As 2025 begins , the housing market remains as unpredictable as ever . Mortgage rates hover closer to 7 % than 6 %— far from what most economists and analysts forecasted and above the rates we saw in the first week of 2024 . Record-high home prices also continue their ascent in many areas of the country .

However , recent indicators suggest there ’ s hope for relief in 2025 . The surge in home prices has slowed and even declined in some markets , thanks to increasing inventory and softer demand due to affordability challenges . Experts project this price deceleration to persist in 2025 .

Yet , even as many would-be buyers are holding out for better conditions in in this new year , pending sales remarkably continue to rally . This indicates more prospective buyers may be resigned to the current reality and re-entering the market .

U . S . home prices posted a 3.9 % annual gain in September — down from 4.2 % annual growth in August , according to the latest S & P CoreLogic Case-Shiller Home Price Index , which tracks single-family home values . This latest data represents the sixth consecutive month of annualized price deceleration after national home price growth peaked at 6.5 % in February and March .

Selma Hepp , chief economist at CoreLogic , a global property analytics provider , noted in her analysis that cooling will likely continue through mid-2025 and slow to 2.3 % by August 2025 .

Even with the slowing pace , home prices remain out of reach for many would-be buyers . Median existinghome prices have surged by roughly 40 % over the past five years amid rising mortgage rates , which remain elevated .

Principal and interest payments are currently 82 % higher than they were before the Covid-19 pandemic , according to Hepp . Add property taxes and insurance to that and it ’ s understandable why

homeownership is out of reach for many . Nonetheless , experts view the recent slowdown in price growth as an encouraging indicator that this trend — which is tilting in favor of buyers — will likely persist .

“[ T ] ogether with lower mortgage rates next year , as many are

forecasting , a slowdown in price increases could mean markedly improving conditions for buyers in 2025 ,” said Robert Frick , corporate economist with Navy Federal Credit Union , in an emailed statement .

With record-high home prices still trending upward in many markets , you may be concerned that we ’ re in a bubble that ’ s prime to pop , as it did in the 2008 financial crisis . However , the likelihood of a housing market crash ( a rapid drop in unsustainably high home prices due to waning demand ) remains low as we look ahead to 2025 .

“[ T ] he record low supply of houses on the market protects against a market crash ,” says Tom Hutchens , executive vice president of production at Angel Oak Mortgage Solutions , a nonqualified mortgage lender .

Experts are also quick to point out that today ’ s homeowners are on much more secure footing than those coming out of the 2008 financial crisis , with many having substantial home equity . What ’ s more , a record number of homeowners today are mortgagefree .

“ The 2008 housing market crash

was a result of a unique set of circumstances that aren ’ t present in today ’ s market ,” Amy Lessinger , president at RE / MAX , LLC , tells Forbes Advisor . “ Back then , widespread risky lending practices , subprime mortgages and an oversupply of homes contributed to the collapse .”

Lessinger emphasizes that housing remains a reliable longterm investment , with trusted real estate agents playing a key role in navigating changing market dynamics and helping clients make well-informed decisions based on their individual financial situations and timing .

Jess Schulman , president and COO at Bluebird Lending , agrees with the unlikelihood of a housing market crash in 2025 , noting that all indicators suggest a more robust economy and that further Fed rate cuts are in store . The Federal Reserve slashed the benchmark federal funds rate by 50 basis points in September and then by another 25 basis points in

November . Note that one basis point is one one-hundredth of a percentage point . “ Mortgage rate reductions should create more transactions and could result in home price increases because of pentup demand ,” Schulman says . While the Fed doesn ’ t set the interest rates that borrowers pay on mortgages , its actions have an indirect impact . Consequently , mortgage rates declined in anticipation of the Fed ’ s first interest rate cut in September — but that descent turned out to be shortlived .

Rates steadily declined through September , ending the month at 6.08 %. After this , the national average 30-year mortgage rate began a stark run-up in October and November — reaching the upper 6 % range and further crimping affordability for home buyers .

“ While lower mortgage rates are widely anticipated by home shoppers , reality has not played out as expected ,” noted Danielle Hale , chief economist at Realtor . com , in an emailed statement .

Keep in mind that home prices vary regionally , though , meaning there are affordable options available if you are flexible and know where to look . For instance , Zillow data reveals that shoppers can find a typical home in areas such as Pittsburgh , Cleveland and Birmingham for under $ 250,000 .

or a housing recovery to occur , several conditions must unfold .

“ For the best possible outcome , we ’ d first need to see inventories of homes for sale turn considerably higher ,” Keith Gumbinger , vice president at online mortgage company HSH . com , tells Forbes Advisor . “ This additional inventory , in turn , would ease the upward pressure on home prices , leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels .”

Mortgage rates also need to decline . Although rate movements have been uncooperative in recent months , experts are hopeful for some improvement over the next year .

Even so , Gumbinger warns that rates cooling too quickly could create a surge in demand that would wipe away any inventory gains , causing home prices to surge . He adds that mortgage rates eventually returning to a more “ normal ” upper-4 % -to-lower-5 % range would be helpful to the housing market but predicts it could be a while before we return to those rates .

Meanwhile , experts see little risk of mortgage rates cooling quickly . Instead , they continue to sound the alarm about historically low inventory as Millennials and other young adults strive to enter the housing market .

The Economic & Housing Research group at Freddie Mac stated in its November Economic , Housing and Mortgage Market Outlook that they anticipate mortgage rates to gradually descend throughout 2025 . This will help loosen the lock-in effect , increasing inventory and boosting sales .

Home price growth will also likely continue in 2025 , but the pace will slow — the evidence of which we have already seen in recent months . However , the group highlights that limited housing supply remains the biggest obstacle to a housing market recovery . Expanding inventory through new construction combined with other viable solutions remains critical for improving affordability .