5 Ways Inflation Could Affect the 2025 Housing Market

5 ways inflation can affect the housing market

The housing market has shifted as inflation weighs heavy on both home buyers’ and sellers’ minds. Here are five ways inflation can affect the housing market:

1. Home prices could increase

With living costs skyrocketing, it’s natural to think housing prices will keep climbing. CoreLogic expects housing prices to increase by 3.8% over the course of 2025.

Likewise, Fannie Mae expects affordability to continue to be an issue for buyers, ascerbated by the “lock-in” effect of high mortgage rates; existing homeowners are reluctant to sell their current homes and enter into new mortgages because they are unlikely to get a better rate than what they might have currently.

“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.

Palim did note that the volatile nature of the market may lead to some spurts of lower rates and would-be buyers entering the market when temporary lows occur, but that will not be the average occurrence.

In HomeLight’s Top Agents Insight report for 2024, Colorado agent John Nichols stated that in the current market, anything can happen.

“In today’s environment, everything is an unknown. No historical trends are holding true,” he told HomeLight.

2. Home values could flatten

Despite the possibility of widespread home value price increases, home values are expected to continue a trend from last year, flattening out, if not outright depressing, as inflation costs and low buying power keep buyers on the sidelines.

Dr. Selma Hepp, Chief Economist for CoreLogic, expects cooling price trends from previous years to continue, though smaller metros in areas like the Midwest will remain in high demand.

“Heading into the end of the year, home prices remained relatively flat though showing some marginal improvement from the weakness seen moving into the fall and following the cooling of homebuyer demand amid the summer mortgage rate surge,” she said in one of the company’s recent insight reports.

“Nevertheless, the cooling home price growth trend is expected to continue well into 2025, partly due to the base effect and comparison with strong early 2023 price appreciation and partly due to higher mortgage rates coming into this year and the expectations of higher rates over the course of 2025” she added.

3. Mortgage rates will likely stay high

The persistence of mortgage rates between 6% and 7% has been a sticking point for would-be buyers, leading to much of the market frustration of 2024. Unfortunately, these high mortgage rights are likely here to stay, though experts have predicted that rates will at least remain stable for the time being.

This might not do much to deter the “lock-in” effect, keeping existing homeowners in their homes, but rate stability might force would-be buyers to take the plunge rather than hoping rates will fall.

NAR Chief Economist Lawrence Yun has stated that home momentum has increased as buyers acclimate to a higher interest rate environment.

“More buyers have entered the market as the economy continues to add jobs, housing inventory grows compared to a year ago, and consumers get used to a new normal of mortgage rates between 6% and 7%,” Yun said.

Mortgage rates held between 6% and 7% in December 2024 and have maintained these numbers heading into 2025. As of Jan. 2025, a 30-year fixed-rate mortgage averages 7.04%, while a 15-year fixed-rate averages 6.27%.

4. Construction costs may rise

When inflation is high, the costs of materials also increase. That means it may become especially expensive for construction teams to build or renovate new homes. Ultimately, those high costs could spill into the housing market and lift home prices for new builds.

Some have predicted that inflation may flatten out, which could help ease construction costs. However, the reduced construction activity of the past two years will lead to pent-up demand, according to JLL’s 2025 Construction Outlook report, which estimates construction could rise between 5% and 7%.

5. Housing sales could increase….slowly

According to predictions from U.S. News five-year outlook for 2025-2029, home sales could see a slow uptick in the next few years.

Between 2023 and 2024, home sales dipped to some of their lowest levels in the last three decades, but the drip feed of new supply hitting the market and new construction could increase affordability over time.

Affordability will remain an issue, but experts are split on sale expectations.

The National Association of Realtors predicts a 9% increase in home sales, attributed to stable job growth and a stronger economic turnaround.

“2023 and 2024 were both difficult years in the housing market,” said NAR chief economist Lawrence Yun, speaking at a recent NAR conference.

“But pending home sales eked out a 3% year-over-year gain in September, he said, a signal that is “maybe the worst is over.” Other good signs: Inventory of both new and existing homes is increasing, and the U.S. population has grown by 70 million from 1995, even though home sales have remained mostly at 1995 levels, signaling pent-up demand,” he added.

Fannie is predicting a 7.1% increase in home sales, while the Mortgage Banker’s Association predicts a 5.1% hike, according to USA Today.

What if I want to sell my home during inflation?

With inflation beating down on the housing market, you’re probably wondering if you should sell your home now or wait until the economy flattens out. Here are a few tips if you’re thinking about selling your home during the current spike in inflation:

• Assess your selling motives: Before leaping into an uncertain market, Kurt Beuhler, a HomeLight Elite agent with 37 years of experience, suggests sellers think about their lifestyles and decide if they’re ready to sell right away. He says to ask, “What do they want out of the sale of the house? And why are they selling?” If you realize you’re serious about selling after doing a little soul-searching, he says you should start conducting research now and connect with a real estate agent to discuss your home’s value.
• Sell soon to cash in: Because housing prices may shrink in the near future, if you’re looking for a high return, you may want to pull the trigger on a sale soon to cash in on high prices. Buehler explains, “When interest rates go up, buyers have to reduce what they buy a home for to have that same payment…We still have an opportunity for sellers to obtain the high prices.”
• Do your research first: Even though inflation is impacting the entire market, it may affect some regional housing markets more than others. That’s why it’s a good idea for you to dig into your individual housing market’s specifics before you sell your home. One way to do this is to find a real estate agent to conduct a comparative market analysis for your home. This is a research tool agents use to examine a property’s characteristics — as well as nearby sales — and set a competitive price for your house.
• Update your home: As the housing market tightens, it could become more and more important to prep your home before a sale. That may include making renovations, identifying which fixes will land you the highest ROI, and staging properly. Buehler says: “The homes that are not updated are the ones that are sitting and doing price reductions. If they’re not updated, and they’re not pretty, they’re not getting hit at all. Buyers are not just buying anything that comes on the market anymore.”

What if I want to buy a home during inflation?

As a buyer, it may seem like inflation is pulling you in several directions. Inflation can dampen housing demand and cool down prices. At the same time, you’re probably feeling the pain of high living costs and rising mortgage rates.

If you’re thinking about buying a home amidst inflation, here are a few tips:

• Keep an eye out for new opportunities: If inflation limits demand, buyers may see competition within the housing market lighten up. That means it could be your chance to buy at prices you couldn’t before. Beuhler says he’s seeing buyers who were once shut out of the market starting to re-enter as demand calms down.
• Consider all costs: It’s important to remember that inflation doesn’t just impact a home’s final sale price. It can also hike up everyday living costs, closing costs, down payments, and all of the other expenses that are built into a sale. That’s why it’s important to look into all of the costs of buying a home and to budget before jumping into a deal.
• Find an agent who’s a financing wizard: In the face of higher interest rates, buyers may be able to find payment options that ease up the buying process. For instance, it may be worth looking into adjustable-rate mortgages (ARMs), bridge loans, or Buy Before You Sell programs.

Buehler says top real estate agents can work closely with financing companies to help lift pressure off of buyers. “When people are concerned about payments, there are ways to help them with those payments,” he explains. “[For agents] that’s figuring out, and being very good at, the finances.”

Overall, if you’re worried about financing, it’s worth asking your buyer’s agent or a loan officer about your options.

Inflation is morphing opportunities in the housing market

Inflation is changing the face of the market. As financial pressure increases, it can impact everything from prices and home values to home sales, construction costs, and more.

No matter how inflation affects the housing market, it will shuffle choices and opportunities for buyers and sellers. The easiest way to spot the best opportunities for your home transaction is to connect with an agent who understands the ins and outs of your local housing market.

Want to get started? HomeLight’s free Agent Match platform can connect you with a top-performing real estate agent in your area.

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