Despite an overall reduction in borrowing costs over the past two years, the 30-year mortgage rate recently moved up from a little above 6% in September 2024 to closer to 7% in January 2025. That contrasts with longer term mortgage rates holding at historically low levels of between 2% and 3% for much of 2020 and 2021.
Experts overwhelmingly say that the housing market isn't going to crash anytime soon. The last housing crash helped cause today's lack of supply, which is what's keeping prices from falling. Mortgage rates, however, are expected to ease in 2025. This will help make homeownership more affordable.
Home prices are expected to go up throughout 2025 at a rate of 3.7%. “We think the downward pressure on price growth due to this supply-side effect will slightly win out over the upward pressure on price growth due to falling mortgage rates next year (at least compared to the relative balance this year),” says Hale.
We project home prices on a national basis will rise 5.8 percent in 2024 and 3.6 percent in 2025 on a Q4/Q4 basis. Our next home price update will be in January. We currently expect purchase originations to be $1.3 trillion in 2024, essentially unchanged from last month's forecast.
In 2024, the housing market defied recession fears, with mortgage and home equity growth driven by briefly lower interest rates, strong equity positions, generally positive economic indicators, and stock market appreciation.
KEY TAKEAWAYS. Homeowners have benefited from increased home values over the past few years, but prices are expected to grow slower in 2025 than in previous years. Economists said as mortgage rates fall and homeowners experience life-changing events, more will list their homes.
A sharp decline in home values is one of the most immediate consequences of a housing market crash. For homeowners, this means that the equity they've built up over time can quickly erode. This decline can leave homeowners in a precarious financial position, particularly those who bought at the peak of the market.
What are rent prices expected to do next? "At a national level, the median asking rent price in the U.S. will likely stay flat over the course of a year in 2025, as new rental inventory becomes available," said NBC News, citing Redfin.
As of today, the markets are currently forecasting just one rate cut in 2025 (www.cmegroup.com). U.S. 10-year Treasury Bond yields remain in the range bound between 4.0% and 5.0%. S&P 500 earnings fail to increase the consensus rate of 14% in 2025 but all 11 S&P 500 sectors post positive EPS growth.
The state where house prices are predicted to be the highest by 2030 is California, where the average home could top $1 million if prices continue to grow at their current rate. Other states expected to see their average house price rise above the $750k mark include Hawaii, Washington and Colorado.
Fannie Mae's chief economist says, “Long-run interest rates have moved upward over the past couple of months following a string of continued strong economic data and disappointing inflation readings.” They are putting the average 30-year fixed rate at 6.5% in the beginning of 2025, declining to 6.1% in 2026.
Though mortgage rates have fallen from their 8% peaks, the decline has been slow and gradual. Over the past 12 months, the average 30-year fixed mortgage rate has fluctuated between 6.5% and 7.5%. Most housing economists had expected mortgage rates to drop to 6% by the end of 2024, moving into the mid-5% range in 2025.
Key takeaways. The Federal Reserve is expected to lower rates by at least 100 basis points through the end of 2024. As such, primary mortgage rates could fall by as much as 60 bps over the next year — and by even more if the rates market begins to price in more cuts than are currently expected.
Your mortgage payments could change drastically because of a collapsing dollar, especially if you have an adjustable rate. Those interest rates would follow the trend of the economy itself, so if the Fed raises interest rates, mortgage rates will also climb. This would lead to volatility in your mortgage payments.
Is It a Good Idea to Buy a Home During a Recession? Home prices tend to fall during recessions, both because of lower interest rates and because potential buyers feel more financial pressure. Reduced demand means that houses may stay on the market longer, giving sellers an incentive to lower their expectations.
Housing Market Forecast 2026: Will Prices Rise or Fall
In 2026, the housing market is expected to continue its upward trend, with home prices rising at a moderate pace. The pent-up demand for housing is expected to be supplied between 2025 and 2030, according to the National Association of Home Builders.
In 2025, the real estate cycle will transition from a recession phase during the past three years to the recovery phase, according to Hoya Capital Real Estate, an exchange-traded funds issuer and REIT research firm.
Average 5-year home price return since 1975
But this will vary a lot by area: The highest average five-year returns have been observed in Massachusetts (+36%), Rhode Island (+34%), and California (+34%).
If your home has been on the market for 60 days or more without an offer, this is typically a red flag. At this point, you should consult with your real estate agent to discuss feedback from showings, reconsider your asking price, or explore other factors that might be hindering the sale.
The website predicted that 2025 mortgage rates will drop and housing availability will increase (as will home production), with a high concentration of upward development in the South and West along the Sun Belt — in fact, the top 10 housing markets are all projected to be in the South and West.
Rising Interest Rates
However, there is some minor concern that the lagged impact from elevated interest rates from 2024 could still bring about a recession. For example, the New York Federal Reserve's predictive model gives a 30% chance of a recession by December 2025.
More homes on the market in 2025 may create better opportunities for buyers. Higher inventory means fewer bidding wars, which may keep home prices more stable. Falling mortgage rates could also ease the cost of buying a home, though it may take time.