The housing market is one of the economy’s most powerful sectors and infuriates and delights buyers, sellers, and investors alike. As we come in 2025 questions regarding how property prices will behave, how the housing market will trend and the factors that will come to control these are more relevant than ever.
Are real estate prices continuing to rise, or can we expect a drop?
This blog will explore which key economic indicators will drive the real estate forecast for the coming year and how this information can help both interested homebuyers and investors make more informed decisions.
Seeing current market trends is essential in forecasting the future of the housing market. What To Do: House prices recorded market trends, property prices, demand, and economic conditions. In recent years, both global and local factors, including government policy, inflation, and consumer behavior, have also impacted these trends.
Housing market trends serve as an example, of where the COVID-19 pandemic deeply impacted trends, opening a boom of demand with historic low mortgage rates on one hand, and constraining the other side of the supply, and property prices raised per square meter.
But with the world now beginning to deal with a post-pandemic reality, different dynamics appear to be at work. Mortgages and home purchases, in addition to macroeconomic conditions such as inflation and the strength of the economy, remain interdependent.
The most surprising trend in the housing market is the continued demand for homes in the suburbs. That’s because the pandemic-driven shift to remote work led many to look for bigger homes in less dense areas.
The strong demand for homes in suburban and rural markets could soon fade as employees return to offices and more cushy remote work comes to an end. This shift could play a role in other markets that were hit by sudden price increases as demand began moving up the curve.
Trends are breaking out in the housing market, with some forecasters calling for a downturn and others refusing to make predictions about its future. The broad consensus, however, is that the housing market is ripe for stabilizing after years of price spikes.
Several real estate forecasts project that home prices will rise in parts of the country, but the rates of growth should slow significantly. Some areas, particularly those that have seen eye-popping price increases in recent years, may even see prices fall as the market cools.
The real estate prediction is also based on the broader economic picture. Higher interest rates, along with slow economic growth, could dampen buyer enthusiasm and reduce demand more generally.
The rise in mortgage rates helps to explain why we might eventually see property prices stabilize, as the number of buyers who are able to afford homes diminishes. While this cooling trend will likely have a national effect, local forces like job growth, supply shortages, and demand in certain locales might cause prices to rocket or drop in some areas.
Think of urban centers where affordability challenges are less intense; these areas could well encounter a healthy level of housing demand and, therefore, price stabilization or slight price appreciation. But in smaller or less desirable markets (suburbs), real estate prices may be beginning to drop as people become more cautious and are in a position to lock in a great rate on a mortgage.
Both national and regional trends can inform what the real estate forecast looks like and what makes the market tick.
The No. 1 factor driving housing market trends is mortgage rates. Mortgages have become incrementally more expensive over the past year because of actions introduced by central banks to lower inflation. What has flowed from this has directly impacted housing affordability, and an impact on property prices.
Low mortgage rates allow homebuyers to save money by obtaining favorable financing terms to afford more expensive homes. Hence, more demand for homes means higher prices. If the opposite occurs, higher mortgage rates increase the cost of borrowing. Higher rates translate into less affordable monthly payments for buyers, which can narrow the pool of potential buyers and, eventually cool demand.
Mortgage rates will probably stay elevated in the near term, and that could cool the housing market. That’s likely to cause some buyers to sit on the sidelines waiting to purchase a home, banking on a future dip in mortgage rates.
With fewer buyers, sellers may feel pressured to lower their listing prices to attract buyers. This could result in downward pressure on property prices in some markets - especially in those that have experienced substantial increases in property values already.
However, the link between mortgage rates and property prices is not always clear-cut. Strong economic growth and high levels of demand in specific geographic areas could counteract rising rates and allow property prices to remain stable or even increase. As long as mortgage rates remain high, homebuyers and investors will have to prepare for a tougher market.
Demand is another important aspect that affects real estate market trends. When the housing supply is low, housing prices start to rise as buyers compete for the few available listings. Conversely, when demand contracts, real estate prices can fall as sellers lower their expectations to entice buyers.
Housing demand is driven by demographic growth, jobs, and consumer confidence. That means, for example, areas of the country with healthy job growth or new arrivals will likely experience more demand for housing, which can help drive property prices up. Conversely, markets with moderate economic growth or shrinking population may have suppressed demand to the extent that property prices fall.
It heads into 2025 with demand less robust than in prior years. Fewer buyers may be able to get into the market, with higher mortgage rates making homes less affordable. That could result in reduced competition and less upward pressure on prices. In some markets with strong job growth or tight housing supply, demand may outstrip supply, keeping or even driving property prices higher.
We have demographic shifts driving market demand as well. Millennials, the largest generation ever, are entering prime home-buying age. In between the politically correct tussle, bear in mind when this cohort fully enters the rental & housing market we can expect a lot of pressure on housing demand.
What is even more evident is that this demographic is so large that it may only drive prices higher - at least in the highest-demand urban and suburban destinations and that residents of these neighborhoods are acutely aware of what that means for home prices over the long run.
On the other hand, as baby boomers grow older and choose to downsize or relocate to retirement communities, their homes may come onto the market only to be bought and lived in by a different generation of buyers, which also influences overall market demand.
In areas where demand is weak or where mortgage rates have suppressed property prices, prices could fall or even level off. Overall, most experts predict that the American housing market will enter a period of stabilization. While price growth may be slower, the prospect of dramatic falls in property prices is some way off.
We have to understand rates in a bubble as only demand and market and geographical specifics come into play in that relationship. The most likely scenario , but one we don’t know if they will be at a higher or lower price, is one of stabilization. Prices might rise or fall slightly, depending on specific local conditions, but the real estate market, generally speaking, is likely to cool after several years of boom.
This tells homebuyers that the window of opportunity to buy a home at a decent price may be getting shakily shut. High mortgage rates mean it could also be more difficult to secure good financing. But those who can handle a larger mortgage payment may still be in the position to buy, and now could be a good time to do so if they are seeking a long-term investment.
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