Pent-up demand will lead to more home sales, but many potential buyers will opt to rent

Redfin economists expect there will be more home sales in 2025, largely due to pent-up demand. However, some potential homebuyers will continue to be overpriced as home prices rise and mortgage rates remain around 7%. Rent prices, on the other hand, should remain stable while wages increase, improving affordability for renters. Politicians on both sides of the aisle have promised to lower housing costs for working-class Americans and build more homes; We are confident that this will happen in the next few years.

Prediction 1: Real estate prices will increase by 4% in 2025

We expect the average U.S. home sales price to rise steadily throughout 2025, ending the year 4% higher than 2024. Prices will increase at a similar pace to the second half of 2024 , as we do not anticipate that there will need to be enough new inventory to meet demand. Rising prices are a factor that is putting home ownership out of reach for many Americans and prompting some potential homebuyers to rent instead.

Prediction 2: Mortgage rates will remain near 7%

Mortgage rates are expected to remain in the high 6% range in 2025, with the weekly average rate fluctuating throughout the year but averaging around 6.8%. Investors expect the Fed to reduce its tax cuts and tariffs only if President-elect Donald Trump implements a significant portion of his proposed tax cuts and tariffs and the economy remains strong Key interest rate twice in 2025, keeping mortgage rates high. The tariffs could be inflationary, and further tax cuts would increase the U.S. deficit, both of which would drive up mortgage rates. High mortgage rates are the second part of the equation that makes purchasing a home unaffordable.

Alternative scenario: Mortgage rates could fall to the low 6% range if the economy slows and/or if plans for tariffs and tax cuts are withdrawn. Every year that the presidential administration changes is unpredictable, and this one could be too particularly unpredictable.

Prediction 3: There will be more home sales in 2025 than in 2024

We expect existing home sales to increase next year and end 2025 at an annual rate of between 4.1 million and 4.4 million. This corresponds to an increase of 2% to 9% compared to the previous year. We are presenting an unusually wide range of sales this year because, while the high cost of housing is excluding some potential buyers, there is also significant pent-up demand in the market.

If sales see even a small increase, it’s because of high mortgage rates and low inventory, as homeowners continue to see hold onto their houses.

Sales could see a larger increase if mortgage rates fall more than expected and/or if recent burst The demand for homes continues. Demand for homes surged in the weeks after the November election, even though mortgage rates hovered around 7%. That was partly because buyers were waiting for uncertainty to pass before making a big purchase, and partly because many people felt more financially secure with the prospect of a Republican-led government. Even before the election our data showed that rising mortgage rates did not deter buyers as much as expected, likely in part because many Americans have become accustomed to high mortgage rates. If the economy remains strong and enough people can afford the high housing costs next year, that would increase sales.

Prediction 4: 2025 will be a tenant market

Many Americans remain renters or become renters. As the cost of purchasing a home rises, rent affordability will improve. We expect the median U.S. asking rent to remain flat in 2025 compared to last year. This will make rent payments more affordable for the average American as wages will rise.

There will be some too further new rentals are coming to market, with many of the units that builders began working on during the pandemic housing boom coming to fruition. This creates more supply than demand, motivating landlords to offer concessions such as free parking, free monthly rent, more amenities, or a suspension of rent increases to retain residents. With rents stagnating or perhaps even falling next year and property prices rising as interest rates are likely to remain high, the affordability gap between renting and buying could widen.

Prediction 5: Fewer building regulations will lead to more housing construction

We expect builders to build more single-family homes in 2025, although it will be several years before the increase in home construction makes purchasing a home significantly more affordable. Republicans’ influence over the White House, Senate and House of Representatives has improved Trust of the builder by generating new optimism that regulatory burdens could ease. Builders will also be banking on mortgage rates rising Lock-in effect will limit the amount of existing inventory competing with new construction.

Relaxing regulations are also likely to lead to a recovery in construction starts for multi-family homes. This will be a reversal from 2024, when builders declined due to the oversupply of new residential construction.

The caveat is that there are some headwinds for builders. First, interest rates are likely to remain high. Secondly, the new government has announced this restrict immigrationwhich would likely lead to less housing construction since immigrants make up this approx. 30% the country’s construction workers.

Prediction 6: Wealthy people will pay less to buy and sell homes as commissions decline slightly

In the first full year under the new National Association of Realtors (NAR) Commission ruleswe expect a slight decline in real estate commissions. This is particularly true in luxury properties, where agents have the most leeway to reduce their fees, and in competitive real estate markets, where fees are increasingly becoming a negotiating point in a bidding war. It remains to be seen how hard the new government’s antitrust regulators will push for further reforms in the real estate industry. The Justice Department said in a current submission that it “continues to review policies and practices in the residential real estate industry that could stifle competition,” but it is unclear whether it will take formal action.

Prediction 7: The real estate industry will consolidate

Under the new administration, the Federal Trade Commission is more likely to approve mergers and acquisitions between large companies. Unlike other industries with a few dominant players, the U.S. real estate industry has long been fragmented, with numerous real estate search sites and brokerage firms of all sizes and business models competing for agents and customers. While it is not uncommon for larger brokerage firms to offer affiliated mortgage or title services, we are likely to see more mergers of brokerage firms, lenders and title companies looking to generate more business with each customer.

Prediction 8: Climate risks will be priced into individual homes, particularly on the Florida coast

The risk of natural disasters will cause home prices to decline or price growth to slow in climate-vulnerable locations such as coastal Florida, wildfire-prone parts of California, and hurricane-prone parts of Texas. Homebuyers and their agents are inevitably becoming more informed about the risk of each individual property. More homebuyers will move to relatively affordable locations in the Midwest and Northeast that offer relative protection from climate-related disasters.

Hurricane Helene and Hurricane Milton represented a turning point for many middle- and low-income Florida homeowners. This fall, more homebuyers wanted to leave Florida than a year earlier, and fewer out-of-town buyers wanted to move into the state. We expect this trend to impact some Floridians moving away from the state’s coastal areas after growing tired of suffering from destructive hurricanes, and housing costs to rise despite falling prices as insurance costs, HOA- Fees and property taxes skyrocket. The Florida coast could become a place where only wealthy people who pay enormously high insurance premiums or have the money to rebuild can afford to live. We expect the coastal Florida luxury market to remain strong.

Prediction 9: Mayors in blue cities will help reverse the exodus from urban centers

San Francisco chosen Portland, OR, elected a pro-business Democrat as its new mayor this year pledged to end homelessness, and several other major cities in blue states have done so tough on crime Measures to revitalize their inner cities and retain residents. These political factors, along with the fact that many large companies – including tech firms – are bringing workers back to the office, could trigger a reversal in the exodus from large coastal cities.

We expect this to be particularly the case in California. Many Golden State residents will be motivated to stay as housing supply continues to improve and price increases are tempered. specifically, the ADU construction boom More housing is expected to continue to be created in places like Los Angeles and the Bay Area. Additionally, it no longer makes as much sense to pursue affordable housing in the desert as real estate prices in places like Phoenix and Las Vegas have risen as climate changes got hotter. Self-driving cars will begin become more common Under the new administration, more parts of California are becoming more livable. Urban areas like San Francisco and downtown Los Angeles will become more attractive as self-driving ride-hailing apps and buses are allowed, and suburban areas will become more attractive as autonomous cars will improve commuting.

Prediction 10: Generation Z will rewrite the American dream and remove home ownership from the script

We expect cheaper homes to boom relative to higher-priced homes in 2025, but it won’t be because young or working-class Americans are moving into homeownership. Instead, affordable homes are being snapped up by older, price-deprived buyers higher Price levels. Generation Z, on the other hand, will live with family or rent until well into their 30s, choosing to build wealth in other ways.