Top housing experts and economists provide an insight into the future of mortgage rates, home values, and the national real estate market in 2025.
Key Takeaways
Mortgages are forecasted to remain higher for a longer period. However, there are options to potentially lower your rate.
Home values are expected to rise slowly on a national level. Additionally, there are home improvement projects you can undertake to boost your home’s value.
The national market will slightly favor sellers during negotiations, but remember that real estate is influenced by local dynamics and may favor either buyers or sellers.
Note: The real estate market is dynamic. The forecasts presented in this article may change as the year progresses.
____________________________________________________
Mortgage Rates Will Average 6.4% in 2025
In 2023, the average 30-year mortgage hit a peak of 7.79% following the pandemic. While rates fell from that peak in 2024, what should we expect in the coming year?
Analysts predict that the Federal Reserve will lower the federal funds rate six to eight times in 2025. However, mortgage rates are not directly controlled by the Federal Reserve and may not see significant reductions (National Association of REALTORS®).
Fannie Mae forecasts that mortgage rates will average around 6.4% in 2025. Likewise, the Mortgage Bankers Association also estimates mortgage rates will hover around 6.4%, although they predict slightly higher rates compared to Fannie Mae.
Mortgage Bankers Association Mortgage Finance Forecast: November 2024
____________________________________________________
When Will Mortgage Rates Drop Back to 3%?
Historically, mortgage rates have not been as low as during the pandemic. During and after the housing crisis and Great Recession, the average rate for 30-year loans fluctuated between 4% and 6%. Thus, a return to a 3% rate is highly improbable.
Source: Federal Reserve of St. Louis
Tips to Get a Better Mortgage Rate
Although we can’t influence the average mortgage rates, improving your credit score can help you secure a better rate. Here’s a snapshot of recent mortgage rates based on different credit scores:
Source: myFICO.com
If you’re considering a move, talking to a mortgage finance professional early is essential. This gives you ample time to improve your credit and secure a more favorable rate.
Need a recommendation for a trusted lender? Send me a message.
____________________________________________________
Home Values Will Increase by 1.5% to 3.6%
Since 2020, the average sales price of a home has increased by $97,000, which is a 29.7% rise (Federal Reserve of St. Louis). This trend indicates that homeownership remains a smart investment. But what does the future hold for home values in 2025?
On a national scale, home price growth is anticipated to slow down from the pace seen in 2024. However, home prices are projected to rise in 2025. Fannie Mae predicts an average increase of 3.6%, while the Mortgage Bankers Association (MBA) expects a more modest rise of 1.5%.
Sources: Fannie Mae Housing Forecast: November 2024 and Mortgage Bankers Association Mortgage Finance Forecast: November 2024
Local market dynamics heavily influence home values. To understand what home values are likely to do in your area, consider consulting a real estate professional.
Want to enhance your home’s value? Check out these remodeling projects that provide the highest return on investment.
Will Home Values Crash in 2025?
For home values to decline significantly, a substantial increase in available homes for sale would have to occur. According to Freddie Mac, the U.S. housing stock is currently 3.7 million units below what is necessary to meet current demand. It will take time to bolster inventory to meet this demand, making a major drop in prices improbable.
____________________________________________________
Will 2025 Be a Home Buyers’ or Sellers’ Market?
In 2025, who will have the upper hand—buyers or sellers? One way to assess the market is through the Months Supply metric, which indicates who holds the advantage.
Months Supply is calculated by dividing the total number of available homes for sale by the average number of homes sold per month. For example, if there are 500 homes for sale and 100 sell monthly, the Months Supply equals 5 months.
Here’s a chart of month’s supply from November 2023:
Source: Federal Reserve of St. Louis
A Months Supply of 6 is considered a balanced market. If the supply is over 6 months, it is a buyers’ market; below 6 months indicates a sellers’ market. Currently, with a national supply of 4 months, sellers have a slight advantage.
Although inventory is increasing nationally, which could tilt the market towards buyers in the coming year, real estate dynamics vary by location. Some areas may favor buyers, while others may favor sellers.
Curious about whether your area favors buyers or sellers? Send me a message.
What This Means for Homeowners
Homeowners can generally expect a slight increase in their property values. If you're looking to enhance your home's worth, consider undertaking some home improvements. For tailored advice on which upgrades could provide the best ROI, consult with a real estate professional.
Tips for Potential Home Buyers
If you’re thinking about buying a home, starting your planning early is crucial. Understand your price range, work on optimizing your credit, and save for a down payment. Even if your home purchase is 12 to 24 months away, establishing a connection with a real estate professional can significantly aid your success.
Tips for Potential Home Sellers
As a potential seller, it’s important to clarify your priorities. Is maximizing your sale price essential, or do you have a specific timeline? Do you need to sell your current home before purchasing a new one? Deciding on these objectives will help create a focused strategy and marketing plan. If you're considering a move, reach out to a real estate professional!
Comments