Real Estate Market Predictions 2025

The real estate market is expected to experience several shifts over the next 12 months. CoreLogic recently announced its latest housing market predictions, providing insights into potential trends and changes. Here’s a detailed look at their forecast for home prices, key markets, and other factors influencing real estate in 2025.

Home Price Growth and Slowdown

Over the past 12 months, home prices nationwide, including distressed home sales, increased year-over-year by 4.9% in May 2024 compared to May 2023. Interestingly, this aligns closely with CoreLogic’s previous forecast, which predicted a 4.9% rise. However, it also marks a slowdown compared to the 5.3% gain from April 2023 to April 2024, indicating a gradual cooling of the market.

Month-to-Month Price Changes

In terms of month-to-month changes, home prices increased by 0.6%, a decrease from the 1.1% rise seen between March and April of 2024. This slowing pace reflects a broader trend in the market, showing that while prices are still climbing, they are doing so at a more moderate rate.

CoreLogic’s Forecast for 2025

Looking ahead, CoreLogic predicts a 3% increase in home prices year-over-year from May 2024 through May 2025, based on their Home Price Index (HPI). This forecast is a slight revision from their earlier prediction of a 3.4% rise. Moderation is attributed to increased inventory and elevated mortgage rates, both of which contribute to the cooling demand for home buying.

Regional Price Variations

The Northeast region continues to lead in home price appreciation, with New Hampshire being the only state to post double-digit gains at 12%. Other states seeing significant year-over-year increases include Rhode Island, New Jersey, Connecticut, Wisconsin, Virginia, Illinois, Maine, Ohio, and South Dakota. On the other hand, markets like Texas and Florida, where inventory has increased, are experiencing a slowdown in price growth.

Insurance Rates and Housing Affordability

One factor impacting the real estate market is the rising cost of home insurance. According to S&P Global, the average home insurance premium rate for owner-occupied homes has skyrocketed in recent years. In 2023, premiums increased by 11.3%, compared to just 3.2% in 2018. States like Texas saw the highest jumps, with a 23.3% increase, followed by Arizona at 22% and Utah at 20%. These rising costs, combined with high home prices, are making it more challenging for buyers to afford homes.

Inventory Trends and Regional Differences

The Northeast continues to struggle with low inventory, with some areas seeing a reduction of 50-80% compared to pre-pandemic levels. In contrast, regions like Texas and Florida are seeing inventory increases. This divergence is causing significant differences in market dynamics, with prices in the Northeast still climbing, while regions with higher inventory are seeing slower growth or even price declines.

Top Five Markets Where Home Prices May Decline in 2025

CoreLogic identified five markets where they predict home prices will decrease over the next 12 months:

1. Palm Bay-Melbourne, Florida
2. Gainesville, Florida
3. Atlanta, Georgia
4. Spokane, Washington
5. Northport-Sarasota, Florida

Will the Housing Market Crash in 2025?

The housing market has seen significant shifts in recent years, leading many to wonder: Will the housing market crash in 2025? Home prices hit a record high in June 2024, followed by a slight decline in July. Is this a sign of an impending crash, or is it simply a seasonal trend? Let’s dive into the data to understand the current situation.

Current Home Prices

The median sale price of a home in the U.S. stands at $439,500, representing a 47% increase over the past five years. Compared to 12 months ago, home prices have risen by 4.1%. However, from June to July, home prices fell by 0.6%. While this drop might raise concerns, it’s important to note that similar decreases occurred in 2023, 2022, and 2021 during the same period, likely due to seasonal factors.

Foreclosures and Supply Levels

One possible trigger for a housing market crash could be a massive wave of foreclosures. Currently, about 1.8 million homes are listed for sale. To provide context, during the 2010 housing market crash, there were 2.9 million foreclosures. However, foreclosures in 2024 are actually down compared to last year and remain far below 2008 levels.

Supply vs. Demand

Another potential factor could be a sudden spike in housing supply. Right now, there are 1.81 million homes listed for sale, which is up by 17.7% compared to last year. However, this is still below pre-pandemic levels of 2.4 million in July 2019. With demand continuing to outstrip supply, a market crash seems unlikely.

The Role of the Federal Reserve

For a market crash to occur, there would need to be a severe recession, leading to higher unemployment and a drop in demand. However, given the current economic situation, the U.S. government and Federal Reserve are unlikely to allow a deep recession. The Federal Reserve is expected to cut interest rates starting in September 2024, which would lower mortgage rates and stimulate demand, making a housing market crash even less probable.

Interest Rates and the Future of the Market

As of now, the 30-year fixed mortgage rate has dropped to a one-year low of 6.46%. With the Federal Reserve likely to continue cutting rates, mortgage rates could fall to the 5% to 6% range in 2024 and potentially below 5% in 2025, depending on inflation trends.

Real Estate Market Predictions 2024

As we approach the halfway mark of 2024, it’s an excellent time to review the housing market predictions I made in October of last year. In this post, I’ll assess those forecasts, adjust them as necessary, and make new predictions for the remainder of the year.

Price Predictions
In October, I predicted that housing prices for December 2024 would remain relatively flat, with a year-over-year change in the range of -4% to 4%. My belief was that prices would stabilize, resulting in minimal upward or downward shifts—contrary to the volatility we’ve seen since the pandemic began. So far, prices have risen by 5%, slightly above my forecast range, but it’s important to remember that my prediction was for the end of the year, and there’s still time for prices to adjust.

Volume Predictions
I also predicted that home sales volume would remain flat throughout 2024, with a possible slight increase by December. Currently, transaction volumes have remained remarkably steady, even showing a slight decrease year-over-year, which aligns with my forecast.

Affordability Problems
The 2024 housing market is largely driven by affordability. Several key factors contribute to affordability:

• Home Prices: Prices have remained high and continue to rise.
• Income: Although wages are growing faster than inflation, the gains are minimal.
• Mortgage Rates: These are much higher than in recent years.

With affordability at its lowest point since the 1980s, home sales volumes have remained low. People want to buy homes, but many simply cannot afford them, causing a drop in demand. On the flip side, low affordability has also kept sellers out of the market due to the “lock-in effect,” where moving to a new, more expensive home is not feasible for many. This has created an unusual dynamic where both demand and supply are weak.

Wages Are Rising
Though wages are increasing, they are not making a significant impact on housing affordability in 2024. Wages are currently growing at about 4% annually, but inflation is hovering around 3%, leading to real wage growth of just 1%—far too low to make homes more affordable this year.

Mortgage Rate Prediction
Mortgage rates have been highly volatile. Rates trended upwards throughout the year, hitting 7.5% in April before settling back at around 7% in May. My prediction is that we may see a slight drop in rates to the mid-to-low 6% range by the end of the year, largely due to a weakening labor market. Although job growth has slowed, it’s still positive, which might encourage the Federal Reserve to make some rate cuts.

Housing Inventory Prediction
One of the most significant factors that could impact home prices is housing supply. Inventory is starting to tick upward, and new listings have increased year-over-year on a seasonally adjusted basis. My expectation is that we will see a proportional increase in both supply and demand if mortgage rates fall slightly, which could lead to a balanced market.

Updated Home Price Prediction
I’m sticking with my initial prediction of a year-end price change in the range of -4% to 4%. While prices have been trending positively, I don’t expect them to stay at 5% year-over-year growth. I anticipate they will cool down, and prices will likely end the year between 0% and 4% growth.

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