Rates are in the spotlight again as 2025 approaches. That short-lived dip to two-year lows prompted renewed optimism for home buyers and bumped sales volume, then the rebound in October brought a reminder of unpredictability. Rates are likely to remain volatile throughout next year, say Zillow economists. Read on for more about rates and four more predictions for 2025.
Housing market activity will pick up, home value growth will cool
“Buying a home in 2024 was surprisingly competitive given how high the affordability hurdle became,” says Zillow Chief Economist Skylar Olsen. “More inventory should shake loose in 2025, giving buyers a bit more room to breathe.”
Expect to see more sales and only a modest 2.6% increase in home value growth in 2025, as the market slowly becomes unstuck. This is mainly because we expect more sellers to list next year. A steadier market could make for simpler pricing conversations with those seller clients.
Some markets are expected to outperform this forecast, such as Hartford, Connecticut (4.2% home value growth), Providence, Rhode Island (3.9% growth), and Miami (3.8% growth).
But markets like New Orleans (-3.8%) and San Francisco (-2.3%) are expected to see declines, while Austin is predicted to have minimal growth (0.4%).
Mortgage rates will remain volatile
Borrowing costs should ease in 2025, but as we saw in 2024, mortgage rates rarely do what’s expected of them. What’s more certain is that buyers should expect plenty of ups and downs throughout the year. Also expect sprints of refinancing — which can present conversation opportunities of their own — during the rate dips.
Buyer’s markets will spread to the Southwest
As of November 2024, a total of 25 major metro areas, mostly in the South and Southeast, were considered buyers markets, according to Zillow’s Market Heat Index. Zillow predicts buyers markets will spread to the Southwest in 2025 as inventory continues to come unstuck in relatively affordable markets.
These buyers markets should see the greatest number of movers, while sellers will feel the heat of competition. But if mortgage rates fall more than expected, it dims the prospect that buyers markets will spread west. A significant mortgage rate dip would bring more buyers back to the market, again tilting negotiating power in favor of sellers.
More Americans will embrace small-home living
The pandemic-era need for more space is coming to an end. In 2025, buyers will increasingly embrace smaller homes as a more sustainable and affordable way to live.
The word “cozy” is appearing in more listings — 35% more in 2024 compared to 2023 — reflecting design trends that have shifted away from spacious open floor plans, toward more contained spaces that save both builders and buyers money.