Housing is not cheap, whether you buy or rent.
In October, the median sales price for a single-family home in the U.S. was $437,300, up from $426,800 a month earlier, according to the latest U.S. Census data.
Meanwhile, the average U.S. rent in October was $1,619, about the same or 0.2% higher than a year ago and 0.6% lower than a month earlier, according to Redfin, an online real estate brokerage.
While it may be difficult to pinpoint exactly how the housing market will evolve in 2025, several economists offer predictions about what is likely to happen next year in a new report from Redfin, an online real estate brokerage firm.
“If the housing market were to collapse, it would have collapsed by now,” said Daryl Fairweather, chief economist at Redfin. “The housing market has been so resilient to interest rates rising so high.”
Here are five predictions for the housing market for 2025, according to Fairweather and other economists.
The average asking price for a home in the US is likely to increase by 4% over time of 2025, a pace similar to that of the second half of this year, Redfin said.
The 4% annual pace is a “normalization” compared to the accelerated growth last seen in 2020, Fairweather said.
Earlier in 2024, the pace of home price growth slowed to pre-pandemic levels. In other words, while prices were still rising, the rate of price growth was not as fast as in previous years.
Despite predictions that growth will slow, there may still be some volatility in prices.
In fact, home price growth could remain flat, or less than 1%, in the spring of 2025 for home buying, said Selma Hepp, an economist at CoreLogic.
But the possibility that President-elect Donald Trump implements some of his economic policies could drive home prices much higher, said Jacob Channel, senior economist at LendingTree.
“We have some mixed signals at the moment about what may or may not happen to house prices,” he said.
Blanket tariffs on foreign goods and materials and mass deportations could lead to higher construction costs and slower housing activity. If fewer homes are built in a market with limited supply, prices could go much higher, Channel said.
Nationally, the average asking rent in the U.S. over the course of a year will likely remain flat through 2025 as new rental inventory becomes available, Redfin said.
“If rents stay the same and people’s wages continue to rise, that means people have more money to spend,” Redfin’s Fairweather said, while also increasing their savings.
According to 2023 U.S. Census data, more than 21 million renter households are “cost burdened,” meaning they spend more than 30% of their income on housing costs.
A stable rental market will also give tenants more power to negotiate with landlords. In some areas, property managers are already offering concessions such as a free month’s rent, a free parking spot or waiving fees, experts say.
But “it’s December,” Channel said. “Rents tend to drop in the colder months of the year,” because fewer people are looking for apartments in late fall and winter.
If potential buyers continue to be priced out of the sales market next year due to high home prices and mortgage rates, competition could emerge in the rental market, he said.
Also keep in mind that the typical rental price you see will depend on what’s happening in your local market, Hepp explains.
Austin, Texas, for example, was the “epicenter of multifamily construction,” she said, which meant a lot of new supply was added to the city’s rental market, driving down rental costs. Rents in the metro area fell 2.9% from a year ago, CoreLogic found.
In contrast, metropolitan areas with limited supply, such as Seattle, Washington, DC and New York City, experience high rental growth of 5% per year.
Redfin predicts mortgage rates will average 6.8% in 2025, hovering around the low 6% range as the economy continues to slow.
Still, experts expect that 2025 will be a ‘bumpy’ and ‘volatile’ year for mortgage rates.
Borrowing costs for home loans could rise if policies such as tax cuts and tariffs are introduced, putting upward pressure on inflation.
“We’re kind of in uncharted territory. It’s really hard to say exactly what’s going to happen,” LendingTree’s Channel said.
Mortgage rates fell this decline in anticipation of the first rate cut since March 2020. But then borrowing costs rose again in November as the bond market reacted to Donald Trump’s election victory. Since then, mortgage rates have stabilized somewhat – for now.
“Our expectation is that interest rates will be around 6% heading into 2025,” Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors, recently told CNBC.
Pent-up demand from buyers and sellers on the sidelines could drive home transactions next year.
“People have waited long enough,” Fairweather said.
About 4 million homes are expected to be sold by the end of 2025, an annual increase of between 2% and 9% from 2024, according to Redfin.
The market is stacking up with “people who need to get on with their lives,” such as buyers who are starting new jobs and need homes that can accommodate changes in their lives, and sellers who have postponed moving plans, Fairweather said.
While more buyers are expected to enter the market next year, competition may not be as aggressive as in years past, when bidding wars were the norm.
Other affordability factors could come into play, such as rising insurance costs and property taxes, dampening competition, CoreLogic’s Hepp said.
“We will definitely see more buyers,” she said. “But I don’t see the competition heating up to the levels of recent years.”
The risk of extreme weather and natural disasters could anchor home prices or slow price growth in areas like coastal Florida, California and parts of Texas, which are at high risk for hurricanes, wildfires or other disasters, Redfin expects.
If you’re eyeing homes in a risky market because of the tasty price tags, be aware of potential complications.
For example, home insurance policies are harder to come by in some of these markets and often come with high price tags. The financial impact of natural disasters can also be felt in rising maintenance and repair costs for homes, Redfin’s Fairweather said.
What’s even more challenging is that “every part of the country is vulnerable” as weather patterns change, she said. “Lately there have been atmospheric rivers in California that have caused days of heavy flooding, and those homes are not built for that.”
While there is a lot of focus on hurricane risks in Florida, the state is better prepared for this natural disaster, unlike areas like Asheville, North Carolina, a mountainous city that was hit by Hurricane Milton earlier this year.
“We will likely see insurance increases broadly because of the disconnect between what homes were built for and the climate they will face in the coming years,” she said.
This article was originally published on NBCNews.com
