Mortgage rate fluctuations significantly impacted the housing market throughout 2024, and experts predict these trends will continue to shape home sales as we head toward 2025. According to Zillow’s latest market report, the coming year is anticipated to see improvements, albeit with some expected bumps along the way.
Skylar Olsen, Chief Economist at Zillow, noted, "There’s a strong sense of déjà vu on tap for 2025. We are once again expecting mortgage rates to get gradually closer to historic levels, which will present opportunities for buyers. Those shopping this winter have ample time to choose and negotiate, putting them of strong positions." The report cites 4.06 million sales expected for 2024, with a slight uptick to 4.16 million anticipated for 2025.
While home values are forecast to rise modestly—estimated at about 2.2% over the course of 2025—changes to mortgage rates could very well dictate how buyers react. A notable drop in rates had already contributed to increased sales late in the year, creating what Zillow describes as the second-half tailwind for 2024.
The current housing inventory continues to experience inadequacies, with listings still about 14% lower than pre-pandemic levels. Yet progress is being made; for-sale inventory has improved, currently down 26% compared to the norms set between 2018 and 2019. The flow of new listings, coupled with lower competition during winter months, may advantage buyers who are patient and prepared to act quickly when opportunities arise.
Zillow's analysis shows competition for homes has also cooled as of late 2024. According to their market heat index, only 28% of homes sold for more than asking price back in October, which reflects the trend of dwindling buyer urgency compared to the frantic nature of the spring market.
Looking north to Canada, predictions for the housing market are somewhat bullish as well. The Bank of Canada may have additional leeway to reduce rates, with expectations of residential real estate making a strong comeback, especially for single-family homes. Experts like Ted Rechtshaffen forecasted year-over-year price increases as high as 10%, highlighting significant underlying factors fueling this growth.
Rechtshaffen cites high immigration rates, which peaked at 500,000 newcomers for 2024, as creating tremendous home-buying demand. This has played out against the backdrop of increasing interest from first-time buyers, particularly as mortgage affordability improves with new regulations allowing insured mortgages up to $1.5 million.
He points out, "There’s delayed purchasing demand, as cultural expectations shift and younger generations accumulate resources. The pent-up demand has been building for years, setting the stage for ramps up when conditions align." The increase allows potential buyers to enter the market with only 5% down, attracting those previously segmented out of such investments.
Despite prior home price declines, signs indicate stability has begun to take hold. The average national home price reported by the Canadian Real Estate Association has plateaued around $723,000 as of November 2024. This position allowed buyers, particularly first-time homeowners, to reconsider entering the market.
While rates could see slight declines moving forward, the risk of waiting may discourage some buyers. Rechtshaffen warns, "Those still waiting for prices to drop could miss opportunities as competition grows." Market dynamics suggest those contemplating buying now could see significant effects from the resurgence of demand.
The housing market indicators suggest both the U.S. and Canadian housing markets are moving toward stability, with cautiously optimistic projections for growth. Zillow’s report suggests slower descending mortgage rates are paving the way for renewed interest and engagement within the housing sector.
For prospective buyers, whether considering entering the market for the first time or moving up to larger homes, now could be the moment to act. A unique convergence of gradually easing mortgage rates, inventory improvements, and decreased buyer competition create conditions attractive to homeowners appearing to take stock of their housing strategy for the year to come.
Whether building dream homes or leveraging lower borrowing costs, many will find 2025 to be the guiding light on the open road to homeownership. By adjusting expectations and readiness to act, buyers may find themselves unlocking possibilities amid what remains one of the most dynamic markets observed.
