US Housing Market Predictions 2025 Crash or Comeback

The United States housing market witnessed a lingering crisis from 2020 to 2024. The reasons are not far-fetched. During this period, people experienced a serious shortage of homes, and there was a marked increase in home prices. The dramatic surge in interest rates (mortgage rates) and inflation compounded the housing market turmoil within this period. With several variables like record-high home prices, high construction costs, slow construction activities, and rising mortgage rates impacting the housing market, is 2025 the year of housing crashing or the start of a comeback?

What Happened in the Housing Market in 2024?

In 2024, the United States housing market experienced fewer home sales than in any year for almost three decades. The record-high home prices, rising home insurance, and high mortgage rates made homeownership less affordable for many people. The housing market experienced a rocky start in 2024 as mortgage rates, which had been declining the previous year, suddenly began to rise in February 2024.

During the year, the average 30-year fixed mortgage rate reached a peak of 7.22%. As a result, home affordability challenges attained new heights. Potential home buyers struggled to keep pace with housing prices due to the persistent increase in interest rates and home prices. According to the National Association of Realtors, sales of previously owned homes totaled 4.06 million in 2024, which is the lowest since 1995 and the third consecutive year in which sales declined sharply from 2021, when 6.1 million homes were sold. Such sales generally make up the vast majority of the United States housing market. Meanwhile, the median price of an existing home went up for about 18 months straight, reaching a record high of $407,500 that year.

Furthermore, the housing market experienced inventory shortages in 2024, which was partly caused by a lock-in effect. Most homeowners with ultra-low mortgage rates before the Federal Reserve started hiking interest rates in 2022, rather than sell their homes and assume higher mortgage interest rates, hesitated. This generally aggravated inventory shortages as home supply to the market became extremely limited.

Unfortunately, while mortgage rates went up in 2024, home prices also stayed high. Even though sales picked up in the last quarter of the year, the number of available homes (supply) was extremely low to meet demand. Also, home prices continued to surge, and sadly, the United States housing market is not likely to improve much for buyers in 2025. 

Housing Market Predictions for 2025

Will home prices go down in 2025? This is one burning question in the minds of several Americans. Experts believe the high cost of purchasing a home will not likely abate and will remain the norm for the rest of 2025, although at a slow pace. While home price growth may be decelerating, many potential home buyers may not be able to afford it until prices drop, along with mortgage rates. Unfortunately, these are not likely to happen in 2025.

The following lists expert opinions regarding housing market predictions for 2025:

• Price Predictions - While some experts expect home prices to rise by 3%, although at a relatively slow pace, others believe prices will moderate slightly. The general belief is that the rapid price surge witnessed in the last few years may slow down.
• Mortgage Rate Outlook - Considering the rising inflation and several of Trump’s proposed federal policies, mortgage rates are likely to go higher. Essentially, government-sponsored enterprise (GSE) privatization, which generally includes the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, may be considered in 2025. This tends to widen mortgage-backed security spreads if executed without careful consideration and may lead to higher rates for borrowers. Technically, this may further drive down housing demand. 
• Inventory Recovery - Although housing stock has improved, the overall inventory may be insufficient to meet housing demand. The unending interplay of demand and supply will greatly influence home prices. In general, inventory will most likely be less of a support for the 2025 United States housing market.
• Regional Outlook - While home prices on a national basis are likely to slow down in 2025, markets with greater inventory are the ones more likely to witness prices drop. Regions with less new inventory will most likely continue to experience steady home price increases.

For instance, the housing situation on the West Coast of the United States has always been a problem because there are not enough houses for everyone who wants one. As a result, home prices are more likely to go through the roof in places like Oregon and California, and there may be a slight decline compared to 2024. On the other hand, the growth outlook of the housing market in Sunbelt states like Arkansas and Florida will likely remain strong. This is largely because the demand fundamentals, such as population growth and jobs, that drove the growth during the pandemic have yet to disappear.

• Rent Vs. Buy Trends - Considering the possibility of elevated mortgage rates in 2025, the rate of home purchases is likely to remain low. Rent, on the other hand, may likely stay in check as inventory continues to increase slowly. With multiple available options, renters may not witness abnormally large rent hikes in some places.

The table below compares housing market predictions in 2025 as forecasted by experts. 

Will the Housing Market Crash in 2025?

Many Americans are worried about a housing crash and have been asking the same question: Will the housing market crash in 2025? People are asking this question for many obvious reasons, one of which is the housing inventory shortage. There is still a shortage of supply, with too many buyers and rising inflation, which technically drives home prices higher. 

However, it is unlikely there will be a housing market crash in 2025. The ongoing low supply of inventory is responsible for home prices not dropping at the national level, and typically, whenever there is a shortage of something, it is unlikely for prices to crash. Pressure is typically taken off home price growth as more homes become available, causing healthier price appreciation.

According to experts, the pace of house pricing appreciation is expected to moderate but will still maintain a positive trajectory. In other words, home prices will continue to go up in most places, but not at a fast pace, which is good for individuals who have had challenges finding a home before now as a result of the rapid price appreciation witnessed in the past. Therefore, unless there is a change in the United States’ economic outlook, a housing market crash is unlikely in 2025. It will only shift, which will largely be in favor of many people.

Some experts claim that most homeowners today (2025) are mortgage-free and have more secure footing than those coming out of the 2008 housing market crash. The housing market in 2025 is a far cry from the 2008 crisis. While affordability problems, inflation, rising household debt burdens, and high mortgage rates are still a challenge, the lending standards are now stricter and better regulated than in 2008. This will keep mortgage delinquency rates low and significantly reduce the chances of a crash. The table below compares the housing market indicators in 2008 and 2025.
 

Signs of a Potential Housing Market Comeback

While inflation is still up and mortgage rates are still high, there are signs of a potential housing market comeback. However, the pace of recovery will vary significantly across regions and will be largely driven by demographics, local economic conditions, and borrowing costs.

Although mortgage rates are not likely to return to 2.65% anytime soon, some economic indicators generally suggest potential stabilizing rates and slower but healthier price appreciation. Also, the fierce competition witnessed in recent years will likely reduce, alluding to a gradual shift towards a buyer’s market. Slower price increases and an uptick in house listings and construction activity will potentially open up more options to buyers.

Being the largest group of homebuyers, millennials will continue to drive demand in key housing markets in 2025. As this demographic continues to search for more affordable housing options, they will likely create ripple effects that will influence broader housing conditions and, ultimately, the housing market.

What Buyers and Sellers Should Know in 2025

Based on the varying 2025 housing market predictions, below are some of the things buyers and sellers should know, particularly considering that each housing market is local:

• For Buyers
  • Research and understand the market trend in your state or metro area rather than wait for a nationwide price decline. Sometimes, the local markets witness slight price reductions and are usually less competitive. Keep your eyes on the local market where you intend to buy.
  • Despite limited inventory, it is best to be flexible and explore all available options to enable you to have more choices. Be financially ready and act decisively when you find one that you love.
  • Working with a local real estate professional is recommended because they have a better understanding of the local housing market.
• For Sellers
  • Consider making some repairs and upgrades to make your home more attractive to potential buyers.
  • List your property with a realistic price based on the current market pricing of comparable property in your locality.
  • Considering the current economic realities, be prepared to have your property listed for sale on the market for a longer time.

A full housing market crash is unlikely unless the economic outlook changes. According to expert predictions, the housing market in 2025 is likely going to be more balanced and healthier with slow recovery, sideways movement, and more opportunity. These will largely be determined by inventory supply, mortgage rates, and buyers’ confidence in the market. To increase your chances of landing your dream home based on your financial ability, endeavor to stay informed and understand your local market conditions, especially in the area where you intend to buy a home.