Should You Buy a House in 2025?

What can we expect for the 2025 housing market?

Despite mortgage rate increases, the market is showing signs of recovery with month-on-month home sales gains, though it is not comparable to pandemic-level market activity.

“Instead of 10-20 offers on a property, there might be three or four, which are better odds,” Frey explains. According to Frey, it was insanely hot and out of balance before the interest rate increase in March of 2022, but the rate hike has given people some hope.

Some buyers dropped out of the market due to the rate hike. Buyers who previously lost out on multiple homes may not face as many rounds of offers and rejections now.

Possible mortgage rate decrease

According to the Freddie Mac Economic, Housing, and Mortgage Market Outlook from November 2024, “Slower sales have led to a slight pick-up in inventory, with the supply of existing homes at 4.3 months in September, the highest since October 2020.”

The report also said that higher mortgage rates paired with low affordability also impacted homeownership rates in the third quarter of 2024, slipping to 65.6% compared to 66% in the same period in 2023. The rental market is also showing a slight increase in vacancy rate at 6.9% in Q3 2024, up from 6.6% in the previous quarter.

The outlook predicts that 2025 will see rates gradually decline, which would loosen some of the rate lock-in effects for current homeowners. This would then invite more activity and add more inventory to the market. The report also expects slightly higher home sales in 2024, with house prices continuing to grow at a moderate pace.

“Better to buy now and begin your experience of getting a fixed-rate housing cost,” Frey says, “It’s never too soon to start saving money.” The average 30-year mortgage rate has increased over the last few months, hitting almost 7% in November 2024 while rental prices continue in a decreasing trend.

Even though rates may have rebounded slightly, buying sooner rather than later guarantees a more predictable monthly payment.

At the peak of U.S. inflation, the rent-to-income ratio has hit 40%, marking the least affordable rental market in decades. As of September 2024, CoreLogic reports that rent growth is decelerating, especially in the South and the West.

Inventory

Tight inventory has contributed to the growth in housing prices over the last few years. With more buyers on the market than homes for sale, it led to bidding wars and price inflation. While new home listings have slowed in recent years, what will housing inventory look like going forward?

According to the NAR, total existing home sales across single-family homes, townhomes, condominiums, and co-ops increased by 4.8% to a seasonally adjusted annual rate of 4.15 million in November.

Year-over-year, sales saw a significant gain of 6.1%. Furthermore, NAR cites the latest National Association of Home Builders/Wells Fargo Housing Market builder sentiment index to say that “home builders are notably more upbeat, with their future sales expectations climbing near a three-year high.”

There are, however, some signs of inventory increasing. According to HomeLight’s Top Agent Insights Report for End of Year 2024, 59% of agents agree that housing inventory is rising.

Rising rental rates

Supply and demand are fundamental drivers in the economy, influencing rental prices. When supply exceeds demand, prices tend to drop. In the last two years, exceptional demand amid low supply propelled rental rates to surge by double digits annually. Nevertheless, there are indications of a shift in supply and demand dynamics.

Rent prices, as indicated in a November 2024 report from Rent.com, continued their downward trend in November, declining -1.1% from October and -0.7% from last year.

If you live in a market where rents have grown by double-digit percentages, locking in a fixed housing payment could be the best solution.

How to assess your readiness to buy a home in 2025

You may want to buy, but are you ready? As important as it is, there’s more to entering the housing market than saving up a down payment. Here are a few other things to consider before talking to agents.

Check your credit score

Lenders pull your credit score as part of the mortgage application process. This score represents how well you’ve handled money in the past. A low credit score means you are less likely to qualify for as large a mortgage and will likely pay a higher interest rate. Too low, and you might not qualify at all.

Check your credit score a few months (or earlier) before applying for mortgages, then fix any problems.

Review your DTI

Your debt-to-income ratio is another important piece of the mortgage application process. If you’re already carrying a high debt burden — credit cards, student loans, and an auto loan — lenders will worry that you might be unable to make a mortgage payment.

Consider paying down debts or refinancing student loans before you start the homebuying process to lower your debt-to-income ratio and improve your chances of qualifying.

Apply for mortgage preapproval

A mortgage preapproval dictates your budget when home shopping. Most agents won’t work with buyers who aren’t preapproved — they don’t want to show you potential homes you can’t afford. After fixing any credit score problems and lowering your debt-to-income ratio, apply for a mortgage pre-approval.

Research home values in your area

Now that you know what you can afford, it’s time to look at local home values. Enter some criteria on an online real estate website like HomeLight to see what you can find — search by “recently sold” to gauge market activity.

Remember that homes may sell for more than their list price and that these websites don’t always update prices for the final sale. It’s a good idea to talk to an agent at this point, as they’ll have their finger on the pulse of your market and can give you MLS access for your home search. They’ll know how quickly homes are selling, how many typical offers, and the competition you’ll face.

Tips for buying a home in 2025

You’ve decided you’re ready to buy in 2025, now what? Follow these tips to navigate today’s real estate market successfully.

Be flexible (and patient)

Make your list of “wants” and “needs,” then narrow it down further.

As Frey puts it, today’s buyers “have to realize that affordability is down, as a first-time homebuyer, you’re probably not going to be able to buy your dream home. Focus on what matters to you and hone in on that.”

To buy a home in 2025, you’ll have to be flexible. This could mean everything from the closing date to which appliances stay in the home. Keep in mind that you can always upgrade the kitchen countertops later.

Look for down payment assistance and first-time homebuyer programs in your area

First-time homebuyers can take advantage of several state and federal homebuyer programs. Some offer down payment assistance, others extend mortgages at lower rates. If you’re a veteran, teacher, firefighter, or law enforcement officer, you also may qualify for help.

Do some research and ask your mortgage lender for guidance to see what programs you might qualify for.

Work with an expert buyer’s agent

When you’re house hunting, an expert buyer’s agent will become your new best friend. They’ll call and text when a new home comes on the market, keep their ear to the ground for homes that are coming, and work their network to find you a home.

They can also help write an offer and the crucial negotiations that come after an offer is accepted.

Always get a home inspection

Lastly, always get a home inspection. Even if you waived the right to ask for repairs after an inspection, you want to know any potential issues that might arise. That way, you can have the plumber lined up on the closing date to fix the drains.

The reality is that there can always be hiccups in buying a home. The real estate market has ebbs and flows, but it’s difficult to time them perfectly. It’s better to buy when you have the need and are financially ready to start building equity for the future.

Header Image Source: (Roger Starnes Sr / Unsplash)