Housing Market Decoded: The top 5 market trends in 2025 

Decisions in residential real estate are often based on market data — sometimes conflicting, often confusing. Housing Market Decoded, authored by economists and other market experts, helps put the data in context so you can make sense of the numbers.

The end of the year is quickly approaching, and along with last-minute gift shopping and New Year's resolutions, 'tis the season of predictions. I haven't had a working crystal ball since March 2020, so I can't predict the future with certainty, but these are the five most important, and most likely trends I expect to play out over the coming year.

Interest rates will decline

Interest rates will fall below 6.5% in 2025, but in a gradual zigzag fashion. Temporary factors, like election jitters, higher Treasury debt issuance and market volatility, all helped push mortgage rates back up by almost one full point from mid-September through early November. But the big picture hasn't changed that much: We are still in the cooldown phase of an economic cycle, with decelerating inflation, a slowing job market and the Fed reducing short-term rates.

Existing home sales will pick up

Existing home sales have bottomed and will increase by as much as 10% year over year in 2025. Sales volume was held back by low inventory in 2022 and 2023, but we saw sellers return to the market in 2024, and buyer activity also started picking up in the fall. Buyers and sellers feel less uncertainty now and are getting more comfortable with the "new normal" range for interest rates, all of which is helping to thaw the market.

Home prices will not fall

Broadly speaking, U.S. home prices will not fall in 2025, but they'll only rise by around 2%-4%. The last three years have seen a roller coaster of starts and stops when it comes to home prices, thanks to the fluctuation in interest rates and the changing supply of available homes for sale. Now that inventory is back to a balanced level, 2025 should see a more consistent market, causing prices to stabilize. There are some regional nuances to this trend, though. Many markets in the South, especially in Texas and Florida, have such high inventory that they may see some modest price declines. The Northeast and Midwest are still dealing with inventory crunches that could ignite more price appreciation in the spring. Markets in the West are closer to balanced conditions, like the nation as a whole.

Affordability will start to improve

This might be surprising since I don't expect home prices to fall, but affordability will gradually start to improve in 2025. The main reasons for this are declining interest rates and rising incomes. The median U.S. household income climbed $10,000 over the past two years, from $70,000 to $80,000. It continued growing rapidly in 2024 and is expected to do the same in 2025. Those higher incomes are helping homebuyers partially catch up with the home price growth that has happened since 2020.

More parents will help fund home purchases

In 2025, it will be more common — and more important — for parents to help with down payments. That's because today's high high prices have made homeownership feel out of reach for many first-time homebuyers. But high prices also mean that baby boomers have a lot of home equity. So, as they discuss homeownership with their adult children, many of them see a down payment gift as one of the most meaningful ways to help them gain access to the American Dream.

Taken altogether, this is a picture of a housing market gradually settling into a new normal after five abnormal years. In 2025 you can expect fewer records and fewer superlatives, like "fastest price appreciation ever," "lowest inventory ever," "fewest new listings ever" and "highest interest rates in 20 years."

Jeff Tucker is the Principal Economist for Windermere Real Estate, where he analyzes economic data to explain its impact on national and regional housing markets. He previously spent five years at Zillow, researching housing market trends, authoring reports and presenting to policy makers. The views expressed in this column are solely those of the author.