Mortgage rates are once again in the spotlight as 2025 approaches. Zillow predicts a more active housing market and more buyers gaining the upper hand in 2025, but those hoping to buy — or even refinance — should buckle up for a bumpy ride and stay ready to move when conditions are right.
“Buying a home in 2024 was surprisingly competitive given how high the affordability hurdle became. More inventory should shake loose in 2025, giving buyers a bit more room to breathe,” Skylar Olsen, Zillow chief economist, said in a release. “Americans are adapting to sky-high costs by embracing coziness, a term that for so long has been a thinly veiled critique in real estate lingo. Many are also viewing renting as a longer-term lifestyle. A construction boom has eased pressure on rent prices, putting rent affordability on track to improve next year — that is, as long as wages continue to grow.”
Expect to see more sales and only modest home value growth in 2025 as the market slowly becomes unstuck, Zillow said.
Zillow forecasts 2.6 percent home value growth in 2025, a relatively slow pace that is similar to this year’s growth. For existing home sales, Zillow forecasts 4.3 million in the coming year, up slightly from 4.1 million in 2023 and a projected 4 million in 2024.
While affordability challenges will remain, buyers should expect more homes on the market, meaning more time to consider their options and more leverage in negotiations.
Signs point to mortgage rates easing in 2025, but, Zillow warned mortgage rates rarely follow the expected path, as we saw in 2024. What is more certain is that buyers should expect plenty of ups and downs throughout the year.
Mortgage rates fell in September, briefly bringing the share of affordable listings to a 19-month high. They have since climbed back to nearly 7 percent,changing the affordability picture for home buyers. More swings like this are expected in 2025, with refinancing sprints occurring during the dips, according to Zillow.
Currently, 13 major metro areas are buyers markets — where buyers have the upper hand in negotiations, according to Zillow’s market heat index — with most of those in the Southeast. Zillow predicts buyers markets will spread to the Southwest in 2025 as inventory continues to come unstuck in relatively affordable markets.
If mortgage rates fall more than expected, that dims the prospect that buyers markets will spread west. It is anticipated that a significant mortgage rate dip would bring more buyers than sellers back to the market, increasing competition and tilting negotiating power in favor of sellers.
The pandemic-era need for more and more space is over. Homebuyers will increasingly lean into smaller homes as a more sustainable, affordable and desirable way to live, Zillow predicted.
The term “cozy” is appearing in more listing descriptions — 35 percent more in 2024 compared to 2023 — reflecting current design trends that have shifted away from cavernous open floor plans, toward contained spaces that have their own style and purpose.