How will the housing market be more buyer-friendly despite fluctuating mortgage rates?
Zillow is forecasting a shift in the housing market for 2025, with more buyers expected to gain the upper hand, though unpredictable mortgage rates will continue to challenge homebuyers throughout the year. The real estate platform anticipates a gradual increase in housing activity, with home values growing at a slower pace and a more active market.
“Buying a home in 2024 was surprisingly competitive given how high the affordability hurdle became. More inventory should shake loose in 2025, giving buyers a bit more room to breathe,” said Skylar Olsen, Zillow’s chief economist. “Americans are adapting to sky-high costs by embracing coziness, a term that for so long has been a thinly veiled critique in real estate lingo. Many are also viewing renting as a longer-term lifestyle. A construction boom has eased pressure on rent prices, putting rent affordability on track to improve next year — that is, as long as wages continue to grow.”
Mortgage rates expected to fluctuate
Despite the projected increase in market activity, mortgage rates are expected to continue their unpredictable path. While Zillow anticipates a potential decrease in rates in early 2025, fluctuations are likely. Mortgage rates will fall, then rise, then fall again, Zillow noted in a news release, and so “home buyers should stay ready to move forward when the time is right.”
The unpredictability of mortgage rates has caused some challenges for buyers, as the share of affordable listings spiked when rates dropped in September 2024, only to climb back near 7% shortly thereafter. Zillow forecasts more of these ups and downs in the coming year, which could spur brief refinancing opportunities when rates dip.
Zillow predicts that buyer-friendly markets will spread to the Southwest in 2025, as inventory continues to increase in more affordable areas. As competition among sellers intensifies, home listings in these areas will need to be strategically priced and marketed to attract potential buyers.
However, Zillow also noted that a significant drop in mortgage rates could reverse these trends, as lower rates may bring more buyers to the market, which could tilt the power back in favor of sellers.
Smaller homes and rent concessions
In addition to changing market conditions, Zillow forecast a continued shift in buyer preferences, with smaller homes gaining popularity. The term “cozy” has become a key descriptor in home listings.
The multifamily construction boom that helped ease rent prices in recent years is also expected to slow down by the second half of 2025. As a result, Zillow predicts fewer rent concessions, such as free parking or months of rent discounts, as competition among property managers wanes.
Meanwhile, the growing trend of pet ownership among renters—now at 58%—is reshaping rental markets. Zillow’s report highlighted the increasing importance of pet-friendly policies, noting that nearly half of renters passed on properties that did not accommodate pets. With renters aging and embracing long-term rental lifestyles, property managers may need to adapt to these shifting preferences to stay competitive.
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