Mortgage rates are expected to change soon. Looking ahead to 2025, it’s important to know what experts are projecting for the housing market. And whether you’re thinking of buying or selling a home next year, knowing what the experts are calling for can help you make the best possible decision for your homeownership plans.
Here’s an early look at the most recent projections on mortgage rates, home sales, and prices for 2025.
Forecast for Mortgage Rates
The impact of mortgage rates is significant in many people’s decision to buy or sell their homes. Jerome Powell, the head of the Federal Reserve, indicated in August that a small rate cut is likely in September. The forecasts for 2025 from Fannie Mae, the Mortgage Bankers Association (MBA), the National Association of Realtors (NAR), and Wells Fargo show an expected gradual decline in mortgage rates over the course of the next year (see chart below):
In fact, rates have already begun to drop slightly as lenders start to factor in the change in Federal Reserve policy. As you can see, the expectation is that rates will be below 6% by the end of 2025, giving lots of people hope that they will be able to refinance out of those 7% rates into something that will make the home they bought last year more affordable!
As Morgan Stanley says:
“With the U.S. Federal Reserve widely expected to begin cutting its benchmark interest rate in 2024, mortgage rates could drop as well—at least slightly.”
The Impact of Lower Mortgage Rates Should Increase Home Sales Next Year
An unexpected impact of lower mortgage rates on the market is that the experts are expecting to see more buyers and sellers who have been sitting on the sidelines because of higher rates choose to make a move. This should result in an increase in both the supply of available homes on the market, as well as a rise in demand. That’s one big reason why experts are projecting an increase in home sales next year.
According to Fannie Mae, MBA, and NAR, total home sales are forecast to climb slightly, with an average of about 5.4 million homes expected to sell in 2025 (see graph below):
The increase in home sales will be a wonderful side effect of the lower interest rates. About 4.8 million total homes were sold in 2023, and expectations are for around 4.5 million homes to sell this year. This increase in home sales pumps thousands of dollars into the economy in a multiplier effect from the home related purchases, like new furniture, fresh paint and moving expenses.
While slightly lower mortgage rates are not expected to bring a flood of buyers and sellers back to the market, they certainly will get more people moving. That means more homes available for sale – and competition among buyers who want to purchase them.
Prices Probably Will Change – Upward
Another expected impact of lower mortgage rates is higher prices. More buyers ready to jump into the market will put continued upward pressure on prices. Take a look at the latest price forecasts from 10 of the most trusted sources in real estate (see graph below):
When averaged across the board, these 10 sources expect an average price appreciation of 2.6% in housing values – which is consistent with normal appreciation in housing values. In other words, as mortgage rates come down, more buyers will come into the market, off setting the increase in inventory with increased demand.
As you can see, there’s a range of opinions on how much prices will climb. Experts agree, however, that home prices will continue to increase moderately next year at a slower, more normal rate. Keep in mind, prices will always vary by local market but no one is expecting the housing market to crash. As we wait for rates to drop, remember that if you find your dream home now you should buy it and refinance when rates drop rather than buy when rates drop and prices increase. That higher price is permanent while the higher mortgage payment can be refinanced as rates drop.
Bottom Line
Understanding 2025 housing market forecasts can help you plan your next move. Whether you’re buying or selling, staying informed about these trends will ensure you make the best decision possible. Let’s connect to discuss how these forecasts could impact your plans to move or relocate to the DC metro area.
