Mortgage rates are predicted to remain above 6% in 2025, with home prices continuing to rise, according to the Realtor.com economic research team’s new housing forecast. The report anticipates mortgage rates will average 6.3% throughout the year and conclude at 6.2%. This is a decrease from the projected 6.7% average for 2024 but remains higher than the historical average of 4% recorded between 2013 and 2019.
Home prices are expected to increase by an additional 3.7% next year, following rises of 4% this year and 1.1% in 2023. Sales of previously owned homes are projected to rise to 4.07 million, marking a modest increase of 1.5% from this year but still below the historical average of 5.28 million from the years between 2013 and 2019.
The supply of homes for sale is anticipated to improve, increasing by 11.7% across the year, while new-home construction is expected to grow by 13.8%, reaching approximately 1.1 million new units started in the coming year.
“This past year brought us a surprising upward trend in home price growth despite the persistence of high mortgage rates and rising inventory,” stated Realtor.com economists. “Mortgage rates are expected to keep mortgage payments essentially unchanged in 2025 despite continued home price growth.”
For prospective homebuyers, the outlook is mixed as mortgage rates remain elevated despite other favorable market conditions developing.
“Homebuyers hoping for a lasting return of September’s near-6% mortgage rates will likely be disappointed,” noted the report, predicting an average rate of around mid-6%. “There will be volatility around this average, so shoppers may catch a lucky break, but our advice is to plan and budget for the mid-6% range.”
Affordability is near record lows based on income spent on home payments; however, slight improvements are anticipated due mainly to wage growth or increased disposable income rather than falling home prices.
On a positive note for buyers, there has been an increase in listings with price reductions, with markets such as Cincinnati, Salt Lake City, Denver, Phoenix, and Indianapolis seeing significant activity in this area.
“While more inventory means buyers will likely have more time to make purchase decisions in 2025,” said Realtor.com Chief Economist Danielle Hale,“in any market, a fast-acting buyer will have a higher likelihood of making the winning offer.”
The forecast also projects that sellers could maintain some leverage due to lingering supply constraints and strong demand in desirable locations like those found primarily in the Northeast and Midwest regions.
“As noted above,” says the forecast report,”the market is shifting from a strong seller’s market to one in which buyers and sellers have more balanced market power.”
For rentals, asking rents are projected to decline slightly by about 0.1%, influenced by recent multifamily housing developments that have alleviated supply issues in some areas.
“Looking ahead,” adds the report authors,“a robust multifamily construction pipeline is expected to continue driving rental supply growth in 2025.”
