When Will Home Prices Drop In 2025?
Are you waiting for a break in home prices? You are not alone. Many buyers have been watching and waiting for a shift in the housing market, wondering when affordability will improve. As we are travelling through 2025, the question remains: Will home prices finally drop?
The housing market 2025 remains tough, with prices still sitting at record highs and mortgage rates hovering around 7%. As many experts had predicted this is far from the lower rates which making it harder for buyers to find homes at reasonable prices. While home prices have cooled slightly in some areas, overall, they continue to climb in high-demand regions.
But the good news is that the red-hot price surge we saw in 2020 has lost momentum. Some markets are already seeing price declines because of rising inventory and a dip in demand caused by affordability challenges. So, what does this mean for the rest of 2025? Let us break it down.
A Slowdown, Not A Crash
U.S. home prices saw a 3.9% annual increase in December 2024, slightly up from 3.7% in November as per the latest S&P CoreLogic Case-Shiller Home Price Index. As prices are still rising, the pace of growth has slowed considerably. Experts predict this trend will continue throughout 2025 as inventory escalates and mortgage rates stay elevated.
But, don’t expect a full-on market crash like we saw in 2008. Unlike the housing bubble that burst back then, today’s market is driven by a severe housing shortage rather than reckless lending. Demand is still strong, just not strong enough to push prices up at the same breakneck speed.
How Current Events Are Shaping Certain Markets?
Specific events continue to shape local real estate housing markets beyond interest rates and inventory.
Wildfires in Los Angeles have driven up rent prices, and home values in surrounding areas may rise as displaced homeowners look for new places to live. On the other side Washington, D.C., is experiencing an increase in home listings due to job cuts and return-to-office policies.
Buyers Still Struggle With Affordability
Buying a house remains a big hurdle for many with slower price growth. Real estate prices shoot up about 38% over the past five years, and mortgage rates remain high. The result? Monthly mortgage payments have skyrocketed up more than 96% since 2020, according to Zillow data.
Affordability issues are not about to leave anytime soon without big mortgage rate cuts in a short span.
What Should Happen For A Housing Market Recovery?
For this, two key factors must improve:
1. Housing Inventory Needs To Increase
More homes need to hit the market. According to Keith Gumbinger, vice president at HSH.com, a boost in housing inventory would ease price pressures and could even lead to price declines in some areas.
2. Mortgage Rates Need To Drop
Lower mortgage rates would make homebuying more affordable. While experts expect some rate relief in 2025, a sharp drop could spark another buying frenzy, potentially driving prices back up. Gumbinger suggests that a “normal” mortgage rate range of 4%-5% would be ideal, but we may be a way off from seeing that happen.
Will The Market Stay Frozen In 2025?
Right now, the housing market rates are in a deep freeze. Sales of existing homes, new construction, and pending home transactions are all down. With mortgage rates still high and affordability stretched to the max, demand remains weak.
Could Policy Changes Help?
President Trump recently signaled his intent to tackle housing affordability by expanding home supply. His proposed plan includes rolling back regulations to encourage new home construction and even opening up limited portions of federal land for housing development.
His efforts are praised but analysts are skeptical about their immediate impact. If new tariffs on construction materials go into effect, they could drive up building costs offsetting any affordability gains.
Also read: President Donald Trump announced that he will impose a 25% tax on all steel and aluminum.
Will We See A Surge In Foreclosures?
So far, there’s no sign of a major foreclosure crisis. In January 2025, lenders-initiated foreclosures on about 20,994 properties with an 8% increase from the previous month but 4% lower than the previous year. While some homeowners are struggling, the market isn’t flooded with distressed properties like it was in 2008.
The Bottom Line
The market is shifting but the possibility for a full-blown price drop cannot happen anytime soon. As some regions may see slight declines due to increasing inventory, high mortgage rates will likely keep home prices elevated in most areas.
For buyers, the best approach may be to stay patient and keep an eye on market trends.
