Redfin forecasts mortgage rates will average 6.8% in 2025, and hover around the low-6% range if the economy continues to slow.
Yet experts expect 2025 will be a “bumpy” and “volatile” year for mortgage rates.
Borrowing costs for home loans could spike if policies like tax cuts and tariffs are enacted, putting upward pressure on inflation.
“We’re sort of in uncharted territory. It’s really tough to say exactly what’s going to happen,” said LendingTree’s Channel.
Mortgage rates declined this fall in anticipation of the first interest rate cut since March 2020. But then borrowing costs jumped again in November as the bond market reacted to Donald Trump’s election win. Since then, mortgage rates have somewhat stabilized — for now.
“Our expectation is that rates are going to be in the 6% range as we move into 2025,” Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors, recently told CNBC.
More home sales than in 2024
Pent-up demand from buyers and sellers on the sidelines may drive home transactions next year.
“People have waited long enough,” Fairweather said.
About 4 million homes are expected to be sold by the end of 2025, an annual increase between 2% and 9% from 2024, according to Redfin.
The market is piling on with “people who need to move on with their lives,” like buyers who are getting new jobs and need homes suitable for life changes, and sellers who have delayed moving plans, Fairweather said.
While more buyers are expected to hit the market next year, the level of competition may not be as aggressive as in recent years, when bidding wars were the norm.
Other affordability factors may come into play, like rising insurance costs and property taxes, in turn slowing down competition, said CoreLogic’s Hepp.
“We’ll definitely see more buyers out there,” she said. “But I don’t see the competition heating up to the levels that it has over the last few years.”
Climate risks will bake into homes prices
The risk of extreme weather and natural disasters may anchor down home prices or slow down price growth in areas like coastal Florida, California and parts of Texas, which are at high risk of hurricanes, wildfires or other disasters, Redfin expects.
If palatable price tags have you eyeing homes in a high-risk market, be aware of potential complications.
For instance, home insurance policies in some of these markets are harder to come by, and tend to carry high price tags. The financial impact of natural disasters may also be felt in rising home maintenance and repair costs, said Redfin’s Fairweather.
What’s more challenging, “every part of the country is vulnerable” because the weather patterns are changing, she said. “Lately, there have been these atmospheric rivers in California that have caused days of heavy flooding, and those homes aren’t built for that.”
While there’s a lot of focus on Florida for hurricane risks, the state is more prepared for this natural disaster, unlike areas like Asheville, North Carolina, a mountainous city battered by the hurricane Milton earlier this year.
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