2025 Q1 housing market trends: The forecast is chilly

The New Year is upon us, and it couldn’t have come at a better time for many home shoppers and real estate players eager to turn the calendar page and say goodbye to 2024’s challenging market — a period when home prices climbed ever higher and mortgage rates swung up, then tantalizingly down, then deflatingly back up again.

According to the latest National Association of Realtors (NAR) data, the median existing-home sales price in November 2024 rose 4.7 percent from one year prior to $406,100, which represents the 17th straight month of year-over-year price hikes. Meanwhile, the average mortgage rate for the benchmark 30-year fixed-rate loan stood at 6.91 percent as of December 18, 2024, below its 2024 peak of 7.39 percent in May but still uncomfortably high for many.

Where does that leave housing market trends heading into the first quarter of the new year? Will the numbers improve over the next three months for homebuyers or sellers? And how should they proceed in the short term? Here’s what the industry experts have to say.

Q1 2025 housing market trends: What to expect

The first quarter of the year is frequently the slowest for real estate. Only 19 percent of annual sales occur during this time, according to Nadia Evangelou, NAR’s senior economist and director of real estate research, and low inventory persists as buyers and sellers wait out the cold weather. In 2024, though, housing market trends broke from their usual seasonal patterns. Activity dipped over the summer, but pent-up demand fueled a fall rebound. By the year’s final quarter, the market was recovering from its summer slump.

“This pent-up demand is expected to continue and boost performance in the first quarter of 2025,” Evangelou says. “However, the housing market will also be impacted by the Trump administration’s economic policies during the first 100 days, including proposed tariffs and tax cuts, which could affect inflation and government spending. With the specifics still unclear, their full impact remains uncertain.”

Clifford Rossi, a professor at the University of Maryland’s Robert H. Smith School of Business and former Chief Risk Officer for Citigroup’s Consumer Lending Group, says the factors that will drive the housing market in the first quarter of 2025 will be mortgage rates, consumer confidence and affordability. “Economic conditions will be a determining factor for how fast and far the Federal Reserve decides to bring down interest rates,” he says.

With home price growth slowing in many areas and mortgage rates stabilizing, Rossi anticipates the first quarter will trend toward a more typical housing market, but still fall short of a balanced one. “While affordability remains a major concern for the market, the economy is poised to continue to perform well, translating into strong demand for housing,” he says.

Kenon Chen, Executive Vice President of Strategy and Growth for Clear Capital, also expects traditional Q1 patterns to begin 2025. “The main question will be how fast we see acceleration in the first quarter moving toward the spring buying season,” he says. “Mortgage rates have been easing slightly in December, and the recent rate cut at the December Fed meeting could help that along. This would be good news for a positive start to the year, especially for purchase volume.”

Q1 mortgage rate projections

The pros anticipate home financing trends, and particularly the 30-year mortgage rate, to remain relatively flat in early 2025.

“We have recently seen the average for 30-year fixed-rate mortgages back below 7 percent but well above the average of 6.20 percent we notched in September,” says Mark Hamrick, Bankrate’s senior economic analyst. “My sense is that we may continue to see mortgage rates moving within this range, given the outlook for a firm job market and solid growth. That will put a floor beneath the yield of the 10-year Treasury, which correlates to the rate of the 30-year fixed-rate mortgage.”

Chen predicts that 30-year mortgage rates will gradually decline over the next quarter and across 2025, ending up in the low 6 percent range. Rossi, meanwhile, envisions an average of 6.25 percent in the first three months of the year.

Dennis Shirshikov, an adjunct professor of economics at City University of New York, offers a similar forecast: “Expect a slight rate decrease from 2024 levels — my projection is 6.25 percent average rates for the 30-year fixed and 5.75 percent average rates for the 15-year fixed mortgage,” he says. “This aligns with Federal Reserve signals indicating cautious easing in monetary policy.”

While the Fed has indicated that it would likely cut rates two more times in 2025, ongoing concerns about inflation and government spending are expected to keep mortgage rates from dropping significantly during this time, says Evangelou. She predicts that 30-year fixed mortgage rates will average 6.5 percent over the next three months.

Where home prices are heading

With strong purchase demand anticipated and the hope that mortgage rates will gradually decline, home prices are likely to keep rising, Chen says. “Appreciation rates should remain in the low single digits in 2025, but overall home affordability will still be challenging.”

“Prices will continue to see solid growth in quarter one, with the typical home value projected to average $420,000,” predicts Evangelou. “Even though mortgage rates will not likely see any meaningful change in the first quarter, solid job growth and improving inventory are expected to drive momentum in home sales activity.”

Shirshikov, on the other hand, believes home prices will probably stay flat or rise only modestly due to chronic inventory shortages. “Sales in general will slow marginally compared to early 2024, with average days on the market increasing up to 50 days,” he says. “However, homes priced competitively and in desirable locations will still sell quickly.”

Housing inventory predictions for Q1

Housing supply has been increasing lately and is anticipated to improve further in the coming months, says Evangelou. The increased supply of homes for sale will be boosted by new construction projects and more homeowners listing their properties, encouraged by stabilizing mortgage rates.

Chen agrees — to a point. “Based on this year’s trends, it seems likely that inventory will continue to increase in 2025, but only moderately,” he says. “If mortgage rates end up around 6 percent next year, the majority of existing homeowners will still be experiencing the ‘lock-in’ effect of having a much lower current mortgage rate. This will continue to moderate how many existing homes end up on the market.”

Supply will not rebound significantly anytime soon, Shirshikov says. “Inventory will likely remain tight due to new construction delays, high construction costs and ‘golden handcuffs’ keeping homeowners with low interest rate mortgages from selling,” he predicts. “Expect a year-over-year drop of about 5 percent to 10 percent in active listings as a result.”

Strategies for homebuyers and sellers

Chen believes 2025 will be a transition year that marks a gradual move away from a seller’s market toward a buyer’s market. “There could be a sweet spot earlier in the year when rates are decreasing to the mid-6 percent range, but the spring buying season hasn’t heated up yet,” he says. “Buyers should be on the lookout for some competitive deals that would still allow them to refinance within the next year.”

Hamrick’s guidance for hopeful homebuyers is not to sit around and wait until the market changes significantly, because there’s no guarantee that it will. “It won’t be prudent to wait for mortgage rates to drop sharply lower, simply because we have no reason to be confident that will be the case,” he says. Instead, work with what you can afford now, rather than what you might be able to afford later. “Some buyers might have to accept a smaller floor plan or a less perfect home than what they might have been willing to accept [before].” In addition, he adds, it pays to know your own local market conditions: “There will be price differentials within markets, and from region to region, which could provide a path toward success for otherwise frustrated aspiring homebuyers.”

Evangelou agrees: “Waiting is unlikely to result in better opportunities, as I don’t foresee any significant drops in mortgage rates in the first three months of the year,” she says.

Sellers, on the other hand, should follow tried-and-true home-sale tactics:

• Price competitively: Carefully evaluate local comps when choosing your list price. “Ensure that previous home sales — including price per square foot — used in setting your listing price are comparable to your home,” says Rossi.
• Keep things neat and tidy: With prices and rates both high, buyers are less likely to want to take on a project that would require even more money once they buy it. “Make sure your home is presentable to prospective buyers,” Rossi says. The more turnkey the property is, the more likely it is to sell quickly and for full price.
• Don’t get cocky: “While you should expect the market to still be to your advantage, don’t expect it to be the feeding frenzy of the last few years,” Rossi says. “Patience will be an asset for sellers in higher price tiers.”