market a little bit closer back to balance while demand remains low,” he said.
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.
The Mortgage Rates Puzzle
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. “As long as the economy remains strong and wages continue to grow, affordability looks like it will improve given those modest expectations for home value growth,” she said.
The fluctuations of mortgage rates next year “are a major wild card,” Ng said.
“There are signs that mortgage rates will ease in 2025, even after the Fed hinted at fewer rate cuts this year,” she added. “Though mortgage rates are notoriously difficult to predict, it would be a surprise to see rates fall below 6 percent.”
Similarly, Redfin expects mortgage rates to remain near the 7-percent mark throughout 2025, “with the weekly average rate fluctuating throughout the year, but averaging around 6.8 percent,” as it wrote in a report released early in December.
Ng believes that buyers “should be ready for a year with plenty of ups and downs with mortgage rates” and expect “a lot of ups and downs with mortgage rates throughout the year, as both the Fed and markets will be in reaction mode as new data comes in.”
Renting Over Buying
Redfin expects high home prices next year to continue keeping first-time homebuyers out of the market and pushing them, or keeping them, instead in the rental market.
According to the company, that would make 2025 a renter’s market, with the units being built during the pandemic finally being put on the market, adding inventory. This rise in supply, in turn, will push landlords to give more concessions to tenants.
“While the cost of buying a home will increase, rental affordability will improve,” Redfin’s chief economist Daryl Fairweather and economist Chen Zhao wrote. “We expect the median U.S. asking rent to remain flat year over year in 2025. That will make rent payments more affordable to the typical American because wages will rise.”
As the experts suggest, buying a home is likely to remain unaffordable for many first-time homebuyers in the U.S. next year—even if home appreciation slows down as Walsh suggested and wages continue rising.
“To give a sense of how low affordability is and how that will weigh on housing demand,” he told Newsweek. “We would need to see incomes rise by about 70 percent or home prices fall by about 40 percent or the mortgage rate decline by 4.6 percentage points to restore the level of housing affordability that we saw in 2019,” he said.
In Walsh’s words, there’s still a long way to go before bringing affordability back into the U.S. market. “Absent any kind of major shifts in the mortgage rates or incomes, which are largely out of the picture for next year, I think we can expect to see continued weak demand,” he said.
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