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Higher mortgage rates and limited homes for sale have created major hurdles for buyers in recent years. Average 30-year mortgage rates hover between 6.08% and 7.44%, while available listings remain far below normal levels. Home prices that surged during the pandemic have stayed steep, putting homeownership out of reach for many.
These challenges have forced countless buyers to delay their plans. Home prices, in general, are significantly higher than they were just a few years ago. After accounting for today’s elevated rates, monthly payments could be double what they were before the pandemic.
As 2025 approaches, buyers and sellers are watching the real estate market closely for signs of change. Industry experts have unique views on whether prices will drop next year. Some predict cooling in certain regions, while others expect continued increases due to strong demand. Below, we gathered what they forecast for home prices in the months ahead.
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Will home prices drop in 2025?
“It’ll vary from region to region,” says Evelyn Lueker, associate realtor at Auker Group in San Diego, California. She notes that some areas could see price drops if interest rates fall and more sellers list their homes. But other factors, such as millennial demand and housing shortages, could keep prices high. Here’s what experts predict for both scenarios:
No, home prices are expected to keep climbing
Many real estate and mortgage professionals believe home prices will continue rising in 2025, despite current affordability challenges.
For example, loanDepot’s sales manager, Debbie Calixto, doesn’t see home prices dropping in the new year. “Inventory is increasing, [but] nationwide, there’s still a housing shortage and significant pent-up demand,” she observes. Many prospective homebuyers will likely re-enter the market when interest rates cool again. And greater competition often drives home costs up.
Population trends reinforce this supply-and-demand perspective. Millennials make up a large portion of homebuyers, yet their homeownership rates lag behind previous generations at the same age. “Supply can’t keep up with the growing demand,” highlights Lueker. This persistent gap between strong buyer demand and limited housing supply suggests prices will keep climbing.
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But there’s always a possibility home prices could drop
Depending on where you live or where you’re looking, you may see home values stabilize as pandemic-era trends reverse. Some housing markets adjusted from 2020 to 2022 when remote work became the norm. Many people left expensive cities for more affordable areas.
Now, things are changing. “[With] the pandemic over, [more] employers are calling their employees back [into the office],” says Joe Chung, realtor at Equity Union in Palm Springs, California. He expects some remote workers who bought homes in vacation and retirement areas will need to sell. This could create buyer-friendly conditions in these markets.
While national price drops are less likely, local markets could respond differently to affordability pressures. “If we see price drops, it would be likely due to a shift in supply and demand caused by ongoing affordability issues,” Calixto points out. Areas with sharp pandemic price increases might cool first as buyers hit their financial limits.
The bottom line
Predictions on real estate prices are speculative and subject to change based on various factors. So rather than trying to time the market, focus on your financial readiness. Lueker stresses that the best time to buy a home is as soon as you can afford it.
As the Federal Reserve considers more rate cuts in 2025, Calixto expects more buyers to come off the sidelines. This could lead to a gradual market normalization. But local conditions will vary widely, so you must understand your specific market.
Start by meeting with a few lenders to understand your budget and loan options. Then, connect with a local real estate agent familiar with your target area(s). They can help you develop a practical plan, whether you’re ready to buy now or need to wait. An experienced agent will also guide you through local market trends, available homes in your price range and negotiation strategies.
Remember that while interest rates and home prices might shift in the coming year, finding the right home at the right time for your situation matters most.
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