Home sales poised to increase next year, if rates cooperate

Rhea-AI Summary

Zillow's 2025 housing market forecast predicts a gradual increase in home sales from 4.06 million in 2024 to 4.16 million in 2025, contingent on declining mortgage rates. Home values are expected to grow by 2.2% over 2025, similar to the 2.3% annual appreciation observed in November.

The market shows signs of normalizing, with inventory deficits improving from pandemic lows. New listings are now only 14% below pre-pandemic levels, compared to a 25% deficit in March. Total inventory remains 26% below 2018-2019 norms, the smallest gap since September 2020. The current market is becoming more buyer-friendly, with less than 28% of homes selling above list price in October, and reduced competition during winter months provides better negotiating opportunities for buyers.

Positive

• Projected increase in home sales from 4.06M to 4.16M in 2025
• Expected 2.2% home value growth in 2025
• Improving inventory levels, with smallest deficit since September 2020
• Decreasing competition in housing market with fewer homes selling above list price

Negative

• New listings still 14% below pre-pandemic levels
• Total inventory remains 26% below 2018-2019 norms
• Market growth heavily dependent on mortgage rate movements

Insights

Housing Market Analyst

The forecast suggests a cautiously optimistic outlook for 2025, with projected home sales increasing by 2.5% to 4.16 million from 4.06 million in 2024. The anticipated 2.2% home value appreciation aligns with current trends, indicating market stability. Notably, inventory constraints are easing, with the new listings deficit improving to -13.5% from -25% in March. The market is showing signs of normalization, with declining bidding wars and only 27.8% of homes selling above list price. However, this recovery remains heavily dependent on mortgage rate movements, suggesting continued market sensitivity to rate fluctuations.

Market Research Analyst

Regional variations paint an intriguing picture of market dynamics. Major coastal markets like San Jose and New York show robust appreciation (7.5% and 7.0% respectively), while Sun Belt markets like Austin (-3.4%) and San Antonio (-2.4%) experience price corrections. The data reveals a significant inventory recovery in some markets, with New Orleans showing a 57.4% increase over pre-pandemic levels, while others like Hartford remain severely constrained at -66.0%. These disparities highlight the increasingly localized nature of housing market conditions.

Zillow forecasts a gradual but bumpy decline in rates, impacting sales and price growth

• Zillow's 2025 forecast expects only about 100,000 more sales than in 2024.
• Home value growth nationwide is predicted to be low and slow: 2.2% over 2025.
• Inventory and new listings are trending in the right direction, reducing pandemic-era deficits.

SEATTLE, Dec. 16, 2024 /PRNewswire/ -- Erratic and dramatic mortgage rate movements that heavily influenced the housing market in 2024 are destined to play a major role in the coming year, according to Zillow's latest market report¹.  

"There's a strong sense of déjà vu on tap for 2025. We are once again expecting mortgage rates to get better gradually, and opportunities for buyers should follow, but be prepared for plenty of bumps on that path," said Zillow Chief Economist Skylar Olsen. "Those shopping this winter have plenty of time to choose and a relatively strong position in negotiations." 

A forecast for slowly declining mortgage rates in 2025 spells gradual growth for both sales and home price appreciation in Zillow's outlook. A September dip in rates gave a second-half tailwind to this year's home sales² — Zillow expects 4.06 million sales for 2024. That number should rise slightly to 4.16 million in 2025. Home values are forecast to tick up 2.2% over the course of 2025, right in line with the 2.3% annual appreciation observed in November.

Recent and unpredictable drops in mortgage rates further impress the need for buyers to be ready to move when opportunity arises. Zillow's new BuyAbility^SM tool uses current daily mortgage rates to determine a home budget that is affordable for individual users, based on their unique financial situation.

After the ups and downs of the past five years, many measures of the housing market are trending closer to historical norms. The flow of new listings to the market is still nearly 14% lower than it was before the pandemic, but that's great progress over March's 25% deficit. 

Total for-sale inventory is similarly clawing its way out of a deep hole that developed early in the pandemic. It's now about 26% below the norms of 2018–2019, the smallest shortfall seen since September 2020. Both of these should continue to improve next year, but again, progress will depend heavily on what happens with rates.

Shoppers looking for homes during the slower winter months may have an opportunity to snag a deal in a market that's becoming increasingly buyer-friendly. Zillow's market heat index shows competition for homes cooled nationwide and in 36 of 50 major U.S. metro areas from October to November. 

While the number of options available to shoppers today are lower than they will likely see in the spring, there's also less competition in the field. The share of homes that sold for more than list price was below 28% in October (the latest data available), continuing a downward trend that began in July. Compared to the spring rush, buyers today should have an easier time negotiating from a position of safety, with a greater chance to buy contingent on inspections or repairs and a lesser chance of being drawn into a bidding war. 

Metro Area*	Zillow Home Value Index (ZHVI)	ZHVI Change, Year over Year (YoY)	Share of Listings Sold Over Asking Price (October)	Inventory Change Since Before the Pandemic	New Listings Change Since Before the Pandemic	Median Days to Pending
United States	$358,761	2.3 %	27.8 %	-26.3 %	-13.5 %	28
New York, NY	$680,934	7.0 %	51.3 %	-54.6 %	-35.4 %	32
Los Angeles, CA	$956,130	4.5 %	44.1 %	-27.7 %	-27.0 %	24
Chicago, IL	$323,596	5.0 %	34.7 %	-47.7 %	-10.1 %	19
Dallas, TX	$368,995	-0.5 %	16.8 %	-1.3 %	-12.3 %	36
Houston, TX	$306,412	0.4 %	14.8 %	-3.0 %	-3.2 %	39
Washington, DC	$570,857	4.1 %	40.7 %	-39.4 %	-18.0 %	16
Philadelphia, PA	$364,488	4.5 %	39.9 %	-44.2 %	-12.7 %	14
Miami, FL	$485,481	1.4 %	8.9 %	-7.4 %	-8.4 %	53
Atlanta, GA	$379,029	0.6 %	19.3 %	-5.8 %	-20.4 %	42
Boston, MA	$697,983	4.6 %	51.2 %	-43.7 %	-29.0 %	14
Phoenix, AZ	$454,180	-0.4 %	16.7 %	-12.5 %	-18.2 %	33
San Francisco, CA	$1,145,082	2.0 %	59.7 %	-8.6 %	-27.1 %	24
Riverside, CA	$585,948	3.4 %	40.9 %	-26.5 %	-25.5 %	30
Detroit, MI	$249,644	4.1 %	37.1 %	-34.6 %	-9.9 %	17
Seattle, WA	$741,380	4.7 %	33.0 %	-24.1 %	-31.0 %	24
Minneapolis, MN	$371,593	1.7 %	34.2 %	-27.7 %	-17.9 %	34
San Diego, CA	$941,878	3.9 %	36.3 %	-32.7 %	-30.5 %	26
Tampa, FL	$370,924	-1.9 %	14.3 %	5.8 %	-5.8 %	36
Denver, CO	$582,285	0.7 %	23.1 %	3.1 %	-33.5 %	37
Baltimore, MD	$387,856	3.1 %	42.2 %	-45.9 %	-12.5 %	15
St. Louis, MO	$251,699	3.6 %	40.7 %	-43.7 %	-5.7 %	11
Orlando, FL	$392,046	0.0 %	11.6 %	13.8 %	-10.8 %	40
Charlotte, NC	$378,269	1.5 %	19.2 %	11.3 %	-3.9 %	30
San Antonio, TX	$280,313	-2.4 %	13.5 %	21.1 %	-4.7 %	55
Portland, OR	$547,284	1.4 %	31.6 %	-21.0 %	-31.8 %	33
Sacramento, CA	$580,298	1.9 %	37.3 %	-28.0 %	-25.8 %	24
Pittsburgh, PA	$209,632	2.3 %	25.9 %	-31.9 %	-5.1 %	22
Cincinnati, OH	$283,491	4.0 %	28.5 %	-33.2 %	-9.9 %	11
Austin, TX	$443,995	-3.4 %	10.4 %	29.9 %	-21.9 %	71
Las Vegas, NV	$431,058	5.2 %	19.0 %	-20.6 %	-24.5 %	33
Kansas City, MO	$301,202	3.2 %	30.9 %	-35.1 %	-17.8 %	16
Columbus, OH	$312,283	3.3 %	32.8 %	-22.8 %	-11.7 %	13
Indianapolis, IN	$277,058	3.0 %	19.9 %	-15.7 %	-5.8 %	21
Cleveland, OH	$229,803	5.9 %	37.8 %	-51.5 %	-11.9 %	13
San Jose, CA	$1,608,753	7.5 %	68.2 %	-32.3 %	-25.6 %	19
Nashville, TN	$437,563	1.3 %	15.2 %	-10.1 %	-13.3 %	35
Virginia Beach, VA	$350,407	4.4 %	33.0 %	-44.3 %	-10.4 %	31
Providence, RI	$486,878	6.7 %	48.6 %	-59.5 %	-25.2 %	16
Jacksonville, FL	$353,661	-0.7 %	12.9 %	11.4 %	-5.2 %	56
Milwaukee, WI	$346,019	4.8 %	45.2 %	-23.5 %	10.2 %	31
Oklahoma City, OK	$231,671	2.1 %	22.2 %	-5.0 %	0.8 %	33
Raleigh, NC	$441,641	0.9 %	24.4 %	-12.2 %	-26.2 %	26
Memphis, TN	$234,485	0.9 %	16.7 %	0.4 %	-9.8 %	29
Richmond, VA	$370,344	4.1 %	41.9 %	-39.2 %	-14.8 %	14
Louisville, KY	$257,372	3.9 %	25.3 %	-29.5 %	-11.3 %	18
New Orleans, LA	$236,681	-1.9 %	13.3 %	57.4 %	22.6 %	47
Salt Lake City, UT	$547,671	2.1 %	28.4 %	-13.3 %	-30.5 %	28
Hartford, CT	$365,001	6.7 %	63.5 %	-66.0 %	-15.9 %	9
Buffalo, NY	$261,680	5.2 %	67.2 %	-44.7 %	-12.4 %	16
Birmingham, AL	$248,369	0.2 %	23.4 %	-17.2 %	-2.4 %	27

*Table ordered by market size

¹  The Zillow® market report is a monthly overview of the national and local real estate markets. The report is compiled by Zillow Research. For more information, visit zillow.com/research.
²  National Association of Realtors existing home sales, not seasonally adjusted.

About Zillow Group:
Zillow Group, Inc. (Nasdaq: Z and ZG) is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, dedicated partners and agents, and easier buying, selling, financing, and renting experiences. 

Zillow Group's affiliates, subsidiaries and brands include Zillow®, Zillow Premier Agent®, Zillow Home Loans℠, Zillow Rentals®, Trulia®, Out East®, StreetEasy®, HotPads®, ShowingTime+℠, Spruce®, and Follow Up Boss®. 

All marks herein are owned by MFTB Holdco, Inc., a Zillow affiliate. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). © 2024 MFTB Holdco, Inc., a Zillow affiliate.

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SOURCE Zillow

FAQ

What is Zillow's home sales forecast for 2025?

Zillow forecasts home sales to increase from 4.06 million in 2024 to 4.16 million in 2025, representing a modest growth of 100,000 sales.

How much are home values expected to appreciate in 2025 according to Zillow?

Zillow predicts home values will appreciate by 2.2% over the course of 2025.

What is the current state of housing inventory compared to pre-pandemic levels?

Total housing inventory is 26% below 2018-2019 norms, while new listings are 14% lower than pre-pandemic levels.

What percentage of homes sold above asking price in October 2024?

Less than 28% of homes sold above asking price in October 2024, showing a downward trend since July.

How are current market conditions affecting home buyers?

Current market conditions are becoming more buyer-friendly, with less competition, better negotiating positions, and increased chances to include inspection and repair contingencies.