U.S. Housing Report: Rising Costs, Slowing Sales, and the Uneven Road to Recovery in 2025

San Francisco, CA

Written by Breck Hapner

Editor’s note: Welcome to the HAVEN U.S. State of the Housing Market series. Every month, we will share an update explaining details and projections related to the U.S. real estate sector to keep you informed.

The 2025 U.S. housing market stands at a pivotal moment, shaped by persistent affordability challenges, regional disparities, and evolving dynamics. With mortgage rates hovering above 7% and housing costs at record highs, buyer activity remains subdued, and sales volumes struggle to rebound. While increased inventory in certain regions signals potential opportunities, uneven recovery and the “lock-in effect” continue to limit the supply of existing homes. Forecasts from industry analysts, including Fannie Mae, Zillow, Realtor.com, and Redfin, suggest that incremental improvements in mortgage rates and market conditions may offer relief.

2025 Housing Market Forecasts: Balancing Caution and Optimism

In a December 16th press release, Fannie Mae projected that the U.S. housing market will remain subdued in 2025 due to ongoing affordability challenges and the “lock-in effect,” meaning homeowners hesitate to sell because of low existing mortgage rates. Mortgage rates are expected to stay above 6%, with home price growth decelerating but remaining positive. Existing home sales will likely hover near 30-year lows, though new home sales may see growth in construction-friendly areas.

Zillow’s January 21st Home Value and Sales Forecast anticipates a 2.9% increase in home values for 2025, an upward revision from the previous month’s 2.2%. This reflects an expected gradual improvement in inventory, though levels will likely remain below historical norms, sustaining upward pressure on prices. Mortgage rates may decrease slightly, supporting a modest rebound in sales, but volatility in rates poses a key risk. Zillow projects existing home sales to reach 4.11 million in 2025, a slight downward revision from the previous forecast of 4.16 million.

While both forecasts acknowledge affordability challenges and constrained inventory, Zillow’s outlook is cautiously optimistic about gradual improvement, whereas Fannie Mae underscores enduring obstacles. Notably, this shift in tone—from mid-December to late January—reflects evolving market conditions. Between these two forecasts, Realtor.com provides an interesting data-rich perspective.

Seattle, WA

Seasonal Declines Amid Slower Inventory Growth

 

Realtor.com’s January 2nd Monthly Housing Market Trends Report echoes Fannie Mae’s caution, noting that active listings dropped 8.6% from November to December, the steepest monthly decline since January 2023. However, there were 22.0% more homes for sale compared to December 2023, marking 14 consecutive months of annual inventory growth. However, this growth rate decelerated from the 26.2% year-over-year (YoY) increase observed in November. Overall, inventory levels remain 15.7% below the 2017–2019 historical average.

Modest Growth in New Listings Amid Seasonal Slowdown

 

According to Realtor.com, in December, newly listed homes saw a modest 0.9% YoY increase, continuing a trend of positive growth but at a slower pace than November’s 2.0% increase. This deceleration reflects typical seasonal dynamics, when colder weather and holiday distractions often lead to reduced activity. Also, sellers remain hesitant due to economic uncertainties and persistently high mortgage rates, which have dampened affordability and buyer confidence.

Pending Sales Growth and Mortgage Rate Dynamics: Resilience Amid Higher Costs

 

Pending home sales rose 7.4% YoY in December 2024, marking the twelfth consecutive month of annual growth. However, this growth rate slowed from 14.7% YoY in November. Higher mortgage rates in November and December were approximately 40–50 basis points above the rates in September and October.

 

Despite the slowdown, sustained annual growth in pending listings indicates resilient demand. Realtor.com’s 2025 forecast anticipates a 1.5% rise in home sales, assuming mortgage rates gradually decrease and the “lock-in effect” eases.

Mortgage “Lock-In Effect” and Affordability Pressures

 

According to a January 2nd ResiClub report, as of Q3 2024, 73.3% of U.S. mortgage borrowers had rates below 5.0%, down from 85.5% in Q1 2022. Meanwhile, the share of borrowers with rates at or above 6.0% increased from 7.5% in Q3 2022 to 17.2% in Q3 2024. A temporary drop in September’s average 30-year fixed mortgage rate to 6.11% spurred refinancing, but by January 2025, the average rate had climbed back to 7.07%. Forecasts predict an average 6.34% rate by the end of 2025, offering some hope for affordability relief.

Miami, FL

Median Prices Decline as Smaller Homes Dominate Listings

 

The Realtor.com report notes that the national median listing price in December 2024 was $402,502, reflecting a 1.8% decrease from the previous year. However, the median price per square foot increased by 1.3%, indicating a shift toward smaller, more affordable homes entering the market. This trend suggests that while overall prices have softened, the cost per unit area has risen, likely due to the increased share of smaller homes available for sale.

Housing Market Slows, but Sales Outpace Pre-Pandemic Norms

 

Realtor.com notes that in December 2024, U.S. homes spent an average of 70 days on the market, the longest December selling time in five years, and eight days more than November 2024. However, this duration is still faster than the typical December averages from 2017 to 2019, which were 78 days. Regionally, the South experienced the most significant increase in time on the market (+10 days), followed by the West (+8 days), while the Midwest and Northeast saw more modest increases (+4 and +5 days, respectively). These trends suggest a cooling housing market due to higher mortgage rates and seasonal factors, yet homes are selling more quickly than before the pandemic.

Price Reductions Remain Stable Despite Market Shifts

 

The share of listings with price reductions remained relatively stable, with 12.9% of sellers reducing prices in December 2024, slightly up from 12.7% in December 2023, indicating stable market conditions with fewer widespread price cuts.

Regional Inventory Recovery: South and West Surge Ahead, Midwest and Northeast Lag

 

Realtor.com data shows inventory growth varied significantly across regions. The South experienced the largest increase in active listings (+26.7%), followed by the West (+23.7%). The Midwest (+15.2%) and Northeast (+6.9%) saw more modest growth.

 

Compared to pre-pandemic December levels from 2017 to 2019, the South has effectively closed its inventory gap (+0.1%), while the West is close (+4%). However, the Midwest and Northeast are still behind, with inventory down 36.5% and 48.7%, respectively.

High Housing Costs Drive Market Challenges

 

Complementing the insights from Fannie Mae, Realtor.com, and Zillow, in its January 23rd analysis, Redfin focuses on how high housing costs and shifting buyer behaviors are actively shaping market activity. As of mid-January 2025, the median monthly housing payment reached $2,686, the highest in nearly seven months, due to mortgage rates rising to 7.04%—the highest since May—and a 5% YoY increase in the median home-sale price.

Declining Buyer Activity Signals a Cooling Market

 

These heightened costs have led to a 10.1% YoY drop in pending home sales, the most significant drop in over a year. The Redfin Homebuyer Demand Index, which tracks home tours and related services, is also approaching its lowest level since June, indicating a slowdown in buyer activity. Homes are also spending more time on the market, with the average selling time at 52 days—the longest in two years.

External Factors Exacerbate Market Struggles

 

External factors are exacerbating market challenges. Severe winter weather across several regions and wildfires in Southern California have disrupted housing activity. Moreover, a limited number of new listings constrains options for prospective buyers, while some are adopting a wait-and-see approach, anticipating potential policy changes under the new Trump administration.

Signs of Potential Relief for Buyers

 

Despite these challenges, there are signs of relief for buyers. Recent declines in daily average mortgage rates, following softer-than-expected inflation reports, suggest potential easing of borrowing costs. Redfin economists expect further declines if the administration signals a less aggressive stance on tariffs. These factors could alleviate financial pressure on buyers, making homeownership more accessible.

Mākaha, HI

What Does It All Mean?

The Redfin report, Fannie Mae press release, Realtor.com housing trends, and Zillow forecast collectively highlight both the ongoing challenges and potential stabilization in the 2025 housing market.

High Housing Costs as a Shared Concern

 

High housing costs remain a key concern. Redfin emphasizes affordability pressures with mortgage rates above 7% and record-high median monthly housing payments, echoing Fannie Mae’s prediction that affordability challenges will continue into 2025. Realtor.com highlights longer time on the market and slowing price growth, while Zillow acknowledges rate volatility but predicts a modest recovery as borrowing costs ease.

Affordability Constraints Suppress Sales

 

Affordability issues are suppressing sales activity. Redfin and Fannie Mae emphasize the slowdown, with Redfin noting longer time on the market and significant declines in pending sales. Realtor.com supports this, showing homes taking nine more days to sell year-over-year. Zillow forecasts 4.11 million home sales in 2025, a slight improvement over 2024 but still below historical averages.

Inventory Trends Show Mixed Recovery

 

Inventory recovery varies across regions. Realtor.com reports a 22% YoY increase in active listings, though still below pre-pandemic norms. Redfin points to a lack of new listings as a barrier, while Zillow ties its modest price growth forecast to continued inventory constraints, reflecting tension between regional gains and national challenges.

Regional Disparities Remain Significant

 

Regional disparities are critical to understanding market performance. Redfin attributes weather-related and localized disruptions to reduced sales, while Realtor.com observes stronger inventory growth in the South and West. Zillow’s national outlook may understate these regional nuances, focusing more on overall recovery.

Potential Relief for Buyers

 

Relief could emerge if borrowing costs ease. Zillow forecasts a slight mortgage rate decline, aligning with Redfin’s prediction of softer inflation data. Realtor.com notes a shift toward smaller homes and declining median listing prices, which could provide incremental relief. However, Fannie Mae’s cautious stance suggests these improvements may not significantly alter affordability in the near term.

Denver, CO

A Nuanced Outlook on Challenges and Recovery

Overall, the reports agree that affordability and mortgage rates are pivotal in shaping market conditions for 2025. Redfin and Fannie Mae provide a more conservative view, predicting persistent challenges, while Zillow presents cautious optimism for modest recovery. Realtor.com underscores regional dynamics, adding context to the broader outlook. Together, these perspectives depict a housing market grappling with high costs and constrained activity, with stabilization hinging on economic shifts and policy changes.

“From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6 percent, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels,” said Mark Palim, Fannie Mae Senior Vice President and Chief Economist in the December 16th Fannie Mae press release. “And while we foresee the current affordability crunch hampering activity through our forecast horizon, we expect nominal wage growth will outpace home price growth for the first time in more than a decade in 2025, slowly but surely providing some much-needed relief to potential homebuyers.”

Pittsburgh, PA

In our next article, HAVEN will take a further look at the numbers: how the current U.S. housing market is reacting to prevailing economic factors influencing real estate.