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Home prices have climbed quite a bit over the past few years, so much so that many worry that a housing market crash is on the horizon. Is this a valid concern?
How does the rate of increase in home prices last year compare to this year? Is there a “housing bubble” that could burst at any moment? More importantly, is 2025 a good time to buy a house?
Given the skyrocketing prices of homes over the recent past, some might argue that a housing market crash is imminent. However, experts and data suggest otherwise.
Though things may slow down a bit, a crash is highly unlikely.
What’s keeping things stable?
Housing inventory has been a thorn in the side of homebuyers as of late, which has been a key factor in the rapid rise of home prices over the past few months. As demand among buyers continues to remain strong, existing inventory has not been sufficient to keep up.
Experts anticipate that this situation won’t change much through the end of 2025. According to Fannie Mae, a total of 6.8 million new and existing homes are expected to sell by the end of this year.
The Millennial demographic makes up a large portion of homebuyers in the US, and next year, they’ll continue to be a driving force behind the national housing market. Many of these Millennials will be getting into the real estate market for the first time, thereby supporting entry-level home sales, which will help keep the US housing market buzzing over the next few years.
Household formations calculated based on the 27-35 year old population is well over double the rate of actual homes being built. When taking into account a conservative ownership rate there continues to be a massive gap between the number of homes that need to be built to keep up with demand vs. the actual number of new homes being built. This alone is putting pressure on prices which won’t change in the foreseeable future.
That said, Baby Boomers will also play their part, especially as housing prices continue to increase. While Millennials may be buying homes in the lower price range, Boomers may help keep the more expensive price range busy, particularly after realizing significant gains in equity from appreciation in value of the homes they’ve held onto for decades.
In fact, most homeowners have positive equity in their homes these days. According to Attom Data Solutions, the typical single-family home sale across the country generated a gross first-quarter profit of $103,000, well above $75,001 from a year earlier.
The economy took a massive hit due to the recent health crisis, but things have been improving. Interestingly, the real estate market was one of the few industries that remained very strong throughout, and the same is expected in 2025.
As the economy continues to improve, so should consumer spending. With Americans getting back to work, their borrowing power will increase and will be in a better position to purchase a home.
As is the case with any other product, the price of real estate comes down to supply and demand. Over recent months, demand among homebuyers has been strong, while housing inventory has been very tight. This dynamic has caused home prices to soar.
Over the past 12 months, the average price of a home in the US has jumped 2.6%, according to Zillow.
Real estate professionals anticipate homebuyer demand to remain strong into 2025. Right now, there were around 3.7 offers per home put on the market, and now that number has bumped up to around 5 offers per home.
These figures suggest that buyer demand has remained fairly strong yet stable, which is expected to be the case over the next few months.
While buyer demand remains high, housing inventory is seeing the opposite. Year-over-year, the number of listed properties has decreased nearly 20%. Seller activity continues to be much slower compared to buyer traffic.
Real estate experts anticipate home prices to continue rising in 2025, though not necessarily at the same rate that we saw over the course of 2024.
In addition to the housing inventory shortage that we’ve already discussed, what other factors will contribute to the continued increase in home prices in 2025?
Low mortgage rates make home buying more affordable. Even though home prices have soared over the past year, lower interest rates have still made it somewhat feasible for buyers to get into the market.
Over the past year, mortgage rates have been on a steady decline. In the fall of 2018, the rate for a 30-year fixed-rate mortgage peaked at 4.94%.
It plummeted during the pandemic, reaching a low of 2.68% in December, 2021, the lowest conventional mortgage rate average in 30 years. The rate for the same mortgage type now sits at 5.91%, well above 2018’s peak. That discrepancy makes a huge difference in the overall cost of a mortgage and monthly mortgage payment amounts.
According to earlier predictions from the Mortgage Bankers Association (MBA), the average 30-year fixed-rate mortgage rate is anticipated to dip to 6% by the end of 2025. Right now, the rate for a 30-year fixed-rate mortgage is 6.69%.
The health crisis forced many Americans to work from home for months in an effort to avoid virus transmission. During this time, many Americans discovered that their current homes did not suit a work-from-home arrangement. In turn, some chose to make improvements to their homes, while others opted to move into homes that accommodated home offices.
This trend is not expected to die down any time soon. In fact, the opposite is expected. Remote workers will likely continue to spur the housing market in 2025, thereby contributing to the ongoing increase in home prices.
The rate of increase in home prices might start to slow down somewhat in 2025, but they’re still on an upward trend. Further, interest rates are expected to rise over the next few months as well.
Both of these factors combined make a sound argument for buying earlier in the new year.
Let’s illustrate how much you could potentially save by getting into the market sooner rather than later:
| Mortgage Loan Amount | Mortgage Interest Rate | Monthly Mortgage Payment | Total Amount of Interest Paid |
| $300,000 | 5.91% | $1,781.33 | $341,278.66 |
| $350,000 | 7% | $2,328.56 | $488,281.14 |
While these are just estimates and examples, it’s easy to see how just a small increase in both home prices and mortgage interest rates can make such a big difference in how much you pay on your mortgage, both monthly and over the entire loan term.
As such, you may want to consider buying a home earlier in 2025 instead of waiting too long.
At Sammamish Mortgage, we can help you get fully preapproved for a mortgage, regardless of the state of the current housing market.
Sammamish Mortgage has been in business since 1992, and has assisted many homebuyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help you get pre approved. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon, and Washington.
Contact a loan officer if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.