As 2025 draws near, mortgage rates are once again in the news. Those who want to buy, or even refinance, should prepare for a turbulent journey and be prepared to move when the time is right. Zillow anticipates a more active housing market with more buyers obtaining the upper hand in 2025.
“Buying a home in 2024 was surprisingly competitive given how high the affordability hurdle became,” said Skylar Olsen, Zillow Chief Economist. “More inventory should shake loose in 2025, giving buyers a bit more room to breathe.”
As the market gradually recovers, 2025 should bring more sales and relatively moderate increases in property values. Similar to this year’s growth, Zillow predicts a comparatively modest 2.6% increase in property values in 2025. Zillow predicts 4.3 million existing home sales in 2024, a little increase over 2023’s 4.1 million and 2024’s anticipated 4 million.
Although there will still be issues with affordability, buyers should anticipate seeing more properties on the market, which will give them more time to weigh their options and bargaining power.
Mortgage Rates to Drop, Increase, & Drop Again in 2025
Although there are indications that mortgage rates may ease in 2025, as we witnessed in 2024, mortgage rates rarely move in the anticipated direction. There is no doubt that buyers will experience several highs and lows during the course of the year.
In September, mortgage rates dropped, momentarily raising the proportion of affordable properties to a 19-month high. Since then, they have increased to around 7%, which has altered the affordability situation for homebuyers. In 2025, further fluctuations of this kind are anticipated, with refinancing sprints taking place during the dips.
According to Zillow’s market heat index, 13 major metro regions are buyers markets right now, with the majority of them in the Southeast. This means that buyers have the upper hand in negotiations. In 2025, Zillow projects that buyer markets will expand to the Southwest as inventory continues to become stranded in reasonably priced cities.
With more properties available to buyers, sellers will be under pressure to compete. Working with an excellent realtor to assist price and market a house listing will be more crucial than in previous years. When compared to comparable nearby non-Showcase listings on Zillow, tools like Zillow Showcase, an immersive listing experience, can help increase the number of page views, saves, and shares from buyers looking for houses with those features.
The likelihood that buyer markets will move westward is diminished if mortgage rates decline more than anticipated. A large decline in mortgage rates is expected to increase competition and provide sellers more negotiation leverage by bringing more buyers than sellers back to the market.
Americans have also began to embrace small-home living. The necessity for ever-increasing space that characterized the pandemic is over. Buyers of real estate will increasingly favor smaller homes because they are more cost-effective, environmentally friendly, and appealing.
More listing descriptions now use the word “cozy”—35% more in 2024 than in 2023—which reflects contemporary design trends that have moved away from expansive open floor plans and toward enclosed areas with distinct styles and functions.
“Americans are adapting to sky-high costs by embracing coziness, a term that for so long has been a thinly veiled critique in real estate lingo,” Olsen said. “Many are also viewing renting as a longer-term lifestyle. A construction boom has eased pressure on rent prices, putting rent affordability on track to improve next year—that is, as long as wages continue to grow.”
“Free” Rent Concessions to Cease, Unfortunately
The “first month free!” deal many apartments offer when renters move in may be no more. Compared to the record rent growth in 2022, the market for apartment tenants was comparatively favorable this year. The percentage of rental ads on Zillow that offer a concession, like free weeks of rent or free parking, is at an all-time high, while rent growth has remained steady at a manageable rate. By the end of next year, Zillow anticipates that tenants will have fewer opportunities to bargain for that free month of rent.
The main cause of the increase in concessions is the explosion in multifamily building. Property managers are competing for renters as more multifamily apartments hit the market than at any other point in the previous 50 years. In 2025, the fireworks are expected to fade, particularly in the latter part of the year.
Property Managers Will No Longer Compromise Pet-Friendliness in Apartments
As they become older, renters are not delaying “adulting” milestones like acquiring a pet or moving in together before purchasing a property. The typical age of renters has increased to 42, and they are becoming accustomed to living as tenants. This year, fewer renters thought about purchasing, which makes sense considering the circumstances that make renting the more cost-effective choice in many regions.
It is hardly surprising that almost half of tenants stated they passed on a certain home because it was pet-incompatible, considering 58% of them now own pets, up from 46% prior to the pandemic. Pet bans could put property managers at a disadvantage in the more competitive rental market of today.
Pets deserve homes too!
To read the full report, including more data, charts, and methodology, click here.
