How The 2025 Housing Market Will Be Different Than 2024

The American housing market has been a difficult pill to swallow throughout 2024. The market has continued to stifle the hopes of prospective buyers. Ronda Kaysen of The New York Times calls the housing market a story "of a nation frozen in place, with millions of people unable to move" as a result of numerous systemic marketplace weaknesses. Some of this is a holdover from the rush that took place during the pandemic years, while other issues can be seen in related aspects of the homebuying experience (for example, the skyrocketing interest rates that new buyers have been up against).

The new year will bring new challenges and opportunities to the market, however. Economists and real estate experts are mixed on the outlook, but generally agree that a few key trends will see some of the trauma that has befallen buyers this year alleviated. For one thing, intensely low volume has persisted in the national marketplace for the last two years in particular. Predictions see this changing heading into 2025. Another key detail to consider is the historic trend of the real estate market in election years and their successors. Generally, the year after a presidential election sees a market on the hop. These five trends appear poised to shift the housing market for Americans as the calendar turns over and January arrives.

Inventory has been severely depressed in recent years. The lack of available homes on the market has led to a rush on those that are available. Bidding wars have driven prices up across the country, sometimes for homes that are far less than desirable. One snapshot of the total market showcases this in a crystallized way. Those in the Baby Boomer generation own around $19 trillion in combined real estate assets, a huge jump in value over those in younger cohorts. But older homes are often not outfitted with modern amenities that today's buyers are seeking. Whether through old stylings in kitchen design language or a lack of features like ample outlets or a driveway that simply didn't factor into the world these homes were constructed in, young buyers today are paying more than they'd like on properties that immediately demand lifestyle upgrades through potentially costly and time consuming renovations.

2024 is predicted to finish as the slowest market in 30 years, with a total volume of real estate sales somewhere around 4 million. However, modeling suggests a roughly 12% increase in inventory in 2025 (nearly 500,000 additional listings). Estimates also suggest that over 1 million new single-family homes will be built next year — the most since 2006. Increased inventory means more choice, allowing buyers to wrest back some control over the relationship. This will give them a bit more voice in the price negotiation, as well as added time to make their decision surrounding the properties they've been exploring.

In addition to a greater volume of houses on the market, price appreciation looks to be cooling off. This is another welcome change for those in the market for a new home heading into the new year. Huge equity gains have characterized the pandemic era and the years since. Since 2019, the typical homeowner has grown their wealth by about $147,000 just by virtue of owning the place they lay their head at night. Historically, home prices experience an annualized increase of about 4.5% (over a study period between 1988 and 2023). From 2023 to 2024 the change was 5.7%, and the year before it sat at 6.5%.

The market outlook for the coming year looks to break the fever on this high pressure environment. Huge growth is unsustainable in any marketplace, and forecasts range from an anemic 0.3% to a nearly average 4.4% (from Moody's and Goldman Sachs, respectively). The average forecast places price appreciation at 2.5%. This looks to be good news for both buyers and sellers, considering a continued upward trajectory that will satisfy (even if it won't excite) sellers, while giving buyers a much-needed change of pace when planning their next move and perhaps an exit from the rental market.

The American housing market is often fixated on large properties. A sprawling home in a neighborhood community tends to come into focus as the guiding mental image when thinking about a new home purchase. But this is just one type of property that home buyers seek out as they explore their options. Apartments are common for urban dwellers, while small homes feature in buyers' interest lists all across the country. The term "cozy" featured in 35% more Zillow listings in 2024 than it did the year before, signaling an increasing interest in smaller, more homely properties.

A smaller home offers plenty of benefits to buyers looking to make their dollar stretch as far as it can go. Less home allows a buyer to focus more intensely on the specific amenities that feature in that property. Trading size for upgrades like granite countertops or hardwood floors can make a world of difference in the experience a homeowner enjoys in their property. Moreover, seeking out a smaller home may come with a reduced price tag that allows a buyer to hop onto the real estate train today without settling for a future struggling to fend of becoming house poor.

Mortgage rates have skyrocketed in recent years. For essentially the entirety of the 2010s, mortgage rates existed in a narrow, low-priced band beneath the 5% threshold. This was great for buyers looking to lock in low priced financing for their new home purchase. However, after the pandemic-era spending spree that gripped the real estate market, coupled with ballooning inflation and supply chain disruptions across the globe that sent markets into a tailspin, interest rates inevitably rose. Up from the two-and-change range that characterized the beginning of those challenging years, interest rates on 30-year fixed mortgages hit highs above 7.5% for the first time in 20 years.

Interest rates on new mortgage products aren't looking rosy in the current market: Turbulence and persistent fluctuation are set to continue into 2025. Predictions suggest that buyers should expect a slowly declining figure across the board, with multiple rate cuts throughout 2025. But buyers will more than likely be subjected to interest figures that remain north of 6% throughout the year with a price target of 6.2% by year's end. This isn't great news for buyers, but it does offer a potential path forward with the use of a variable rate mortgage. Naturally, you'll want to do your own research to determine the right option for you, but with the pressure appearing to come off in drips and drabs, a variable rate used near the beginning of the year might allow you to benefit from anticipated downward movement.

The rental space is intimately linked to the broader real estate market. Many people seeking to buy a home are doing so to leave the rental game behind. The project of homeownership has classically been seen as a means to build equity in a tangible asset, and thus naturally far superior to the alternative of renting. While the equity part is true, this mindset leaves a lot to be desired. For one thing, homeowners are far less likely to move than renters — and by move, this entails total freedom of movement: A renter can go anywhere they like after a lease expires or they give notice. The expansive freedom that a renter has to change their scenery is great for mobile workers looking to explore new opportunities on a regular basis. Indeed, acting more as a gun for hire than a company loyal can see your salary increase precipitously rather than gradually (or not at all, considering the death of company loyalty in today's marketplace).

Fortunately for the 2025 real estate market, renters appear set to enjoy relative stability. Prediction models set rental inventory at an increasing volume heading into the new year, helping to cool off rental prices for people across the country, and especially in urban centers. Rent prices are poised to remain fairly flat, or perhaps even decline slightly, in 2025. This will give people seeking a solid place to live without committing huge financial resource to a down payment or renovations an edge heading into January.