As we head into 2025, the real estate market continues to evolve. While mortgage rates remain elevated and inventory slowly builds, homeowners are in a strong financial position with record home equity. Here’s what to expect in the coming year:
Mortgage Rates: Higher for Longer
If you were hoping for a significant drop in mortgage rates, you may need to wait. The 30-year fixed rate is expected to hover between 6% and 6.5% throughout 2025 and into 2026. While some had predicted rates would fall below 5% by now, a strong economy has kept them higher than expected. The Federal Reserve’s next moves will play a key role, but major rate cuts aren’t likely in the near future.
Homeowner Wealth: Equity at Record Highs
Despite rising mortgage debt ($13.17 trillion), homeowners are wealthier than ever. U.S. homeowners hold a massive $35 trillion in home equity, with nearly 69% owning at least 50% of their home outright. This financial strength means homeowners looking to sell have significant leverage and flexibility.
Foreclosures and Market Crash? Unlikely.
Unlike the 2008 crisis, today's homeowners are in a much better position. Foreclosures remain below pre-Great Recession levels, and because most homeowners have high equity, even those facing financial difficulties are unlikely to resort to short sales or bank repossessions. The risk of a housing crash remains low.
The “Lock-In” Effect: Will Sellers Finally Move?
Many homeowners are reluctant to sell because they secured ultra-low mortgage rates in recent years. With 84% of homeowners holding mortgages below 6%, moving now would mean taking on a significantly higher interest rate. However, experts predict this effect will gradually wear off as life changes—like job relocations, growing families, and downsizing—force homeowners to enter the market.
Home Prices: Slower Growth, But Still Rising
After years of double-digit appreciation, home prices are returning to normal growth rates. In 2024, prices increased by an average of 4% nationwide, and in 2025, a more moderate 2-4% increase is expected. While buyers are waiting for rates to drop, home values continue to climb, meaning holding off on a purchase may not necessarily lead to savings.
Inventory: Slowly Rebuilding, But Still Tight
The housing market has been dealing with a supply shortage for over a decade. While inventory is finally increasing, it remains well below pre-pandemic levels. The median U.S. home is now 40 years old, reflecting years of underbuilding. New listings have rebounded to more typical levels, which may help bring the market back to balance in 2025.
Home Sales: Modest Growth Expected
Existing home sales are projected to increase slightly to 4.2 million in 2025, up from 4.0 million in 2024. New home sales will also rise modestly, reaching 757,500 units. While sales are far below the 2019 level of 5.34 million, this growth signals a slow return to more typical market conditions.
Capital Gains & Home Sellers: A Hidden Tax Impact
With home prices surging over the past five years (up 58% nationwide), more sellers are facing capital gains tax when selling. The tax exemption—$250,000 for individuals and $500,000 for married couples—has not been adjusted for inflation since 1997. In some high-appreciation markets like California, nearly 30% of home sales could trigger capital gains taxes.
What This Means for Buyers & Sellers in 2025
• Buyers: Waiting for rates to drop may not be the best move, as home prices continue to rise. More inventory means more choices, but competition could remain strong.
• Sellers: With home values at record highs and equity built up, now may be a great time to sell—especially as more homeowners finally decide to enter the market.
• Investors: A resilient economy and ongoing home price appreciation make real estate a solid long-term investment.
The 2025 housing market won’t be a boom, but it won’t be a bust either. Expect gradual improvements in inventory, modest price growth, and rates remaining above 6%. Whether you’re buying or selling, working with a knowledgeable real estate expert is key to navigating this evolving market.