Windermere Economics 2025 Housing Forecast

Windermere Real Estate Principal Economist Jeff Tucker discusses his housing market predictions for the coming year. Will interest rates drop? What will happen to home prices? Will housing become more affordable? Watch this 2025 housing forecast video to get answers to these questions and more, or read below for the main talking points.

Interest rates will fall to around 6.5% in 2025, but in a gradual zigzag fashion. Temporary factors, like election jitters, higher Treasury debt issuance, and market volatility, helped push mortgage rates back up by almost one full point last fall. But the big picture hasn’t changed that much: we are still in the cooldown phase of an economic cycle, with decelerating inflation, a slowing job market, and the Fed reducing short-term rates.

Existing home sales have bottomed and will pick up by as much as 10% year over year in 2025. Sales volume was held back by low inventory in 2022 and 2023, but we saw sellers return to the market in 2024, and buyer activity started picking back up as well in the fall. Buyers and sellers also feel less uncertainty now and are getting more comfortable with the new normal range for interest rates, all of which is helping to thaw the market.

Broadly speaking, U.S. home prices will not fall in 2025, but they’ll only rise by around 2%-4%. The last three years have seen a roller coaster of starts and stops when it comes to home prices, thanks to the fluctuation in interest rates and the changing supply of available homes for sale. Now that inventory is back to a balanced level, especially in the Western U.S., 2025 should see a more consistent market, causing prices to stabilize.

This might be surprising given that the previous prediction is about home prices not falling, but affordability will gradually start to improve in 2025. The main reasons for this are declining interest rates and rising incomes. The median U.S. household income climbed $10,000 over the past two years, from $70,000 to $80,000. It continued growing rapidly in 2024 and is expected to do the same in 2025. Those higher incomes are helping home buyers partially catch up with the home price growth that has happened since 2020.

Parents helping with down payments will be more common, and more important, than ever in 2025. That’s because the high price of homes today means that homeownership feels out of reach for many first-time home buyers. But high prices also mean that Baby Boomers have a lot of home equity. So, as they discuss homeownership with their adult children, many parents see a down payment gift as one of the most meaningful ways to help them gain access to the American Dream.