Some industry analysts believe the U.S. housing market is poised for a shift in 2025, giving buyers a little more leverage than they have had in 2024. The wildcard, of course, remains the cost of financing, which has eroded affordability as prices have continued to rise.
Skyler Olsen, chief economist at real estate marketplace Zillow, see both challenges and opportunities for buyers in 2025.
"Buying a home in 2024 was surprisingly competitive given how high the affordability hurdle became,” Olsen said. “More inventory should shake loose in 2025, giving buyers a bit more room to breathe."
Any increase in inventory can be expected to provide buyers with more time to consider their options and gain greater negotiating power.
The Zillow forecast for 2025 suggests a modest 2.6% growth in home values, mirroring the pace of 2024. Existing home sales are projected to rise slightly to 4.3 million, up from 4.1 million in 2023.
Unpredictable mortgage rates
Despite these positive trends, the unpredictability of mortgage rates remains a significant concern. Rates briefly fell in September, offering a slight increase in affordability. Since then, however, rates have climbed back to nearly 7%. Zillow says this volatility is expected to continue, with potential refinancing opportunities during rate dips.
In terms of regional dynamics, the Southwest is expected to see an increase in buyers' markets, joining the Southeast where buyers currently have the upper hand. This shift is driven by an increase in inventory, providing more options for buyers and intensifying competition among sellers. However, if mortgage rates fall more than anticipated, the balance could tip back in favor of sellers due to increased buyer demand.
Smaller homes are selling
The trend towards smaller, more sustainable homes is also gaining traction. The term "cozy" has become more prevalent in real estate listings, reflecting a shift away from expansive open floor plans to more contained, purpose-driven spaces. This change aligns with a broader move towards sustainable living and affordability.
On the rental front, the multifamily construction boom has led to increased rent concessions, such as free rent periods or parking, but these are expected to diminish by the end of 2025. The rental market is becoming increasingly competitive, with pet-friendliness emerging as a critical factor for renters.
As the median age of renters rises and more individuals embrace renting as a long-term lifestyle, property managers are adapting to meet these evolving demands, Zillow reports.