No Housing Market Crash on the Radar: NAR’s 2025 Prediction

The National Association of REALTORS® (NAR) expects a “rosier” housing market this year. If acquiring the deed to a home is on your list of new year’s resolutions, take note.

NAR predicts a market rebound after our recent, two-year stall. No housing crash. Prices should keep going up — but gently, as U.S. real estate eases back into a functioning market. “Home buyers will have more success” according to Lawrence Yun, NAR’s chief economist.

Some ifs, ands, and buts go along with NAR’s forecast, though. Let’s break it down.

Let There Be Inventory.

Supply is key. So it’s good news that NAR foresees more selling action in 2025. NAR predicts there will be enough homes for sale to keep prices from rising more than 2%.

NAR’s forecast roughly aligns with recent figures discussed by analysts at another market watcher, CoreLogic. So far, so good. The busy springtime home market should see something of a revival.

On the other side of the coin, homes remain pricey. So, even if home prices rise by a modest 2% in this new year, a seller in the middle (median) of the selling range will be asking for more than $400K.

Redfin is less optimistic than NAR. Pointing to the persistent shortage of available homes nationwide, Redfin thinks housing prices will rise by 4% in 2025. In late 2024, Goldman Sachs also published a forecast of a 4%+ price rise for 2025.

At least that’s nothing like the 20% pump we all witnessed after the pandemic took hold. The market has cooled, and we’re looking at “a five-year odyssey of slow normalization,” according to Vinay Viswanathan of Goldman Sachs.

Still No Picnic for First-Time Buyers.

Robert Dietz of the National Association of Home Builders says builders are increasingly working on smaller projects, such as townhomes. That’s music to the ears of downsizers and first-time buyers.

But again, the prices are daunting. Although bidding wars are no longer at a fever pitch, we’re heading into the 14th year of a rising home value chart. Stepping back, we see that the median sale price for a house has risen by more than 30% in the past five years.

Zillow says the nation could use 4.5 million more homes. Freddie Mac says we need a little under 4 million. In any case, a glut of available homes for sale doesn’t seem to be the nation’s problem at the moment. The continuing lack of supply is the reason hopeful buyers struggle to break into the market. It’s why the average home buyer is 56 years old today.

The typical deed holder’s net worth is now over $400K. This is serious buying power. It allows a high percentage of current homeowners to pay for their next home with cash. Now, contrast that with the renter who’s trying to get a starter home. The median net worth of a renter is just $10K, according to Lawrence Yun.

So, first-time home buyers will keep wrestling with affordability challenges.

Too Much Inventory? In Some Markets, Maybe.

Some parts of the country got too hot, too fast. Where states and cities created incentives, builders responded. And they built up a storm.

Real estate analyst Nick Gerli says builders are overdoing it. Gerli hears echoes of the 2008 bubble. That much overbuilding hasn’t happened, of course. But it’s true that the Southern states and parts of the Mountain West have large supplies of new homes ready and waiting for buyers.

With elevated market prices and 30-year mortgage rates sticking close to 7%, developers now need to find buyers who can afford their offerings.

Homes are waiting for buyers to fill them in Arizona, Tennessee, and Georgia. And builders have really revved up supply in and around Dallas, Austin and San Antonio; Tampa, Cape Coral, and Jacksonville; New Orleans, and Phoenix. These “pandemic boomtown” markets are now lagging. In recent months we’ve seen their builders and lenders slash prices and offer other carrots to buyers. Price cuts are particularly easy to find in outer suburbia, where the home builders have ramped up the most.

The takeaway? Look for price drops. Especially in Texas and Florida.

As we enter 2025, Gerli adds, builders have quite a few more homes in the pipeline. “There’s 266,000 houses for sale currently under construction.”

Lance Lambert of ResiClub has a parallel take. On the other hand, Lambert says, the housing shortage is still very real in the Northeast, much of the Midwest, and parts of Southern California.

Let There Be a Drop in the Mortgage Interest Rates.

What kind of rate movement could we see?

Redfin gives a forecast of 7% for 2025. That would continue to sideline many people who’ve been waiting for their chance to acquire home titles.

Here again, the National Association of REALTORS® seems cheerier. NAR believes mortgage rates will drop in 2025. That would help hopeful buyers.

“The new normal for mortgage rates will be around 6%,” Yun said. NAR sees this easier interest rate scenario lasting — with 6%-ish prevailing all the way through 2026. If that’s the case, then we should see sellers stop holding out for rates to drop dramatically, and simply get selling.

Another fee factor to watch? The rise of home insurance costs. The Senate Committee on the Budget investigated home insurance companies leaving markets. This could be a wild card. The Committee says the climate crisis is “affecting whether families can even get homeowners insurance, which threatens their ability to get a mortgage, which spells trouble for property values in climate-exposed communities across the country.”

Which at-risk states does the committee name? Not surprisingly, it points to Florida, California, coastal New Jersey, and Louisiana. But it sees the insurance problem spreading to the New England states, Montana, Oklahoma, New Mexico, and the Carolinas.

So, Can Home Values Keep Rising, or No?

The answer is yes and no. Nationally, yes. But in certain pockets of the country, no.

Prices in previously hot markets, many in Florida and Texas, are struggling to hold up. That might be good for buyers. But it’s important to consider the cost of borrowing today, as well as the cost of insuring a home.

Note to our readers: Please consider this article a commentary, and not a recommendation to take any specific action in the real estate market. No one can predict the future of the real estate market with certainty. For guidance suitable for individual decisions and actions, consult your experienced financial, legal, and tax professionals.