Will the Housing Market Crash in 2025?

As interest rates remain high and inventory remains low, many potential homebuyers find themselves watching the market for signs of instability. In fact, since the pandemic, many real estate experts have been waiting for the other shoe to drop, anticipating a major crash that would affect all aspects of the housing market. So far, that hasn’t happened—and hopes are high that it won’t.

“Our official 2025 housing forecast isn’t out until later in the year, but my high level expectation is that the housing market will fare better in 2025,” says Danielle Hale, chief economist for Realtor.com. Since it’s been almost five years since the start of the pandemic—which greatly affected the housing market—we’re taking a closer look at market indicators to see whether a crash is possible.

A Review of the Current Housing Market

A few key things happened to the housing market when the pandemic hit in early 2020. First, many employees began working remotely. After months of this new lifestyle, renters and homeowners decided they wanted more space both for their home offices and for their backyards. These homeowners began buying or listing their current home for sale, causing a sudden boom in the market.

But the boom didn’t last long—shortly after, astronomical home prices caused the Federal Reserve to begin raising mortgage interest rates. Sky-high rates remain, and have had a freeze effect on the market for both current homeowners and prospective first-time buyers. That’s because those who own a home are reluctant to sell (and give up their current mortgage rate), so potential homebuyers are being priced out of the market.

Today, many experts believe that inventory levels are balancing out while home prices continue to trend back to normal. Still, interest rates remain high.

“2024 began with a lot of promise as mortgage rates dropped in late 2023, but that promise largely faded as mortgage rates climbed,” Hale says. “As we near the end of 2024, we’re seeing mortgage rates decline again. As I expect this mortgage rate decline will continue, 2025 is likely to see improved home sales.”

Will the Market Crash in 2025? 

Most experts agree that rather than crash, the market will continue to experience a correction that will benefit both buyers and sellers. “First and foremost, I do not foresee a crash, particularly one as severe as we had in 2008,” says Ann Cooper, a broker with Re/Max of Boulder for 27 years. “The lessons learned from that time have led to tighter lending regulations, and we have a stronger overall economy today.”

“Instead, what I think will happen, and I’m already seeing it, is that home pricing will stabilize, and the rapid price increases we’ve experienced in recent years will flatten out,” Cooper says. “Local variations will likely occur, meaning some markets will still experience rising home prices. It depends on inventory levels, buyer demand and local economies.”

Steve Nicastro, a Managing Editor at Clever Real Estate, agrees. “I’m not expecting a crash but rather, a potential cooling-off period with possibly some small price declines,” he says. “The main reasons why: First, inventory is rising nationwide, and we now have the most active listings on the market since pre-COVID.”

Nicastro said he expects inventory levels will continue to rise as homeowners who locked in mortgage rates of 3-4% see current rates dropping and begin to feel more comfortable listing their homes and making a move. “That’s good news for buyers who now have more options, with fewer bidding wars,” he says.

A Closer Look at Interest Rates

Experts agree that the downward trend in mortgage rates will continue this year, beginning with a Federal Reserve meeting in September. “The Fed is meeting this month and is widely expected to cut rates by 0.25 basis points, but they could cut rates even more at future meetings,” Nicastro says. “Whereas rates were once 7% on a 30-year fixed, they’re now around 6-6.5% and potentially could fall into the 5% range in 2025, which would support demand.”

And as the interest rate drops, homes will become more affordable to buyers. “These factors impact the housing market and home prices and are intertwined,” Nicastro says. “Mortgage interest rates are expected to fall as the Fed begins cutting rates at its September meeting and potentially further at subsequent meetings.”

But, mortgage rates aren’t the only factor experts are watching for signs of the market’s health.

4 Major Indicators the Experts are Watching

When assessing the health of the housing market, Cooper pays attention to interest rates, inflation, employment rates, and inventory levels.

“Higher interest rates ultimately raise the final home purchase price. When you add in the higher interest payments, homebuyers are paying more for a house than they would have when the rates were substantially lower,” Cooper says. “This reduces the affordability of homes and can lead to a slowdown in the market.”

Similarly, she says high inflation negatively affects buyers’ purchasing power. “Lower unemployment rates generally boost consumer confidence and increase demand in the housing market,” she adds. “The reverse is also true. If the employment rates drop, consumer confidence also drops, and the housing demand decreases.”

Finally, high inventory can drive prices down while low inventory can increase it. “Housing affordability is the dominant factor for the median home buyer, and mortgage rates, incomes, and home prices are the trio of most-important factors that shape affordability,” Hale says. “Rising incomes have been a positive factor for housing affordability, but haven’t been enough to totally offset the sting of higher home prices and mortgage rates. Looking ahead, incomes may not grow as fast as the economy downshifts, so this tailwind will shift to a headwind, but mortgage rates are expected to provide a boost to homebuyer purchasing power after a period of drag.”

Hale noted that the number of homes listed for sale in August were lower this year than in the prior year, which was a departure from recent trends.

“The increase in supply has also helped slow time on market, which has continued to remain much faster than was typical before the pandemic,” she says. “Nationwide, homes were on the market for 7 days longer than one year ago. Further, Realtor.com data show that for every 5.5 percentage point increase in active listings in a market, days on market increased by 1 day. This gives shoppers additional time to make decisions, and is particularly valuable for first-time shoppers navigating a purchase decision.”

As home prices have increased over the past few years, many areas began combating the inventory shortage with affordable, new constructions—a trend we’ll continue to see in 2025.

“The build-up in affordable housing inventory has so far been most notable in the South. This region has seen more new-construction than other regions in both the single-family and multi-family sides of the housing market which has helped the region come closest to closing the inventory gap versus pre-pandemic norms,” Hale says. “This has helped keep home prices and rents somewhat softer in this region whereas prices in the Northeast and rents in the Midwest have continued to climb.”

What Happens Next?

Experts say that many parts of the country will continue to see price corrections as mortgage rates drop. “Generally, markets that saw significant price increases during the pandemic—such as Austin, Phoenix, and Raleigh—are more vulnerable to price corrections as supply increases and demand softens,” Nicastro says. “On the other hand, lower-priced markets that didn’t experience dramatic price surges, and those that benefit from strong employment and favorable demographics, are likely to perform more steadily.”

And if you’re preparing to list your home, Nicastro suggests relying on your real estate agent for pricing suggestions. “Sellers need to be more realistic with pricing, as many still believe we’re in the red-hot COVID market where they could list above fair market value and expect 10-20 showings and multiple offers in the first week,” Nicastro says. “Those outcomes are much less common in today’s market.”

If you’re buying, be ready to pull the trigger when the timing is right, Nicastro adds. “This means getting their financial position in a good place: Improving credit score, boosting income, and reducing expenses, while also saving up for a down payment and closing costs,” he says. “Finally, both buyers and sellers should connect with an experienced realtor in their market for local insights. They can help you get up to date on what’s going on in your market.”

In the meantime, the country is on the brink of a presidential election—the outcome of which will have notable impact on the housing market. “Both presidential candidates have recognized a need for additional housing supply in the U.S. market,” Hale says. “Their approach to tackling this gap differs and will undoubtedly play a role in what’s ahead, but this will hinge not only on who is elected, but how they can ultimately work with Congress to get proposals across the finish line.”

“The role Government policies and regulations play in the housing market’s performance in 2025 is entirely dependent on what policies and regulations they implement,” Cooper says. “Easing mortgage regulations, relaxing lending standards, or lowering down payment requirements could increase affordability and stimulate demand, helping prevent a significant market downturn. Conversely, stricter lending standards can reduce affordability and lead to declining demand. This could potentially exacerbate a market downturn.”

Outside of the election, Cooper says individual regions can look to local data for indications of their own housing market health. “Many factors will regionally impact the 2025 housing market outlook,” Cooper says. “For example, regions with solid job growth will likely experience stability or even increases in housing prices. Regions with multiple industries that help drive their economies are also less susceptible to a downturn. Lastly, areas experiencing population growth will also see an increased demand for housing, which can drive up the prices.”

Cooper also believes that although the initial work-from-home wave has ended, the shift to hybrid work schedules will continue to affect the market. “It’s worth noting that the continued shift to remote work is impacting the demand for suburban and rural housing as homebuyers move out of urban markets,” she says.

Advice for Buyers and Sellers

If you’re considering buying or selling in the coming year, experts agree there are a few things you can do absent of any major market shifts.

“It can be really frustrating for homebuyers and sellers who feel like there are many factors beyond their control,” Hale says. “But the best approach is to recognize that there is a lot that’s beyond their control and focus on the things that can be adjusted.”

Hale says there are things that buyers can do to improve their individual mortgage rate according to research from Realtor.com. Buyers who work to improve their credit score, drop debt or grow their income, make a larger down payment or shop around among lenders will often get a better rate.