Bright MLS 2025 Housing Forecast: The Tug-of-War Between Pent-Up Supply and Demand and the Economic and Political Landscape Will Shape the Housing Market

Higher-income households and higher-cost housing markets likely to fare better

NORTH BETHESDA, Md., Dec. 4, 2024 /PRNewswire/ -- Pent-up supply and demand and the reality that higher mortgage rates are here to stay have the potential to bring both more buyers and sellers off the sidelines in the new year. However, any uptick is likely to be tempered by economic uncertainty and political unpredictability that could keep mortgage rates volatile, according to the Bright MLS 2025 U.S. Housing Forecast released today. As a result, competing forces will shape the housing market, creating a tug-of-war that will dampen prospects of a strong 2025 market rebound.

Based on these dynamics, in 2025 buyers and sellers can expect to see:

• Average mortgage rates of 6.4% with continued fluctuations that will keep rates above 6% throughout the year before settling at 6.25% in the fourth quarter.
• Existing home sales to increase 7.5% year-over-year to 4.4 million, still far below the long-term average of 5.2 million home sales.
• A 12.5% increase in inventory, bringing the number of available homes for sale to 1.32 million listings, approaching 2019 levels.
• The median home price to increase 3.1% to $418,390, with no major risks evident in the economy or housing market that would lead to a major nationwide drop in home prices.
• A wide variation in market conditions across the U.S., where higher-income households and higher-cost markets, such as Boston, New York, and Washington, D.C., fare better. This includes first-time buyers who have been saving or have the benefit of assistance from family members.

"There will be competing pressures in 2025, creating a tug-of-war that could impact the housing market in surprising ways," said Lisa Sturtevant, Bright MLS Chief Economist. "There is significant pent-up demand and pent-up supply in the housing market, which could be unleashed in the new year. However, there is also economic uncertainty and political unpredictability that could restrain home sales activity."

Key 2025 housing trends and the wild cards

The push and pull of the economic and political landscape will keep mortgage rates above 6%. The current outlook is for the economy to continue to be strong into 2025, which could lead to rising inflation and prompt the Federal Reserve to pause its rate cuts. Initiatives proposed by President-elect Trump, such as tariffs and a crackdown on immigration, also raise the inflation risk. In addition, fiscal policies proposed by Trump during the campaign are projected to add significantly to the federal deficit, another factor supporting higher interest rates.

A mix of factors will drive 2025 home sales. Elevated mortgage rates and rising prices have kept both first-time and repeat buyers on the sidelines, creating significant pent-up demand in the housing market. With rates above 6% seen as the new normal, more buyers will see 2025 as the opportunity to buy now that there is more inventory, softer price appreciation, and more room for negotiation. Fewer new homes available will drive more sales of existing homes in 2025.

Conversely, high home prices coupled with elevated mortgage rates will continue to price moderate-income buyers out of the market. A healthy supply of rental housing means that in many markets, renting will make more sense than buying, leading to uneven home sales activity throughout the U.S.

Inventory will continue to increase in 2025, though supply growth will slow. Influenced by life and financial changes, more sellers are expected to get into the market in 2025. However, year-end inventory is expected to rise by 12.5% next year, a slower pace of growth than 2024. That slower growth in inventory of existing homes is related to easing in the new construction market. When there are fewer new homes available on the market, buyers have to look to existing homes, which keeps the inventory of existing homes from rising more quickly.

Home prices to rise, but at a slower pace. With more inventory, home prices will grow more slowly. Although there are no risks of a major nationwide price decline, a surge in inventory and historically fast price growth will dampen price expectations in 2025 in some markets.

A tale of two cities and buyers. There will be a lot of variations in home prices across the U.S. in 2025. Although it may seem paradoxical, markets with higher-income households—even those where home prices are already high—are likely to see the fastest appreciation, while more moderate-income markets will be more adversely impacted by elevated rates and affordability challenges. 

The markets most at risk of slow price growth, or even year-over-year declines, are those where:

• Prices rose significantly more quickly than the rest of the country between 2021 and 2024, or where prices declined between Q3 2023 and Q3 2024 (e.g., Tampa, Fla.; Buffalo, N.Y.; San Antonio, Texas)
• Inventory gains have been significantly greater than in other markets (e.g., Orlando, Fla.; Denver, Colo.; Miami, Fla.)
• Employment has declined in the region (e.g., Detroit, Mich.; Minneapolis, Minn.; Salt Lake City, Utah)
• Current median home prices are more than 10 times higher than per capita income (e.g., San Diego; Calif.).

According to Sturtevant, it is not just about housing market conditions, however.

"Higher-income households and homeowners likely will fare better in the 2025 housing market than will entry-level and moderate-income buyers. Metros where overall household incomes are lower are more at risk of a weakening housing market, while higher-income metros—even those where home prices are very high—are projected to see stronger price growth," she said. "As such, many of the higher-cost metros—including Boston, New York City, and Washington, D.C.—are projected to have faster price growth in 2025 than the national average."

Bright MLS 2025 National Housing Metrics & Historical Data

To view Bright's full 2025 housing forecast, please visit: brightmls.com/research

Methodology: Bright's forecast is based on analysis of historic data from the National Association of  REALTORS®, Freddie Mac, and the U.S. Bureau of Labor Statistics, and takes into account economic and demographic factors that will drive housing demand and supply in 2025.

About Bright MLS
Bright MLS was founded in 2016 as a collaboration between 43 visionary associations and two of the nation's most prominent MLSs to transform what an MLS is and what it does, so real estate pros and the people they serve can thrive today and into our data-driven future through an open, clear and competitive housing market for all. Bright is proud to be the source of truth for comprehensive real estate data in the Mid-Atlantic, with market intelligence currently covering six states (Delaware, Maryland, New Jersey, Pennsylvania, Virginia, West Virginia) and the District of Columbia. Bright MLS's innovative tool library—both created and curated—provides services and award-winning support to well over 100K real estate professionals, enabling their delivery on the promise of home to over half a million home buyers and sellers monthly. Learn more at BrightMLS.com.

SOURCE Bright MLS