housing market predictions for 2025: when will home prices drop?
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By Robin Rothstein | Published on October 7, 2025
This summer’s housing market was less about sizzle and more about cooling, giving buyers some relief and sparking enough demand to hint at what fall could bring.
Slowing home price growth, builder incentives, rising inventory in some regions and easing mortgage rates are giving buyers more options and purchasing power. Yet, despite this advantage, many are still putting homeownership on hold.
If you’re holding off on buying in the hopes that mortgage rates will drop further before the two additional Federal Reserve rate cuts signaled before year’s end, housing experts warn that bet could backfire.
In the meantime, finding an affordable home is becoming more realistic—if you know where to look.
Fed Delivers First Rate Cut in 2025: Will Home Buyers Finally See Relief?
In a widely expected move, the Federal Open Market Committee (FOMC) voted to cut the federal funds rate by 25 basis points at its September meeting. This decision lowers the target range to 4% to 4.25%. The Fed also noted the possibility of two more rate cuts this year.
The federal funds rate, which is what banks charge each other for overnight loans, indirectly impacts mortgage rates.
The Fed began raising its key interest rate in March 2022 to curb runaway inflation, holding rates at 5.25% to 5.5% before conducting three cuts in late 2024. By then, mortgage rates had soared to decades-high levels while home prices hit record peaks, leaving many buyers priced out—and still on the sidelines.
In anticipation of the September cut, mortgage rates dropped to their lowest levels in nearly a year, offering prospective buyers some breathing room. However, experts remain skeptical that affordability will improve enough to bring a substantial number of buyers to the market.
“There are still risks of a reversal in mortgage rates, despite the Fed’s rate cut [at the September meeting] and even if they cut rates two more times this year,” said Lisa Sturtevant, chief economist at Bright MLS, in an emailed statement. “We will need to see further drops in mortgage rates and much slower home price growth, or even home price declines, to make a dent in affordability.”
Housing Market Forecast 2025
U.S. home prices posted an annual gain of only 1.7% in July—the slowest annual price growth since 2023—down from 1.9% in June, according to the latest S&P Cotality Case-Shiller Home Price Index. The index tracks single-family home values and is calculated monthly using a three-month moving average. This report tracked May through July.
The meager increase nudged the index slightly below the record high it set the previous month.
“July’s results reinforce that the housing market has downshifted to a much slower gear,” said Nicholas Godec, head of fixed income tradables and commodities at S&P Dow Jones Indices. “[T]his is one of the weakest annual price increases in the past decade.”
Notably, home price growth slowed enough to the point that it fell behind July’s 2.7% annual inflation rate, resulting in an inflation-adjusted decline in housing wealth.
The latest data also revealed stark regional variations in price trends, with once-hot Sunbelt markets like Tampa, Miami, Dallas and Phoenix posting price declines, while more affordable urban and industrial hubs, such as Boston, Chicago, Cleveland, Detroit and New York, recorded notable gains.
“The pace of home price appreciation over the past few years is unsustainable,” said Sturtevant. “As sellers adjust their price expectations, we should see continued downward pressure on price growth—and even home prices falling in more markets—which will be necessary to move toward a more balanced housing market.”
Still, while easing prices in many regions is good news for buyers, Sturtevant notes that a sustained buildup in inventory remains essential to bring prices down enough to fuel a meaningful boost in sales activity.
Will the Housing Market Crash in 2025?
With record-high home prices still trending upward in many markets amid economic uncertainty, you may be concerned that we’re in a bubble that’s primed 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 in 2025.
Housing stock supply has risen substantially compared to last year, yet overall inventory is still well below prepandemic levels.
“[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 mortgage-free.
When Will the Housing Market Recover?
At a minimum, for a housing recovery to occur, two primary conditions must improve.
Housing Inventory Needs To Increase
“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 Need To Fall
Additionally, mortgage rates need to decline to see a meaningful increase in housing market activity. We saw this play out in the August data for new home sales, which surged amid falling mortgage rates.
Nonetheless, Gumbinger warns that rates cooling too quickly could create a surge in demand that would wipe away any inventory gains, causing home prices to spike. 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.
How Do Today’s Monthly Payments and Long-Term Interest Costs Compare to Last Year?
The Forbes Advisor mortgage calculator makes it easy for new homeowners to estimate what they’ll pay monthly and how much interest they’ll shell out in the long run.
For instance, in August, a typical home cost $363,505, according to Zillow data. Buyers who put down 20% on a house and financed at a 6.56% mortgage rate—the average 30-year fixed mortgage rate the last week of August—have a monthly principal and interest payment of $1,849.
In contrast, homeowners who bought a home at the same time in 2024, at the typical price of around $362,917 when the mortgage rate was 6.35% are paying $1,806 a month.
In this scenario, homeowners who bought a typical-priced home in August 2024 are paying $43 less each month and saving $15,012 in mortgage interest over the life of the loan compared to buyers who purchased homes in August 2025.
Considering that home affordability was somewhat better in August 2024—when mortgage rates were nearly a quarter percent lower—it’s no surprise that many buyers, particularly those struggling the most with affordability, are rolling the dice for a more substantial rate drop that could meaningfully reduce monthly payments and increase overall interest savings.
After all, you can apply those interest savings toward your monthly property taxes, insurance and other costs such as homeowners association fees or additional homeowners insurance coverage. Entering those details into our calculator will give you a more accurate view of your monthly costs.
Residential Real Estate Stats: Existing, New and Pending Home Sales
Housing activity began to heat up in August, as easing mortgage rates and builder incentives combined to make homeownership more attainable.
Here’s a look at what’s happening in the housing market—and where things may be headed.
Existing-Home Sales
Existing-home sales, which include completed transactions of previously occupied single-family homes, townhomes, condominiums and co-ops, were largely flat in August, despite declining mortgage rates.
The National Association of Realtors (NAR) reported that monthly sales edged down 0.2% in August, putting the seasonally adjusted annual sales rate at 4 million, down from 4.01 million in July. Year-over-year sales rose 1.8%.
In the report, Lawrence Yun, chief economist at NAR, struck an optimistic tone, citing declining mortgage rates and a growing number of homes on the market. However, he acknowledged that sales of affordable homes were constrained due to a persistent shortage in that segment.
Despite slowing price growth, August marked the 26th straight month of annual home price gains. The median home price in August reached $422,600, up 2% from the same period last year and the highest August on record.
However, regional price disparities remain pronounced. For example, the median resale home price in the Midwest rose 4.5% from a year ago to $330,500, compared to the West, which increased by 0.6% to a median sales price of $624,300.
Unsold inventory remained essentially unchanged from July at a 4.6-month supply at the current monthly sales pace. Many experts consider a balanced market—where inventory (supply) and sales (demand) are in sync—to be between four and six months.
New Home Sales
Meanwhile, sales of newly built homes snapped out of their summer slump.
The latest U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD) data revealed that seasonally adjusted new home sales surged by 20.5% from July to August and but by 15.4% compared to last year.
Sales rose month over month in all four regions, with the Northeast leading the way at 72.2% followed by the South at 24.7%, the Midwest at 12.7% and the West at 5.6% All regions reported robust year-over-year increases, except the West, which declined by 5.7%.
Meanwhile, as sales skyrocketed, prices increased. The median new home sales price rose 4.7% from July to August and 1.9% from a year ago, according to the data.
At the same time, new home inventory sank to an estimated 7.4-month supply, 17.8% lower than the July 2025 estimate of 9 months and 9.8% below the August 2024 estimate of 8.2 months.
“Falling mortgage rates and more price parity with existing homes likely drove more buyers into the new home market in August,” said Sturtevant, in emailed commentary. “Another reason the New Home sector got a bump could be the trend toward the construction of smaller homes. With more people wanting to downsize, smaller homes are becoming more attractive.”
Pending Home Sales
As mortgage rates improved, home price growth slowed and expanding inventory offered more choices, more would-be buyers signed on the dotted line.
After two months of sluggish activity, seasonally adjusted contract signings jumped 4% from July to August, according to NAR’s Pending Homes Sales Index. Data by region revealed that all regions posted monthly gains except the Northeast, which showed a 1.1% decrease. All regions posted gains compared to last year.
A pending home sale marks the point in the purchase transaction when the buyer and seller agree on price and terms and is considered a leading indicator of a closed existing home sale within the next one to two months.
Yun noted this return to the market, especially in areas with lower-priced homes, was thanks to the recent mortgage rate decline.
“In the Midwest, low mortgage rates combined with high levels of affordability are attracting more buyers compared to other regions,” Yun said in a press release.
Housing Inventory Forecast: When Will There Be Sufficient Supply To Reduce Prices?
After several years of record-low inventory, the supply of homes has risen notably over the past year. If the trend continues, buyers sidelined by affordability challenges may find themselves with more options if they know where to look.
Here are factors impacting the inventory landscape.
The Lock-In Effect is Beginning To Unlock—Slowly
Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm, tells Forbes Advisor that inventory is up over 33% from 2024 and appears to be on track to hit prepandemic levels by the end of the year or possibly earlier.
There are multiple reasons for this improvement, one of which is the loosening of the “lock-in effect,” a situation where homeowners with ultra-low rates—such as the high-2% to 4% rates seen during the pandemic years—have no incentive to sell because their rates are well below current levels.
“Rate lock is still a legitimate concern, but becoming less of an issue over time,” says Sharga.
However, there are still many homeowners sitting on a good rate who need a major life event reason to sell, such as a job transfer, job loss, marriage, divorce or death, says Sharga.
Indeed, according to Realtor.com analysis, 81% of homeowners have rates below 6%. Of that group, nearly 21% had an interest rate below 3% in the first quarter of 2025.
What’s Driving Inventory Growth? It Depends on the Region
The overall market still slightly favors sellers, as supply remains near the lower end of what’s considered a balanced market.
However, inventory levels vary widely by region. Markets like Austin and San Antonio, Texas, and Tampa, Florida, where prices surged during the pandemic, are seeing increased supply and slowing price growth.
“[T]here are a number of states, particularly Florida and Texas, which already have more for-sale inventory than they did prior to the pandemic, and where demand has weakened,” says Sharga. “In those areas, the market is tilting in favor of buyers.”
On the flip side, areas in the Midwest and parts of the Northeast—such as Buffalo and Rochester, New York; Cleveland and Pittsburgh—that didn’t experience skyrocketing price increases and a surge in newly built homes have lower inventory and face increased competition among buyers.
How Declining Mortgage Rates Could Impact Supply, Home Prices
Given the pent-up demand for homes, a decline in mortgage rates—especially a sharp one—could quickly shrink housing supply.
“We’re in an incredibly rate-sensitive environment today, and every time we’ve seen mortgage rates drop into the low-to-mid 6% range, we’ve seen an influx of buyers hit the market,” says Sharga.
Sharga adds that rates dropping to 6% would likely motivate more homeowners to sell. Even so, he says many buyers will still be shut out of the market due to other rising home-related costs.
“Home prices have gone up almost 50% over the past five years, property taxes have risen along with them and homeowners insurance premiums rose by 24% between 2020–2024,” says Sharga. “So even though there’s definitely some pent-up demand, a one-point dip in mortgage rates probably wouldn’t bring so many buyers to market that it would overwhelm the supply and cause another huge spike in home prices.”
And speaking of home prices, here’s what the latest home values look like around the country.