Mortgage rates are expected to stay elevated for the foreseeable future, which has implications for prospective homebuyers and sellers. But regardless of current mortgage rate trends, Americans will still have reasons to move, whether they want to downsize in retirement or need to relocate for a better job.
Here's what you should consider if you're planning on buying or selling a home in 2025;
What Buyers Should Know: Waiting for Lower Rates Comes at a Price
Good things may come to those who wait, but patience doesn't always pay off in the housing market. Two-thirds of homebuyers are waiting for mortgage rates to fall this year before buying a home, according to a March U.S. News survey. The vast majority of them (85%) wanted to see rates below 6% before entering the market, which hasn't happened – and it isn't expected to happen in the near future.
In the time that homebuyers have been holding out for lower rates, home values have continued to rise. Home prices have appreciated by 15% since the beginning of 2022, according to the S&P CoreLogic Case-Shiller Home Price Index – despite mortgage rates doubling in that time frame.
Real estate markets are expected to stabilize this year, but buyers shouldn't expect housing prices to come crashing down, at least not on a national level. Here are a few home price forecasts from top U.S. housing groups:
- Fannie Mae: Home prices will rise 3.6% in 2025 and 1.7% in 2026.
- MBA: Home prices will rise 1.3% in 2025 and 2026, followed by a 2% rise in 2027.
- NAR: Existing home prices will increase to $410,700 in 2025 and $420,000 in 2026.
- Realtor.com: Existing home sales prices will increase by 3.7% in 2025.
- Zillow: Home values will grow 2.6% in 2025.
Although home values aren't likely to drop significantly, it's still positive that they probably won't keep rising at the double-digit pace seen in 2021 and 2022. Without over-the-top bidding wars to drive home prices through the roof, buyers can expect more properties to choose from.
That's not to say it will be a buyer's market, but there should at least be more balance between buyers and sellers. Buyers may be able to close the deal without waiving important protections like home inspections and appraisal contingencies. What's more, existing home inventory is forecast to improve (at least marginally) as rates drift lower and some previously rate-locked homeowners decide to sell.
Finally, buyers may find less competition in the new home construction market. Homeowners may be reluctant to sell and sacrifice their low mortgage rates, but homebuilders remain eager to close the deal, especially as new home inventory rises. Although new-construction homes are typically more expensive than resale homes, builders may be willing to offer other concessions like price reductions or temporary interest-rate buydowns.
What Sellers Should Know: Remember That You're a Buyer, Too
Perhaps the biggest hurdle facing sellers is that they still need a place to live once they've sold their current home. For many, that means overcoming the lock-in gap to buy a new home at today's rates and home prices.
According to Federal Housing Finance Agency data, the average interest rate on existing mortgages is 4.2% – far lower than the current prevailing rate available to new homebuyers. In fact, 84% of homeowners have a rate below 6%, and rates aren't expected to dip below that threshold anytime within the next few years.
Although many prospective sellers would be hard-pressed to give up their sub-3% mortgage rate, experts predict that that the rate lock-in effect will eventually wear off somewhat as homeowners grow tired of waiting to move.
Plus, a 2023 Fannie Mae survey suggests that low rates aren't the only factor keeping people from selling. While a fifth of mortgage borrowers (21%) say that their low mortgage rate is causing them to stay in their home longer, nearly as many said they simply like their current home (19%). Perhaps unsurprisingly, 13% say they're staying put because home prices are too high.
However, there is a silver lining for sellers who are also buyers: Many homeowners are sitting on a mountain of equity thanks to double-digit home price appreciation since 2020. Successful sellers can tap into that equity to put toward their next home purchase.
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