The Federal Reserve continues to cut short-term interest rates. At the last meeting on December 18, it reduced it again by 0.25%. As a result, headline inflation has declined over the past two years. And the presidential election is over.
It appears that the conditions for a housing market recovery are consolidating.
“We’ve seen after the presidential election — and no matter who wins — there’s usually a slight increase in home sales,” Lawrence Yun, chief economist for the National Association of Realtors, said at a recent forum. “It takes away some of the uncertainty.”
But if you look at the housing market in 2025 as a whole, including mortgage rates, rising home prices and a shortage of homes for sale – is this a good time to buy a home?
In this article:
Read more: Is it a buyer’s market or a seller’s market? How to tell the difference.
An important piece of the puzzle? Mortgage interest. Although interest rates have moved lower in recent weeks, a level below 6% remains elusive.
Over the past year, 30-year mortgage rates fell to a low of 6.08% in late September, but met resistance as they fell. According to Freddie Mac, the highest water level over the same period was 7.22%.
NAR’s Yun believes that if the government deficit continues, mortgage rates will not fall below 4%, as evidenced by Donald Trump’s first term as president.
“With a large budget deficit, there is less mortgage money available. The government borrows so much of its money,” Yun said.
However, if the government reins in spending, regulations on homebuilders are lowered as expected and jobs continue to grow, “…mortgage rates could fall quickly,” he added. Yun; always the optimist.
Still, housing professionals predict that mortgage rates will remain stable through 2025.
NAR says “a new normal” will be put in place, with interest rates remaining around 6% next year. Zillow and the Mortgage Bankers Association predict interest rates will remain near 6.5%. Redfin expects interest rates to be around 7% by the end of 2025.
In other words, not much is expected to change.
Yet mortgage rates remain below their 52-year historical average. Based on data collected by Freddie Mac, 30-year mortgage rates have averaged 7.72% since April 1971.
For context, the highest mortgage rate ever was 18.63% in October 1981.
Take action: Use a mortgage calculator to determine the monthly payment you can afford. Then you can find the home price, down payment, credit score, home loan type, and mortgage rate to achieve your home buying goal.
Read more: How to get the lowest mortgage interest rate
The current housing shortage in the US is estimated by the National Association of Home Builders to be 1.5 million homes. Freddie Mac says the home deficit is 3.7 million. The latest figures from Zillow show that we are short 4.5 million homes. It almost sounds like they’re throwing a dart at the board to arrive at an estimate.
Whatever the number, it’s big, and it will take years for housing inventory to return to anything close to normal.
“It took us about a decade to get into this housing market deficit, and it will probably take us another decade to get out of it,” said Rob Dietz, NAHB’s chief economist.
Freddie Mac estimates that 5.8 million homes have come onto the market in the past four years. Unfortunately, demand has increased by the same amount.
Take action: Consider expanding your search to more affordable areas near your favorite neighborhood if this is too expensive.
Homebuilder confidence is improving now that the elections are over.
“With the election in the rearview mirror, builders are expressing increasing confidence that Republicans taking all the levers of power in Washington will result in significant regulatory relief for the industry, leading to the construction of more homes and apartments ” said Carl Harris. , president of the National Association of Home Builders.
Realtor.com expects 1.1 million new homes to be built next year. That’s an increase of nearly 14% from 2024, with builders focusing on smaller, more affordable homes.
Take action: If you want to buy a house now, consider new construction. You may be able to choose a number of finishes or get an even better deal on a spec home that has been on the market for a while.
Read more: How do you buy a new-build home?
The Freddie Mac House Price Index reported that home prices rose 4.2% year over year through August, the most recent data available.
“We expect home prices to continue to grow, albeit at a slower pace,” according to a Freddie Mac analysis for 2025.
Higher house prices are a direct result of the lack of housing stock.
But despite all the headwinds, home sales are expected to grow, if only slightly, by 2025. The consensus among experts is that around 4 million existing homes will be sold in 2025 – about the same as in 2024.
Take action: Search for homes with price reductions where you want to live. Some apps, like Realtor.com and Trulia, trigger an alert for adjustments to the sales prices of homes you’re interested in. Then negotiate even harder.
More information: When will house prices fall?
To answer the question of whether it is a good time for you personally to buy a house, you have to look beyond broad market forces. Buying a house is more than just taking macroeconomic factors into account. It is an important life decision, based on your personal and financial situation.
Read more: Should you buy a house?
When you rent, the decision to move is split into six months, or a year or two at a time, as your lease renews. But every dollar-related detail makes purchasing a home a medium- to long-term investment. Buying a home involves several costs: the down payment, closing and financing costs, moving costs, property taxes, and perhaps the sale of the home you’re in now.
Homeownership requires a long timeline. How you make a living, your friends, family, and even community benefits all play a role.
One primary consideration: your job. Will a location change be necessary soon, or can you live where you want? Is your income stable and almost certain?
Read more: How much house can I afford?
One of the most important factors that determine your eligibility for a home loan is your credit score. It is important to know this before applying for a mortgage.
For the most common loan, a conventional mortgage not backed by a government agency, you typically need a FICO score of 620 or better.
FHA loans can allow for a credit score as low as 580 with a 3.5% discount. VA loans issued to qualified military service members and veterans do not officially have a minimum credit score, although some lenders require a FICO score of 620.
Minimum scores are of course the entry level for qualification; the higher your score, the better the loan terms you will be offered. Most importantly, this may mean you pay a lower annual percentage rate over the life of the loan. You may also have more room to negotiate fees.
As a benchmark for where you are now, the average credit score on a new mortgage in the second quarter of 2024 was 772, according to the New York Federal Reserve.
Read more: The credit score needed to buy a house in 2025
A primary financial measure that lenders will use to determine your creditworthiness is your debt-to-income ratio.
Fannie Mae, a government-sponsored entity that provides liquidity to the home loan market, targets a maximum aggregate DTI ratio of 36% of “the borrower’s stable monthly income.” Exceptions can allow total DTIs of up to 50%, but it is usually best to avoid working around the edges of the qualification if possible.
You can calculate your DTI by dividing your total recurring monthly debt by your gross monthly income (before taxes and other deductions).
Including debts such as monthly mortgage payments (or rent), property taxes, and homeowners insurance. Also add any car payments, student loans, and monthly minimums on credit cards. Consider any personal loan payments and child support or alimony.
Don’t include debts such as monthly utilities – such as electricity, water, waste or gas bills – or car insurance, television streaming subscriptions or mobile phone bills. You can also exclude health insurance costs and miscellaneous expenses such as groceries or entertainment.
Having a cash cushion in the form of emergency savings shows lenders that you are prepared for the unexpected. Of course, that savings account must also contain…
A large portion of your savings account should be spent on the down payment. A minimum of 3% is required to qualify for a conventional loan aimed at first-time homebuyers – or ideally 20% to avoid private mortgage insurance. Yes, zero-down options exist if you qualify for a VA or USDA backed loan.
According to Realtor.com, the average down payment in the third quarter of 2024 was 14.5% – about $30,300.
Buy smart and shop a lot. Search relentlessly for interest rates and mortgage lenders for the best loan offers and justified fees. Get prior written approval from your lender, then start looking for a home you can love and afford. Your home buying competition is.
According to Zillow, when it comes to first-time versus repeat buyers, first-time buyers are more likely to contact at least three lenders and three real estate agents.
Mortgage rates tend to fall during economic recessions, so a recession could certainly be classified as a time when rates would likely fall. However, lower interest rates generally increase demand as more buyers enter the market, which is likely to increase home prices. Buying a house at a time when both mortgage rates and house prices are favorable is a challenge. You probably shouldn’t try to time the housing market by waiting for a recession. Buy when it makes sense for you personally.
Buy Now proponents might say that if you find the right house at the right price — and you’re financially prepared — you should buy the house now and refinance later. But what if mortgage rates don’t drop substantially enough to justify refinancing in a few years? Only buy a house if you are happy with the terms you can get on closing day.
Locking in a mortgage rate is a short-term decision, generally lasting only 30 to 60 days – sometimes up to six months. There’s little reason to worry about it. Be comfortable with the rate on your loan estimate and start packing boxes.
Homes become more affordable as your income and savings grow. Ask any homeowner: Buying that first house was a daunting task. The monthly payment loomed large. As the months and years go by, it becomes less and less of a problem. As home prices continue to rise, you’re on the right side of the equation: Growing equity builds your net worth.
This article was edited by Laura Grace Tarpley.
