According to recent research from Zillow, it’s believed that home prices will grow at a more modest rate in 2025, providing some positive news for those looking to get into the market. With housing prices expected to grow by 2.6% nationally, Zillow forecasts 4.3 million sales of existing homes in 2025, an increase from 4 million in 2024.
GOBankingrates spoke with real estate agents to determine which factors will most influence the housing market in 2025 if you’re looking to buy a home or sell your existing place. These are some predictions that real estate agents have for the market this year and the five factors that will influence it the most.
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Interest Rates Will Impact Affordability
Chris Reis, a broker and founder of PNW Residences in Seattle, Washington, with Compass, pointed out that affordability will remain a significant driver for the housing market in 2025. He added, “With interest rates potentially stabilizing after recent volatility, buyers will be closely monitoring monthly mortgage costs, and the availability of financing options will be crucial.”
It’s no secret that the higher interest rates have made mortgage payments more expensive, forcing many potential homebuyers to remain on the sidelines. Interest rates will continue to impact affordability as the Fed decides how to proceed.
Nadia Khan, a real estate agent and owner of Nadia Khan Estates at eXp Realty, added, “Activity will go hand in hand with rate fluctuations, and the pockets of opportunity to experience less competition will exist in small bursts.”
While interest rate reductions could lead to higher housing prices due to increasing competition, there should be small windows of opportunity to enter the market. Either way, interest rates are expected to impact affordability and the housing market in 2025.
Learn More: Real Estate: 10 Housing Markets Buyers Are Flocking To as Rates Drop
There Will Be Overall Affordability Issues
While interest rates may decrease, that’s just one factor of the homebuying process, as prospective buyers still have to deal with higher housing prices caused by the pandemic boom. Khan expanded, “All the major institutions are predicting that home prices will rise on the whole.”
Home prices are already considered high, and interest rates are no longer hovering around 2%-3%, making it more expensive to own a home while inflation keeps everyday item costs high. Khan noted how the combined results of higher interest rates with inflated housing prices will continue to cause affordability issues, making this one of the most critical factors in 2025.
Inventory Levels Will Impact Housing Prices
“The housing market in 2025 will be shaped by several key factors, including inventory levels and new construction trends,” noted Kenneth Cox, a broker and owner of DFW Urban Realty. “Buyers should focus on preparation by securing mortgage preapproval and exploring preowned and new construction options to find the best value and potential for home equity.”
The realtors agree that inventory levels will continue to influence the housing market in 2025 since there’s a shortage contributing to higher home values. Reis elaborated, “The lack of new construction and challenges in the labor and materials supply chain could keep housing supply tight, maintaining upward pressure on prices.”
While there are concerns over inventory levels and housing prices, Khan was more optimistic about this factor in 2025. “According to a recent BrightMLS survey, one in five homeowners are planning on selling in 2025. Many of these homeowners are also millennials, aged 30-40, who purchased during the pandemic and rapidly gained equity with a historically low interest rate. My opinion is that because they have the equity and most likely have changing family needs, they’re willing to trade up.”
While there are no guarantees regarding what homeowners will do, inventory levels will remain crucial in the housing market’s direction in 2025, with focus also being placed on new construction.
Demand for Secondary Markets Will Shift
According to Reis, the demand for housing in suburban and secondary markets will likely grow. He elaborated, “Many buyers are still seeking more space, affordability and quality-of-life improvements outside major urban centers.”
With housing demands and preferences changing during the pandemic and the increased number of remote working opportunities, many new markets emerged. It’s believed that more homebuyers will continue to seek out homes in secondary markets in 2025 due to affordability issues.
Reis concluded, “Hybrid work models continue to shape this trend, allowing flexibility in where people choose to live.”
Generational Shifts Will Contribute To Market Dynamics
Khan shared that one of the most significant factors that will affect the housing market in 2025 is millennial demand. Khan noted that millennials are the largest generation of homebuyers, and the youngest are or will soon be reaching their 30s, the average age for first-time homeownership. Based on the 2024 Home Buyers and Sellers Generational Trends report from the National Association of Realtors (NAR), millennials surpassed baby boomers as the biggest group of homebuyers at 38%.
“Millennials entering their peak homebuying years and baby boomers downsizing or moving into retirement communities will drive both ends of the market, creating opportunities for sellers and buyers alike,” remarked Reis. This means that the movements of millennials and baby boomers may be studied closely by experts in 2025, as these generations will impact housing market dynamics significantly.
Cox concluded, “Overall, staying informed and working with a local real estate agent in the market you are considering, regardless if buying, selling or renting, is crucial and will be essential for navigating the 2025 market successfully.”
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This article originally appeared on GOBankingRates.com: Real Estate Agents: These 5 Factors Will Most Influence the Housing Market in 2025
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