Existing-home sales rose for the first time in October in more than three years, boosted by a temporary dip in mortgage rates that brought some much-needed relief to buyers. After months of discouraging numbers, sales rose 3.4% from the previous month to 3.96 million, according to the National Association of Realtors.
The drop in mortgage rates, which hit a two-year low of 6.08% in late September, incentivized prospective homeowners to move off the sidelines. Yet as rates push upwards again—now hovering around 6.84%—the big question is: Will rising borrowing again curb buyer enthusiasm?
Buying a home in 2024 was a battle against affordability soaring to new heights. But 2025 may bring some relief as more inventory is set to free up. Although the housing market is likely to see a surge in activity, those hoping to buy or refinance must be ready to pounce when conditions are right.
As for renting, a slight reprieve is on the horizon, thanks to a construction boom that is beginning to temper rent prices—provided wages continue to rise, of course.
Mortgage rates: Expect a wild ride in 2025
2025 could see mortgage rates easing, but history shows rates rarely follow a predictable course. After a brief, optimistic dip in September that sent affordable listings soaring to a 19-month high, rates are already climbing back toward 7%. This is no anomaly; it’s the new normal.
Buyers should brace for a year of turbulence, during which rates will rise and fall with fleeting moments of relief followed by painful jolts.
Buyer’s Markets to Spread to the Southwest
According to Zillow’s market heat index, 13 major metro areas are in buyers’ favor with most of them in the Southeast. However, things could change in 2025. Zillow predicts the buyer’s advantage will shift westward as markets in Arizona, Nevada, and parts of Texas are becoming more buyer-friendly.
In the new buyer-focused markets, expect to see more people moving as the number of available homes grows. Buyers will have more choices and better chances to negotiate, putting pressure on sellers who are used to being in control. As a result, prices may drop, and deals could become more favorable for buyers.
But don’t get too excited just yet. If mortgage rates fall more than expected, things could change fast. A big drop in rates would bring more buyers into the market, making it more competitive and turning the advantage back to sellers. The market could quickly become tight again and buyers may end up fighting for fewer homes.
Housing Market Activity to Pick Up—But Don’t Expect a Boom
In 2025, expect the housing market to slowly thaw with small increases in sales and home values. Zillow predicts home values will climb by 2.6%, reflecting the slow growth seen this year. Existing home sales are forecasted to hit 4.3 million, up from 4.1 million in 2023 and a projected 4 million in 2024.
But affordability will still be a snag for many buyers, though they’ll likely see more homes available. The increase in listings will give buyers more time to consider their options and more power in negotiations with sellers. The days of frantic bidding wars may not be entirely gone, but the urgency will be tempered by more choices.
Americans Embrace Small-Home Living
The pandemic era’s obsession with sprawling, extra-large homes is fading fast. As remote work loses its luster and lifestyles change, homebuyers are increasingly drawn to smaller homes, seeing them as more affordable and desirable. The new trend is downsizing but with purpose.
The word “cozy” is showing up in 35% more real estate listings in 2024 than the year before, suggesting a change in design preferences. Large, open floor plans are being replaced by smaller, more defined spaces that serve a clear purpose and have their own style. Homebuyers are now looking for homes that feel intimate, efficient and functional.
Meanwhile, the small condo market is finally finding its footing after remote work emptied out once-bustling downtowns. As people move away from oversized properties, the demand for smaller living spaces in city centers is stabilizing. Large homes, still the preferred dream for many, are continuing to lose steam, too. The rate of home value appreciation for the larger properties, though still stronger, has softened noticeably.
