Stabilizing Mortgage Rates

Mortgage rates rose substantially in 2024, but they’ve been on the slow decline ever since. Experts agree that mortgage rates will remain elevated throughout 2025 compared to the early 2022, but those rates will slowly trend lower.  Higher mortgage rates might sound scary for homebuyers, but it only means paying an extra few hundred dollars per month, at most. If you’re a renter, you can expect your rent to rise that much as well, so it’s a better investment to purchase a house now, while mortgage rates are still relatively low compared to the historic norms.

Increasing Inventory

In 2025, the inventory is expected to rise modestly which means reduced competition with fewer people experiencing a multiple-offer situation that drives up the price for people buying a home. Due to a lack of inventory in previous years, homebuyers drove up the prices of homes, which forced many people out of the market. While competition will continue to decline this year, you shouldn’t expect a buyer’s market just yet. However, more houses will be on the market, which means less competition overall.

The exception will be the first-time home buyer.  With so few homes that are affordable first-time home buyers will continue to be under pressure and competing with single family home investors that are also looking to buy at the lower end of the market.

Slowing Home Appreciation

Homes appreciated substantially between 2020-2024, but experts expect appreciation to slow throughout 2025. However, don’t expect to see a drop in home prices.  Home prices will just not go up as much or as quickly as they have in the last few years. In addition, the housing market as a whole will start to normalize again, thanks to increasing inventory and moderating interest rates.

Buyers will be happier and more likely to find a home with a more stable real estate market in 2025.

Investors Will Continue to be Competitive

Unless something drastic happens domestically or internationally in 2025, real estate investors will not stop buying homes. While home prices and rents increased in 2024, investors continued to purchase single-family homes. As a result, this year, many investors will continue to see high returns from last year, with 2025 continuing to offer an opportunity for great returns as demand and rental prices continue to increase.

More In-Person Showings

Now that COVID is well behind us, you can expect an increase in homebuyers requesting in-person showings and attending open houses. While virtual tours are still very popular to pique interest in a home, real estate agents and buyers are expected to return to the tradition of seeing homes in person.  Buyers still want to experience a home in real life before they make a purchase.  Therefore, proper staging and presentation will be emphasized and more importantly for sellers trying to get top dollar for their homes.

Less Compromises 

Due to an increase in prices, multiple offers, and more competition, many homebuyers were forced to compromise in 2024. Homebuyers might still be priced out of the market while home prices will steady in 2025, but there should be less competition and compromises. If they’re not priced out, they still might have to compromise what they want in a home. First-time homebuyers, in particular, might have to buy smaller homes and contend with multiple offers on the more affordable homes.  Additionally, many home buyers are having to undertake renovations and home repairs as a means to reduce the initial cost and get a home they can afford.

Increase in Sellers

As interest rates have moderated and the level of inventory has risen, many homeowners are now more willing to sell their homes.  This is a slowly changing trend that is expected to increase throughout 2025.  This will help potential buyers find a home that meets their criteria and lead to a more stable residential real estate market. However, the trend of homeowners choosing to fix up their current homes and stay in them is still expected to dominate throughout 2025.  For example, homeowners may decide to hire landscaping companies to improve their lawns, fix problems with the foundation, or purchase new appliances instead of selling.  Many of these potential sellers will choose to wait and watch what happens in 2025 hoping for a drop in interest rates and and further increase in home prices.

Renting Becomes More Expensive

In 2025, in some markets renting might become more expensive than buying. As rent prices continue to increase with home prices, many people will find that rent prices are the same or higher than a possible mortgage. Many potential renters will make the decision that buying a home is a better investment, especially in up-and-coming areas. Before buying a home, check out rental prices in your area to determine if it will be more affordable to buy or rent. While renting seems attractive in an uncertain market, buying is a better investment for most people who are ready to own their own homes.