T
he real estate market is poised to settle into a new normal after several atypical years, with lower interest rates, increased sales, and improving affordability expected in 2025. To make sense of the complex data driving residential real estate decisions, Housing Market Decoded offers expert analysis from economists and other market experts.

    As we approach the end of the year, predictions for the coming year are emerging. While no one can predict the future with certainty, here are five key trends to watch in 2025:

    Interest rates will decline gradually, falling below 6.5% as the economy cools down and inflation slows. Temporary factors like election jitters and market volatility have pushed mortgage rates up, but the long-term trend remains a decrease.

    Existing home sales will pick up, increasing by up to 10% year over year in 2025. Sales were held back by low inventory in previous years, but sellers are returning to the market, and buyer activity is picking up.

    Home prices will stabilize, rising by only 2-4% in 2025. After a rollercoaster ride of starts and stops due to interest rate fluctuations and changing supply, inventory levels have returned to balance, leading to more consistent pricing.

    Affordability will improve as interest rates decline and incomes rise. The median U.S. household income has increased by $10,000 over the past two years, helping homebuyers catch up with home price growth.

    More parents will help fund down payments for their adult children, who are struggling to afford homes due to high prices. This trend is driven by baby boomers' accumulated home equity and a desire to support their children's homeownership goals.