• The infamous "lock-in" effect that's restricting home supply may be going away next year.
• Realtor.com's chief economist expects more homeowners to list their homes for sale in 2025.
• High levels of home equity and life changes will encourage home sales, Danielle Hale said.

2024 has been a tough year for homebuyers.

Affordability levels are still low with elevated home prices and mortgage rates. A huge jump in mortgage rates to around 6.8% today from under 3% in 2022 has also created a "lock-in" effect, where existing homeowners don't want to sell into a higher mortgage rate environment than when many of them bought — further limiting home inventory coming onto the market and sending prices soaring even higher.

There's reason to be optimistic, though. The US housing market will see more favorable buying conditions in 2025, according to Danielle Hale, chief economist at Realtor.com. Hale sees two trends that will help encourage existing homeowners to put their homes up for sale.

Existing homeowners have built up home equity

Existing homeowners have reaped big home equity gains in recent years thanks to rapidly rising home values.

Homeowners are also increasing their home equity by making monthly mortgage payments, as those who bought houses a few years ago have had the opportunity to make a sizable dent in their mortgage, Hale said. Homeowners with a smaller mortgage balance may be less sensitive to the higher interest-rate environment of today's housing market.

According to Lawrence Yun, chief economist of the National Association of Realtors, homeowners are feeling richer now thanks to the home equity they've accumulated over the last few years of dizzying home price increases. As a result, more listings are being put on the market.

Homeowners can put their home equity to work when they move and buy a new house.

"If they're using their home equity to make a move, that enables them to either be a cash buyer or take out a very small mortgage," Hale said. "That gives them a bit more flexibility in today's market."

Mortgage rates may become less important to buyers and sellers

Homebuying decisions can also be influenced by factors other than mortgage rates or home prices, according to Hale.

The more time that passes since a homeowner's initial purchase, the more likely it is that they'll have a life change requiring them to move, regardless of the cost of moving, Hale said.

People buy houses for reasons other than financial ones, Hale pointed out. Big life changes that could spur a move include a new job, retirement, marriage, or having children.

"All of these can be reasons that people might make a move even if the costs are more expensive to buy a home," Hale said.

Additionally, consumers might be getting accustomed to high mortgage rates, according to Redfin.

"Buyers realized mortgage rates may not drop below 5%, and probably not below 6%, in the near future," Mimi Trieu, a Redfin real-estate agent, said. Existing homeowners holding off on moving due to high mortgage rates may soon give up on waiting it out.

A more "buyer-friendly" housing market

These changes won't be immediate, but they will have a noticeable impact on the housing market, according to Hale. She believes that the housing market is trending in a more "buyer-friendly direction."

"It's going to take more time," Hale said of the lock-in effect. "But as it diminishes, that's going to free up more sellers."

Lower interest rates — and subsequently, lower mortgage rates — would certainly speed up the erosion of the lock-in effect, Hale said. However, even if mortgage rates hover around the 6% range in 2025, which is what Realtor.com expects, the lock-in effect will still fade.

Homebuyers could see a notable change by the end of next year, Hale predicted.

"In mid-2024, 84% of homeowners with a mortgage had a mortgage rate under 6%. We think that by the end of 2025, that share will be 75%," Hale said.

• Housing market activity should rebound in the year ahead as mortgage rates fall.
• Buyers have been waiting for more affordable rates, as have sellers.
• Here are 16 cities set for double-digit property price growth, as forecasted by Realtor.com.

Homeowners and buyers may finally start making more deals in 2025, which could lift prices in some markets to unprecedented heights.

A years-long slump in home sales could end soon as mortgage rates fall below 6% and home inventory grows, Leo Pareja, the CEO of real-estate brokerage giant eXp Realty, said in a recent interview.

Pareja, who described his year-ahead housing market outlook as "cautiously optimistic," thinks home sales will rise 10% in 2025. That's far above Realtor.com's recent call for 1.5% sales growth due to a slight slide in mortgage rates.

If more homes come on the market and housing demand also rises, sales would certainly follow suit, though it's less clear what would happen to home prices. Realtor.com is predicting nationwide home prices climb to 3.7% — in line with the rate they've risen since 2012.

Realtor.com forecasted price and sales growth for the 100 largest US real-estate markets. Florida is home to nine of the 25 places expected to see the most price appreciation in 2025.

Below are the 16 metropolitan areas that are set for double-digit home price growth next year, based on Realtor.com's projections. The Sunshine State dominates the list with five names and a near miss with Jacksonville, which is seen rising 9.8%. Sales growth estimates are also listed.

1. Phoenix, Arizona

2025 price growth estimate: 13.2%

2025 sales growth estimate: 12.2%

Source: Realtor.com

2. Colorado Springs, Colorado

2025 price growth estimate: 12.7%

2025 sales growth estimate: 27.1%

Source: Realtor.com

3. Tucson, Arizona

2025 price growth estimate: 12.4%

2025 sales growth estimate: 12.5%

Source: Realtor.com

4. Boise City, Idaho

2025 price growth estimate: 12.3%

2025 sales growth estimate: 2%

Source: Realtor.com

5. Las Vegas, Nevada

2025 price growth estimate: 12.3%

2025 sales growth estimate: 5.5%

Source: Realtor.com

6. Orlando, Florida

2025 price growth estimate: 12.1%

2025 sales growth estimate: 15.2%

Source: Realtor.com

7. Ogden, Utah

2025 price growth estimate: 11.8%

2025 sales growth estimate: 2.2%

Source: Realtor.com

8. Tampa, Florida

2025 price growth estimate: 11.8%

2025 sales growth estimate: 9.1%

Source: Realtor.com

9. Deltona/Daytona Beach, Florida

2025 price growth estimate: 11.5%

2025 sales growth estimate: 7.2%

Source: Realtor.com

10. Memphis, Tennessee

2025 price growth estimate: 10.5%

2025 sales growth estimate: 8.3%

Source: Realtor.com

11. Sarasota, Florida

2025 price growth estimate: 10.4%

2025 sales growth estimate: 3.2%

Source: Realtor.com

12. Lakeland, Florida

2025 price growth estimate: 10.3%

2025 sales growth estimate: 10.6%

Source: Realtor.com

13. Atlanta, Georgia

2025 price growth estimate: 10.2%

2025 sales growth estimate: 15.1%

Source: Realtor.com

14. Austin, Texas

2025 price growth estimate: 10.2%

2025 sales growth estimate: 14.5%

Source: Realtor.com

15. Durham, North Carolina

2025 price growth estimate: 10.1%

2025 sales growth estimate: 14.1%

Source: Realtor.com

16. San Antonio, Texas

2025 price growth estimate: 10%

2025 sales growth estimate: 6.7%

Source: Realtor.com

• Realtor.com forecasts that home prices will rise slightly in 2025.
• Researchers expect mortgage rates to come down next year but still remain above 6%.
• There's a silver lining: Increased inventory and new construction may offer buyers some relief.

The housing market in 2024 hasn't been kind to those looking for a home: The age of the typical first-time homebuyer increased by three years, mortgage rates stayed firmly above 6%, and some people felt it would be more affordable to keep renting than to buy.

Although Realtor.com's housing forecast predicts some of the same for 2025, there are a few encouraging signs.

Home affordability has improved modestly after reaching the lowest level in decades last year, and transactions have picked up after an eerily quiet 2023.

Danielle Hale, the chief economist at the real-estate listings and data site, said a "Trump bump" could affect the housing market.

"For now, we expect a gradual improvement in housing market dynamics powered by broader economic factors," Hale said in the forecast. "The new administration's policies have the potential to enhance or hamper the housing recovery, and the details will matter."

Most consumers care about what will happen to home prices and mortgage rates, which directly affect their ability to buy a house.

With that in mind, here are five predictions for the housing market in 2025 from Realtor.com.

1. Home prices will drift higher

The median home sale price nationwide is up 32% since 2019, per the Federal Reserve Bank of St. Louis. However, it was $420,400 in the third quarter of 2024, down a bit from $435,400 a year earlier.

Buyers are holding out for more relief, but it might not come in 2025.

Barring a serious shock, home prices should continue to climb modestly. Realtor.com predicts that home sale prices will increase by 3.7% in 2025, which would be about a $15,000 jump.

"Prices are going to keep rising because we're not going to have a recession," Ralph McLaughlin, a senior economist at Realtor.com, said in an interview with Business Insider. "If you look at the times that home prices fall, it's typically only when there's a recession, and only when people are forced to sell."

Higher home prices may cause buyers to expand their house hunts to more affordable parts of their states or the country, like the Sunbelt. Twelve of the 16 cities that Realtor.com thinks will have double-digit price appreciation in 2025 are in the Southeast or Southwest.

2. Mortgage rates will stay above 6%

The average 30-year mortgage rate has dipped slightly, to 6.7% from a peak of 7.8% a year ago. Rates dropped to a historically low mark of 2.7% in 2021 and have mostly climbed since then. A pair of interest-rate cuts haven't significantly affected mortgage rates.

Next year's economy will be typified by lower interest rates and steady growth, Realtor.com predicted. The firm expects a rate cut in December and then a few more in early 2025.

That means Realtor.com researchers don't expect mortgage rates to drop dramatically next year, projecting that the 30-year will stay above the 6% threshold and be at 6.2% by the end of 2025.

3. Rents will be roughly the same

Rent growth may stall, as Realtor.com expects US apartment prices to fall 0.1%.

That's largely thanks to a major increase in rental unit inventory. Real-estate site Zumper found that the supply of new apartments in the US hit its highest level in five decades this summer.

"What we've seen over the past couple years is a large uptick in new multi-family construction, and they tend to be released all at once," McLaughlin said. "And so it can have very sharp and especially isolated impacts on rents — in particular — in urban areas where they are built."

Construction trends suggest the rental stock should increase in all parts of the country, but especially in the South, Realtor.com said. New homes and apartments could lead to lower rents in some cities and states.

Landlords may also struggle to raise rent substantially in a strong economy with lower mortgage rates, since renters could walk away from bidding wars and look at buying homes instead.

"When incomes grow enough in the rental segment, those renters tend to convert over to owners," McLaughlin said. "They typically won't use their incomes to bid up rents more — they'll just go and, if they can afford it, they'll go buy a house."

McLaughlin added: "Those that continue to stay renting, landlords don't have the ability necessarily to raise rents at the rates that price growth plays out in most markets."

Still, inventory increases may not translate to meaningful discounts on homes or rental units. Prices almost always rise over time along with the population size and money supply, so while apartments may be easier to find, those pining for pre-pandemic prices could be disappointed.

4. The market will be high on housing supply

Next year's housing market may be marked by sizable increases in home and apartment supply.

An 11.7% jump in existing home inventory and a 13.8% surge in single-family home starts will usher in the first "balanced" housing market in nine years, Realtor.com predicted. That would mean neither buyers nor sellers will have disproportionate leverage in 2025.

New single-family homes are expected to reach 1.1 million, the most since 2006. That should give prospective buyers more chances to score a home.

"While more inventory means buyers will likely have more time to make purchase decisions in 2025, in any market, a fast-acting buyer will have a higher likelihood of making the winning offer," Hale said in the report.

Homes have been in short supply for decades. Despite an uptick in construction, Freddie Mac estimated that the US needed 3.7 million more units to offset the shortage, as of last quarter.

Continued supply improvements mean there should be 4.1 months of homes available in 2025, up from 3.7 months now, Realtor.com said. The National Association of Realtors, a competing firm, reported last month that there was already 4.2 months' supply of existing homes available.

5. Home sales will surge

The housing boom during the pandemic devolved into a bust in 2022 and 2023 — a year in which home transactions reached their lowest levels in decades as housing affordability tanked.

Buyers and sellers are holding out for lower rates, and in the meantime, sales have stagnated.

"What I say to agents very often is, 'We're in a recession of transactions,' which is a different situation than the rest of the economy," Leo Pareja, the CEO of real-estate brokerage giant eXp Realty, said in a recent interview with Business Insider.

Many would-be buyers have been priced out of the market, while those hoping to move were reluctant to sacrifice their modest mortgages. In fact, about 84% of US mortgages are at rates below 5%, Pareja said. For that reason, many baby boomers have held onto their homes, giving younger buyers fewer options.

"If you're locked in at a 3.5% rate — even if you found your dream home, swapping that for a 6.8% rate is virtually impossible," Pareja said.

Lower mortgage rates and higher supply should spark a turnaround for home transactions. Pareja and his colleagues at eXp see sales activity rising 10% next year — far above Realtor.com's 1.5% forecast.

While the housing market overall may still favor sellers, more homes for sale can help buyers secure better deals and more concessions.

President-elect Donald Trump's policies may also be a tailwind for sales activity. Stock-market strategists mostly agree that tax cuts and deregulation will boost business confidence, and McLaughlin suspects that could rub off on homebuyers.

"If you're talking about the resale market, the existing-homes market, it's hard not to become optimistic about just the broader economy, because of things like tax cuts and other benefits to households that might put more money in their pocket at the end of the day," McLaughlin said.

He added, "That might encourage them to go out and either buy a home if they don't currently own one — or grade up to a house maybe they've been waiting to over the last few years."

• Realtor.com just unveiled its 2025 housing market outlook.
• Home values should rise slightly next year as property sales pick up due to lower mortgage rates.
• However, rent should stay in check due to a massive influx of apartment inventory.

Property owners, prospective buyers, renters, and landlords should expect more of the same in the new year — for the most part.

Home sales and the cost of buying or renting won't be much different in 2025, Realtor.com said in its housing forecast published on December 4. The firm's researchers see sales inching 1.5% higher while home prices climb 3.7% — in line with the rate they've risen since 2012 — and rent stays roughly flat at -0.1%. Mortgage rates should also slide slightly, though they'll stay north of 6%.

Those modestly positive projections are based on what Realtor.com expects to be a healthy economic backdrop typified by lower interest rates and steady growth. The Federal Reserve will likely cut rates in December and then a few more times in the first half of the year, the firm said.

Even more vital is that no one, other than a few contrarians, is calling for an economic downturn. Barring a serious shock, home prices should stay elevated and continue to climb modestly, though they're well off their post-pandemic peak.

"Prices are going to keep rising because we're not going to have a recession," said Ralph McLaughlin, a senior economist at Realtor.com, in an interview with Business Insider ahead of the report's release. "If you look at the times that home prices fall, it's typically only when there's a recession, and only when people are forced to sell."

In addition, it's unclear how President-elect Donald Trump's policies will affect the US housing market, though stock market strategists generally agree that tax cuts and deregulation will boost business confidence. McLaughlin thinks that may have a trickle-down effect for homebuyers.

"If you're talking about the resale market, the existing homes market, it's hard not to become optimistic about just the broader economy, because of things like tax cuts and other benefits to households that might put more money in their pocket at the end of the day," McLaughlin said. He added: "That might encourage them to go out and either buy a home, if they don't currently own one — or grade up to a house maybe they've been waiting to over the last few years."

High on supply

While that backdrop mostly represents business-as-usual, next year's housing market may be marked by a significant development: sizable increases in home and apartment supply.

A long-running home shortage is finally easing, as Realtor.com predicts that 2025 will be the first "balanced" housing market in nine years, meaning neither buyers nor sellers will have disproportionate leverage. That's thanks to an 11.7% jump in existing home inventory and a 13.8% surge in single-family home starts.

Home listings have been on the rise recently in most of the 50 largest US real-estate markets, which defies what Realtor.com had thought would be a big drop in inventory this year. However, there's still a shortfall of 3.7 million homes in the US, Freddie Mac estimates.

Continued supply improvements mean there should be 4.1 months of homes available in 2025, up from 3.7 months now, Realtor.com said. The National Association of Realtors, a competing firm, reported last month that there's already 4.2 months' supply of existing homes available.

Rental inventory is also on the rise, as real-estate site Zumper found that the supply of new apartments in the US hit its highest level in five decades this summer.

That dynamic should cause rent growth to stall, McLaughlin said. Home prices likely won't suffer a similar fate, in his view, because single-family supply will come online slower.

"What we've seen over the past couple years is a large uptick in new multi-family construction, and they tend to be released all at once," McLaughlin said. "And so it can have very sharp and especially isolated impacts on rents — in particular — in urban areas where they are built."

With more options, renters won't be forced to endure the abnormally large rent hikes that became more common during and after the pandemic.

Landlords might also struggle to raise rent substantially in a strong economy with lower mortgage rates since renters could walk away from bidding wars and look at houses instead.

"When incomes grow enough in the rental segment, those renters tend to convert over to owners," McLaughlin said. "They typically won't use their incomes to bid up rents more — they'll just go and, if they can afford it, they'll go buy a house."

McLaughlin continued: "So those that continue to stay renting, landlords don't have the ability necessarily to raise rents at the rates that price growth plays out in most markets."

Still, inventory increases likely won't translate to meaningful discounts on homes or rental units. Prices almost always rise over time along with the population size and money supply, so while apartments may be easier to find, those pining for pre-pandemic prices could be disappointed — even in an otherwise solid year.