Fannie Mae anticipates little change in 2025, while Zillow expects a gradual improvement in mortgage rates, returning to historic norms.
According to Zillow's latest forecast, significant changes in mortgage rates are expected to significantly impact the upcoming year. The forecast predicts that falling mortgage rates will drive growth in home sales and an increase in home prices by 2025.
“There’s a strong sense of déjà vu on tap for 2025. We are once again expecting mortgage rates to get better gradually, and opportunities for buyers should follow, but be prepared for plenty of bumps on that path,” Zillow chief economist Skylar Olsen said in a statement. “Those shopping this winter have plenty of time to choose and a relatively strong position in negotiations.”
The decline in mortgage rates in September boosted home sales during the latter part of the year. According to Zillow, 2024 will conclude with 4.06 million sales, a figure that Zillow anticipates will increase slightly to 4.16 million in 2025.
Home values are forecast to tick up 2.2% in 2025, in line with the 2.3% annual appreciation observed in November, Zillow noted.
Zillow noted that housing market indicators are nearing historical averages after a turbulent five years. New listings are nearly 14% below pre-COVID levels but have improved from a 25% shortfall in March 2024. The for-sale inventory is about 26% below 2018-2019 norms, the smallest gap since September 2020.
Fannie Mae, on the other hand, suggests that it’s unlikely that the 2025 housing market will deviate from its current norms. Low levels of affordability and the ongoing “lock-in effect” are expected to keep activity muted.
“From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6%, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels,” Mark Palim, Fannie Mae’s senior vice president and chief economist, said in a statement.
“Still, heightened mortgage rate volatility may present opportunities for would-be homebuyers to take advantage of temporary lows, and we may see stretches where housing activity is boosted by lower rates — but, on average, we expect mortgage rates to remain elevated and a hindrance to activity.”
The Economic and Strategic Research (ESR) Group at Fannie Mae predicts a modest rise in existing-home sales for December 2024. The economy is anticipated to stay stable and grow above trend through 2026, despite high core inflation pressures and policy uncertainty.
In their latest forecast, Fannie Mae's economists presented five predictions for the housing market in 2025. They anticipate:
Average mortgage rates will decline modestly but remain above 6%, with likely bouts of volatility.
Existing-home sales will remain near 30-year lows, but location matters.
New-home sales will remain a bright spot in the housing market, in places that they can be built more easily.
National home-price growth will decelerate.
Multifamily housing will remain in a holding pattern.
As we look ahead to 2025, it's clear that the housing market will face both challenges and opportunities. Staying informed and adaptable will be essential for navigating this evolving landscape.
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