As we progress through 2025, mortgage rates and inflation have many questioning the stability of the U.S. housing market. Current analyses suggest a modest growth trajectory, alleviating fears of an impending crash.
Why It Matters
The current housing market is marked by high mortgage rates, rising home prices and inflation, making it challenging for buyers to find affordable options. Additionally, builder confidence is dipping due to rising costs and supply chain disruptions, further complicating the market.
While experts don’t expect a crash, the possibility remains if there were a significant rise in mortgage rates or substantial job losses.
What Is Zillow’s Housing Market Forecast in 2025?
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. This adjustment reflects a higher-than-expected number of new listings and rising inventory levels, which have eased price pressures.
Meanwhile, existing home sales are forecasted to reach 4.11 million in 2025, maintaining a similar pace to last year. While mortgage rates may decline slightly by the end of the year, significant reductions are unlikely, meaning buyer demand will remain steady but not dramatically surge.
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.
What Is the Housing Market Like Right Now?
The current U.S. housing market is challenging for potential buyers. According to Redfin, U.S. home prices were up 4.0 percent year-over-year in January 2025, with the median price of a home at $418,284. This increase in home prices means that buyers may need to stretch their budgets to afford a home, making it more difficult to find affordable options.
The National Association of Home Builders (NAHB) Housing Market Index indicates that builder confidence has dropped due to concerns about rising costs, supply chain disruptions and uncertainty around tariffs. For homebuyers, this means that new construction may slow down, potentially leading to fewer available homes on the market and increased competition for existing homes.
The National Association of Realtors (NAR) reported a 4.6 percent decline in pending home sales in January. This decline suggests that fewer buyers are committing to purchasing homes.
Danielle Hale, chief economist at Realtor.com, notes that the three pillars of housing affordability are mortgage rates, incomes and home prices. She anticipates that mortgage rates will drop somewhat in 2025, contributing to improved housing affordability. However, home price gains, although smaller than in prior years, will offset any mortgage rate improvement.
Is the Housing Market Going to Crash in 2025?
Current expert analyses suggest that a housing market crash in 2025 is unlikely. NAR Chief Economist Lawrence Yun told Newsweek, “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.”
Hale also thinks a crash is unlikely, emphasizing the importance of the labor market’s health, which should support housing demand. “Fortunately, the labor market has been resilient, with unemployment registering just 4 percent in the most recent data. Wages continue to grow which should buoy consumer purchasing power,” she stated.
Ng emphasizes that the housing market is on solid ground, with pent-up demand from millennials who have been unable to break into homeownership. She expects home values to grow by about 1 percent this year, which should help buyers catch up financially. However, mortgage rates remain a wild card, and high rates are keeping many would-be buyers on the sidelines.
What People Are Saying
Kara Ng, senior economist at Zillow, told Newsweek: “The housing market is on solid ground. There is a huge amount of pent-up demand from millennials who have so far been unable to break into homeownership.
The major challenge in housing today is an affordability crisis that stems from a lack of supply. Affordability will remain a challenge… Zillow’s forecast calls for home values to grow only about 1 percent this year, which should help buyers catch up financially. As long as the economy remains strong and wages continue to grow, affordability looks like it will improve.
Mortgage rates are the big wild card… It’s never easy to predict mortgage rate changes, but signs point to rates not falling much this year, if at all. And even if they do fall, the path will likely be bumpy.”
Danielle Hale, chief economist at Realtor.com told Newsweek: “The Realtor.com 2025 housing forecast anticipates that mortgage rates will drop somewhat in 2025, such that they’ll be a modest contributor to improved housing affordability, but we expect to see home price gains…that will offset any mortgage rate improvement. The other important contributor to improved housing affordability in 2025 will be income growth. Taken together, these improvements will be very marginal, but nonetheless, a step in the right direction.”
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. Canada is a huge provider of wood to the United States, while China is a key contributor to steel and aluminum for new home builds and existing home renovations. If the proposed tariffs do in fact take effect, they could result in home prices increasing by another few thousand dollars. It’s just not a great time if you’re a buyer.”
Kevin Thompson, founder and CEO of 9i Capital Group, told Newsweek: “Higher tariffs will drive up costs, especially for key materials like Canadian timber and large-scale manufacturing equipment from Japan/China and Canada—both of which are essential for homebuilding. If input costs rise, builders have no choice but to pass those costs on, leading to higher home prices. Combine that with potential labor shortages due to deportation, and the cost of housing is likely to increase.”
The Texas Real Estate Center told Newsweek that tariffs may play a role in housing affordability: “The ultimate impact of a tariff depends on things like competition, availability of substitutes. The short-term impact may be higher prices, but more American firms might respond to those higher prices and start providing more of the material domestically. So long-term prices may end up lower. The Federal reserve estimated a short-term inflation impact of 0.6 percentage points to CPI. It will certainly impact the cost of new constructions as imported lumber and building materials become more expensive under the Administrations’ new tariffs.”
What Happens Next
Looking ahead, the housing market is expected to experience modest growth in 2025. While affordability challenges persist due to high home prices and mortgage rates, increased inventory and stable economic conditions may provide some relief to prospective buyers.
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