Uncertainty in 2025 clouds housing market forecasts
Federal policy changes could impact real estate in surprising ways, but economists are predicting fairly modest shifts in the new year.
Key points:
- The Trump administration’s proposals could lead to an uptick in new home construction, but also increase inflation, deterring rate cuts.
- Economists generally agree that home sales and prices will go up — but not necessarily a lot.
- Mortgage rates are expected to stay above 6%, while agent commissions may fall.
Forecast season has arrived, but for housing market economists, 2025 may be one of the more challenging years to predict.
One reason? It's a transitional year for the country. A new presidential administration will be sworn in next month, and many expect an economic shakeup. During his campaign, Donald Trump made a number of declarations about tariffs, immigration, tax cuts and construction regulations; while it's too soon to know how (or if) these proposals will translate to policy, economists generally agree they could lead to a risk of higher inflation, deterring future rate cuts and keeping mortgage rates elevated.
"There will be competing pressures in 2025, creating a tug-of-war that could impact the housing market in surprising ways," said Lisa Sturtevant, Bright MLS Chief Economist. While pent-up supply and demand are waiting to be "unleashed," they may be constrained by "economic uncertainty and political unpredictability," Sturtevant noted.
Despite that uncertainty, economists from Zillow, Redfin, Realtor.com and Bright MLS are placing their bets on how the real estate market will fare in the coming year.
Home sales will get back above 4 million
The annualized rate of existing home sales has remained under 4 million since June — far below the 6+ million rate seen in 2020 and 2021. But there seems to be a consensus among economists that sales will improve in 2025, though opinions differ on how much:
Existing home sales will rise 7.5% to 4.4 million for the year (Bright MLS).
A modest 1.5% increase will push sales just over the threshold to 4.07 million (Realtor.com).
Sales will rebound slightly, ending the year at around 4.3 million (Zillow).
Hedging their bets, Redfin economists put the number between 4.1 and 4.4 million. "We're presenting an unusually wide sales range this year because while high housing costs may price out some would-be buyers, there's a fair amount of pent-up demand in the market," they said in their forecast.
What about new homes? If regulations ease, builders may increase production; fresh inventory could accelerate sales, particularly since builders have greater flexibility around financing and other incentives.
Price growth will slow
If new home construction does surge, that will mean more overall inventory in some markets, potentially cooling off prices. Economists are still predicting year-over-year growth, but it may vary widely by market and the pace is expected to be slower than in recent years. Here are their forecasts:
Home prices will rise 3.1% in 2025. While some economic upheaval is expected, no major risks have emerged that would cause prices to fall (Bright MLS).
Prices will end the year 3.7% higher, continuing the growth trend that started in 2012 (Realtor.com).
Price growth will continue at a clip similar to the second half of 2024, increasing 4% (Redfin).
Home values will increase 2.6%, a much slower rate than previous years (Zillow).
Mortgage rates will stay above 6%
Rates have defied expectations for the past few years. Predictions for 2023 were wildly off, and several 2024 forecasts put mortgage rates in the 6-6.5% range by year-end. That would require a big drop in the next few weeks, as rates have been stuck at around 6.8%.
While the Federal Reserve is still expected to make multiple rate cuts in 2025, that could change if inflation rises in response to Trump policies, as economists have suggested. Either way, mortgage rates are not expected to plummet next year:
Mortgage rates will average about 6.4%, dropping to 6.25% by the end of 2025 (Bright MLS).
Rates will hover around 6.3% most of the year, ticking downward in the fourth quarter (Realtor.com).
Rates will remain around 7%, hampering affordability for many (Redfin).
Zillow didn't commit to any particular percentage, but said to expect more ups and downs throughout the year, noting that mortgage rates rarely followed the expected path in 2024.
Commissions, consolidation and a shifting market
Beyond the numbers, economists weighed in on other aspects of the market and industry.
Agent commission rates will fall in 2025, predicts Redfin, particularly for luxury homes and in competitive markets.
At an industry level, consolidation will increase, Redfin economists said, because the Federal Trade Commission under the new administration is expected to be more willing to approve deals among larger companies.
More balance will return to the market, at least in some areas, said Danielle Hale, Realtor.com chief economist. Where inventory is more limited, "sellers still have the upper hand in terms of negotiating prices," but where affordability is an issue, that could mean "longer selling times or price reductions in some markets," Hale said.
Zillow highlighted the Southeast as a market that now favors buyers, and expects that trend to spread to the Southwest. But all bets are off if mortgage rates fall sharply, said Chief Economist Skylar Olsen, because demand could again outstrip supply and increase competition among buyers.