Those who braved the housing market in 2024 faced one of the slowest sales years in three decades. Next year is shaping up to be a little bit better.
Many of the plights that kept would-be buyers and sellers sidelined this year, like 6% to 7% mortgage rates and home prices near record highs, aren’t going anywhere. But housing experts expect there to be more homes on the market next year as buyers and sellers come to terms with today’s higher-rate world.
The housing market has been effectively stuck since mortgage rates began their swift climb in 2022. Homeowners lucky enough to lock in rates around 3% in earlier years were suddenly reluctant to move if it meant taking on a new mortgage at a rate that had more than doubled.
But that “lock-in effect” may finally begin easing in earnest next year as the life events that always spur people to move — births, deaths, marriages, divorces, and job changes — continue as mortgage rates drift lower and improved inventory sparks more price competition.
Realtor Scott Pratt, who works in Buford, Ga., north of Atlanta, said business was sluggish for much of the year, but he’s expecting to see more inventory hit his market this spring. He thinks buyers might find better deals as the year progresses, and sellers who have been on the sidelines adjust their prices to meet the current market.
“It’s going to be one more year of pain, but by the end of the year, some of these people that said they’re going to be locked in forever that want to leave…they’ll move,” he said.
Complicating the recovery is the fact that homeownership remains unaffordable for much of the country.
Median home prices are about 30% higher today than pre-pandemic, outpacing income gains made in the same period. Higher mortgage rates, rising insurance costs, and elevated property taxes add additional challenges for prospective buyers.
The ongoing affordability problems mean any uptick in transactions is still likely to be well below historical averages.
“We think it’s going to continue to be a slow climb out,” said Danielle Hale, chief economist at Realtor.com, which expects existing home sales to rise 1.5% next year to 4.07 million. That figure would be significantly below the average of 5.28 million homes sold annually between 2013 and 2019.
Surveys suggest that consumers would need mortgage rates to reach 5.5% before they step off the sidelines en masse. Few housing experts expect rates to get that low next year, especially amid uncertainty around President-elect Donald Trump’s economic policies. But mortgage rates in the 6% to 6.2% range this year were enough to spur an increase in buying and selling, and those levels remain possible next year.
Zillow sees a choppy path for mortgage rates in 2025, starting with a fall, then a rise, then another fall. Such volatility is typical most years, and next year has added unknowns stemming from the presidential transition and the Federal Reserve’s ongoing rate-cutting cycle, said Orphe Divounguy, senior economist at the real estate marketplace.
Zillow economists ultimately expect rates to end 2025 below current levels of around 6.7%, but note “there’s no guarantee.”
Realtor.com sees potential for rates to average 6.3% next year. Brokerage Redfin, on the other hand, also expects fluctuations next year but thinks the average could remain around 6.8%, close to current levels.
Los Angeles-based real estate agent Walter Franco Jr. said even slightly lower rates next year probably won’t be enough to unleash a flurry of activity in his pricey market. Buyers seeking homes in the $1.5 million to $2 million range aren’t very sensitive to rate changes, but those looking for cheaper options are, he said.
“At that more entry-level price point, rates are really crushing them,” Franco said.
Nationally, many economists call for home prices to rise between 2% and 4% next year, around historical averages. But the strength of the housing market is likely to vary heavily by location. The most expensive markets along the coasts look poised for bigger price gains due to a lack of new building and an abundance of wealthier buyers who have benefitted from stock market gains in recent years.
On the flip side, cities in Florida and some of the Southeast and Midwest may not see such steep gains. Florida’s condo market continues to be in crisis as owners struggle to shoulder heavy repair bills stemming from 2021’s Surfside condo collapse. And home prices are expected to be flat or fall in some less-prosperous locales as lower earners struggle to afford homes.
“We are set up in such a way that those who are advantaged are going to continue to be advantaged in this housing market, and those who have less access are going to continue to have less,” said Lisa Sturtevant, chief economist at Bright MLS.
Sturtevant expects home price appreciation to be strongest in already high-cost metro areas like Boston, New York, and Washington, D.C. Cities that saw the most aggressive price increases during the pandemic followed by falling prices in the last year — such as Tampa, Fla., and San Antonio, Texas — may see smaller gains or even price declines.
Meanwhile, unknowns around the Trump administration’s economic policies threaten a fragile recovery. Some policies he’s proposed, like tax cuts and tariffs, would likely worsen inflation and require interest rates on products, including mortgages, to stay elevated for longer. But homebuilders are excited by his commitment to deregulation, which could make it easier for them to build, and help lower prices by adding housing supply.
Waldorf, Md.-based real estate agent Jon Benya, who works with many government workers, contractors, and members of the military, said Trump’s talk of slashing the size of the federal government, or relocating certain agencies away from Washington, may be enough to chill activity in southern Maryland.
“Perception is reality, and when you have job insecurity because you’re concerned that your job may be cut, finding a new home is the last thing on your list,” Benya said.
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages, and home insurance.