2025 Real Estate Market Forecast: Will Home Prices Drop?

Hunter Letendre
Dec 12, 2024
3 min read

Updated: Nov 6

As we wrap up the year, the real estate market remains a hot topic. With 2025 on the horizon, buyers, sellers, and investors alike are asking one critical question: Will home prices come down? To answer this, we need to examine two aspects: why prices rose in the first place and what the market forecast holds for 2025.

Why Did Housing Prices Surge?

The sharp rise in home prices over the past few years can be attributed to a combination of factors:

Low Inventory:According to historical data, the U.S. built far more single-family homes in the 1970s, 1980s, and 1990s than in the last 15 years. This lag in construction left the market short of inventory when demand spiked.
“Builders today aren’t overbuilding; they’re catching up,” explains Ralph McLin, senior economist at Realtor.com.
The data supports this, as home construction over the past 15 years pales in comparison to the record-setting numbers of homes built in the mid-2000s.
Low Mortgage Rates During the Pandemic:The Federal Reserve's move to cut interest rates during the pandemic led to record-low mortgage rates, sparking a buying frenzy. With limited inventory available, competition soared, driving up prices.
“The demand for homes in 2020 and the following years was very real, but the market simply didn’t have enough homes to meet it,” adds McLin.

The Real Estate Market Forecast for 2025

The good news for 2025 is that the market is stabilizing. Here’s what to expect:

Gradual Price Appreciation:Home prices are projected to increase at a much healthier pace of around 2.5% in 2025, according to leading economists. This is a far cry from the double-digit spikes seen in recent years.
“Healthy appreciation is vital for long-term financial stability, making 2025 a promising year for homeownership,” says McLin.
More Inventory:Inventory levels are steadily improving. Realtor.com reports a 29.2% increase in the number of homes actively for sale in October 2024 compared to the same time in 2023. This marks the highest inventory level since December 2019.
- This increase is expected to bring more options to buyers and create a more balanced market.
A Buyer’s Market?With more inventory and modest price growth, 2025 could favor buyers who’ve been sitting on the sidelines. However, experts caution against waiting too long, as demand could still outpace supply in popular markets.

Is 2025 a Good Time to Buy a Home?

While market conditions are improving, personal circumstances should guide your decision.

“It’s almost always a good time to buy a home if it aligns with your financial and personal goals,” advises real estate expert John Smith.

Some highlights to consider:

Spring 2025 May Be Competitive:A recent Redfin study revealed that 23% of first-time homebuyers plan to wait until after the 2024 election to enter the market, likely increasing competition in early 2025.
Opportunities in Seasonal Markets:Buyers often find favorable deals in less competitive seasons, such as winter.

The Bottom Line

The real estate market in 2025 is shaping up to be more balanced, with slower price appreciation and increased inventory levels. Whether you’re a buyer, seller, or investor, understanding these trends and aligning them with your personal situation will be key to making the most of the opportunities ahead.

Watch the full video below for more details.