Housing Forecast 2025: Mortgage Rates To Stay Above 6% as Home Prices Grow

Mortgage rates will continue to average above 6% next year, and home prices will keep rising, the Realtor.com® economic research team predicts in its new 2025 housing forecast.

The report forecasts that mortgage rates will average 6.3% across 2025 and end the year at 6.2%. That’s a leg down from the 6.7% average expected across 2024 by year-end, but still well above the 4% historical average recorded from 2013 to 2019.

Home prices will grow an additional 3.7% through next year, after rising 4% this year and 1.1% in 2023, the forecast indicates. Sales of previously owned homes are projected to tick up to 4.07 million, a 1.5% gain from this year, but still sluggish compared with the 2013–19 historical average of 5.28 million.

The supply of homes for sale, a persistent challenge for homebuyers in recent years, will continue to improve, rising 11.7% across 2025, the forecast predicts. New-home construction will also continue to expand, jumping 13.8% from 2024 to 1.1 million new units started next year, according to the forecast.

“This past year brought us a surprising upward trend in home price growth despite the persistence of high mortgage rates and rising inventory,” Realtor.com economists wrote. “Mortgage rates are expected to keep mortgage payments essentially unchanged in 2025 despite continued home price growth.”

Forecast for homebuyers in 2025

The outlook for prospective homebuyers is mixed, with the forecast projecting that mortgage rates will remain elevated, even as other buyer-friendly elements take shape in the housing market.

“Homebuyers hoping for a lasting return of September’s near-6% mortgage rates will likely be disappointed,” the report states, projecting rates will average 6.3% through 2025. “There will be volatility around this average, so shoppers may catch a lucky break, but our advice is to plan and budget for the mid-6% range.”

As measured by the typical share of income spent on home payments, affordability remains near record lows.

The forecast projects slight improvements in affordability in 2025, but any gains will likely come from growing wages or increased disposable income from tax breaks, rather than falling home prices.

On the upside, the report notes recent shifts that favor buyers, such as a growing supply of homes for sale and an increase in the number of listings with price reductions.

The supply of homes on the market has recently grown to levels not seen since December 2019, just before the onset of the COVID-19 pandemic. And roughly 20% of listings are now seeing price reductions, signaling a market tipping more in favor of buyers.

In October, major markets with at least half of active listings featuring price reductions included Cincinnati, Salt Lake City, Denver, Phoenix, and Indianapolis. The top 10 markets for the share of listings with price cuts were located in either Ohio, Indiana, or Illinois—led by Urbana, OH, with a price reduction rate of 71%.

The forecast notes that, altogether, buyers should expect a friendlier, less competitive housing market than in past years, although one that remains costly due to still-high mortgage rates and home prices.

“While more inventory means buyers will likely have more time to make purchase decisions in 2025, in any market, a fast-acting buyer will have a higher likelihood of making the winning offer,” says Realtor.com Chief Economist Danielle Hale. “For this reason, it’s wise to get prepared financially and for the home search overall.”

Forecast for home sellers in 2025

The forecast projects that lingering constraints on supply inventory and strong demand, especially in desirable locations, could give sellers the upper hand in price negotiations in certain areas.

The latest Realtor.com market hotness report for October indicated that many of the top markets for buyer demand were located in the Northeast and Midwest—led by Manchester, NH, for the 10th month in a row.

“As noted above, the market is shifting from a strong seller’s market to one in which buyers and sellers have more balanced market power,” the forecast report says. “As a result, sellers will need to price carefully to attract buyers, especially in markets where affordability is an issue.”

The report recommends that flexible selling strategies, such as offering incentives to buyers, could help sellers stand out in a more competitive market.

“While there’s potential for a favorable market for sellers, the overall landscape will depend largely on how economic conditions, interest rates, and housing supply evolve over the first few months of the year,” the report states.

Rental trends in 2025

The new forecast projects that asking rents will drop slightly by 0.1% in 2025, after growing 1.2% in 2023 and dipping 0.2% this year.

Rent growth remains soft compared with the average annual increase of 5.2% seen from 2013 through 2019. That’s mainly due to the influx of new multifamily housing units constructed in recent years, alleviating supply issues in some cities.

“While the rental vacancy rate is at its highest level since the start of the pandemic, it remains somewhat below the 7.2% average seen from 2013 to 2019. Looking ahead, a robust multifamily construction pipeline is expected to continue driving rental supply growth in 2025, which is likely to push the vacancy rate back toward its long-term average,” the report states.

“Looking ahead to 2025, recent construction trends suggest all four regions will see continued growth in rental stocks, with the South leading at an annual increase rate of 1.5%, followed by the West (1.2%), Midwest (0.9%), and Northeast (0.7%),” the authors add. “Thus, it’s likely that Southern rental markets will maintain a relative affordability advantage in 2025.”