Mortgage rates are expected to average 6.3% in 2025, falling to 6.2% at the end of the year, which is lower than the 6.7% at the end of 2024, but still higher than the historical average of 4% from 2013 to 2019. Home prices will continue to rise 3.7% in 2025, following a 1.1% increase in 2023 and a 4% increase in 2024.

Existing home sales are projected to reach 4.07 million units, a 1.5% increase year-over-year, but still below the 2013 to 2019 average of 5.28 million units.

Changes in market supply and demand

Inventory growth: the supply of homes for sale is projected to rise 11.7% in 2025.

New home construction: new home starts are expected to grow 13.8% to 1.1 million units.

 Mortgage rates will continue to average above 6% next year, the Realtor.com economic research team predicts in its new2025 housing forecast.(Realtor.com)

Opportunities and Challenges for Homebuyers

Despite interest rates remaining high, improving supply and listing price reduction trends are creating opportunities for homebuyers. About 20 percent of listings have seen price tags drop, and some markets (e.g., Urbana, Ohio, with price reductions as high as 71 percent) are more buyer-friendly.

However, affordability issues remain prominent. While wage growth or tax breaks may bring some improvement, high home prices and interest rates continue to challenge homebuyers.

RECOMMENDATION: Homebuyers should budget well in advance, anticipate interest rates around 6%, and prepare for homeownership as efficiently as possible.

As measured by the typical share of income spent on home payments,home affordabilityremains near record lows.(Realtor.com) 

Market Outlook for Sellers

Pricing Strategy: Despite strong demand, sellers need to price sensibly, especially in less affordable markets.

Incentives: Flexible sales strategies, such as offering buyer incentives, may be a competitive differentiator.

The real estate market is shifting from a strong seller's market to a more balanced situation between buyers and sellers, according to the report. Sellers' performance in 2025 may be tied to economic conditions, interest rates and inventory levels.

Daniel Hale, chief economist at Realtor.com, advises, “While increased inventory provides buyers with more time to make decisions, buyers who act quickly will still have an advantage. Regardless of how the market changes, it's wise to plan ahead for your finances and overall home purchase.”

 (Realtor.com)

Overall the real estate market in 2025 is expected to be more rational, with improved supply and demand and moderate price increases dominating the landscape. While high interest rates and prices will remain a challenge, buyers and sellers alike can capitalize on market opportunities through sound planning and strategy.