Buckle up for a bumpy ride as 2025 looks to have multiple twists and turns ahead.
- The housing market will keep shifting in 2025.
- The average home value rose by 9% annually.
- Expectations are for approximately a 5% increase in prices for 2025.
- Homebuying activity should pick up after a long slump, despite choppiness in mortgage rates.
- Housing inventory to start the year is the highest since 2020.
- Fewer bidding wars with normalizing housing supply.
- Interest rates to bounce around the mid 6% range.
Believe it or not, the housing market is still normalizing after the COVID-19 pandemic. Over the past few years, the housing market has been — to put it in as simple of terms as possible — on a bit of a bumpy road, and we expect that to continue into 2025. During the peak of COVID-19, we saw interest rates plummet and home purchasing rates soar. Then interest rates skyrocketed and buying a home became more financially challenging for many Americans.
The housing market in 2024 was one of the slowest sales years in three decades. Thankfully, next year is shaping up to be a little bit better.
Many of the plights that kept would-be buyers and sellers sidelined this year, like 6% to 7% mortgage rates and home prices near record highs, aren’t going anywhere. But housing experts expect there to be more homes on the market next year as buyers and sellers come to terms with today’s higher-rate world.
The housing market has been effectively stuck since mortgage rates began their swift climb in 2022. Homeowners lucky enough to lock in rates around 3% in earlier years were suddenly reluctant to move if it meant taking on a new mortgage at a rate that had more than doubled.
But that “lock-in effect” may finally begin easing in earnest next year as the life events that always spur people to move — births, deaths, marriages, divorces, and job changes — continue as mortgage rates drift lower and improved inventory sparks more price competition.
Inventory levels are improving, with new listings now trailing pre-pandemic norms by 14%, compared to a 25% deficit last March. Meanwhile, total for-sale inventory remains 26% below 2018–2019 averages but marks the smallest shortfall since September 2020.
Puget Sound Outlook:
The Puget Sound housing market is one of the best in the nation, and job growth leads the way. Additionally, half of those moving in today’s market have major home equity.
Those who were practicing “wait and see” in 2024, awaiting the outcome of the U.S. presidential election or wondering about the trajectory of mortgage rates, have their answers and can now press forward with their housing journey.
A Professional Equity Assessment Report (PEAR) is a custom evaluation of your home’s cash value. We can determine your home’s approximate equity by assessing your current mortgage and estimated selling price and deducting fees such as commissions, excise tax, and other closing costs. This report is a powerful tool for helping you make confident decisions about selling your home.
The truth is that the final numbers are more than just the sales price and remaining mortgage balance. Other factors such as capital gains tax, broker commissions, HELOC loans, prepayment penalties, special assessments, and escrow and lender fees play a part in this final number.
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Market Recap
Despite hopes among potential home buyers and sellers, as well as economists’ predictions, the Federal Reserve Bank’s three interest rate cuts in 2024 have not led to reduced mortgage rates or a significant boost in the housing market. Instead, as of January 2, 2025, mortgage rates have risen to 6.91%, their highest level since July 2024.
“The 30-year mortgage interest rate was actually higher at the end of 2024 (6.85%) than at the end of 2023 (6.61%),” said Steven Bourassa, director of the Washington Center for Real Estate Research (WCRER) at the University of Washington. He anticipates that mortgage rates will continue to frustrate the market. “We may well be experiencing the pains of adjusting to a new normal, with persistent interest rates of 6% or higher.”
Rising rates have been accompanied by a 4.3% increase in home prices over the past year, further exacerbating affordability challenges. However, the market has shown some signs of increased activity. Active listings and sales transactions were up by 25% and 19.8%, respectively, in December 2024 compared to the previous year, suggesting that buyers and sellers may be adjusting to higher borrowing costs.
While affordability remains a significant concern, these trends point to a gradual adaptation to the evolving landscape of the housing market.
I expect modest growth in both sales volume and prices. The surge in sales activity last fall, around the time the Fed began to cut interest rates, proved that many buyers are poised to jump into the market when conditions are right. If mortgage rates resume declining, as I expect them to do, that should energize the spring buying season again in early 2025.
Inventory levels are also increasing in the Puget Sound area. Though inventory is still 14% below historic norms we are starting this January with the highest level of inventory since 2020.
Thinking of Selling Your Home?
What should be done in 2025 and beyond to address King County’s “missing middle housing” problem?
For King County to succeed at delivering missing middle housing, it will require a holistic overhaul of zoning and building codes to find and relax the binding restrictions that prevent these homes from being built. Those include rules related to floor area ratios, setbacks, height limits, lot coverage and parking minimums. While any one such rule might have been well-intended, in aggregate they effectively ban missing middle housing types on common residential lots, and so cities will need bold reform to clear such obstacles from new infill development. It won’t be an overnight solution or a silver bullet, but the extra housing supply in central locations unlocked by such reform will be a key contributor to helping King County grow inclusively.
House Bill 1110 aims to fix our missing middle housing problem by allowing higher-density development in single-family-zoned areas — up to six homes per lot. The adoption of House Bill 1110 will help bring some in-fill housing options to single-family zones, but the majority of this will be developed for rental income and fall well short of solving the missing-middle housing problem.
Increased home sales and more rate cuts coming in 2025, NAR’s Lawrence Yun predicts.
Home sales will increase during the next two years, while mortgage rates likely will hover around 6%, National Association of Realtors® (NAR) Chief Economist Lawrence Yun predicted.
After a challenging 2023 and 2024, Yun projected new-home sales will increase 11% in 2025 and 8% in 2026, while the median home price will rise 2% in both years. He said existing-home sales are set to increase as well.
“Maybe the worst is coming to an end,” he said. “I think there’s going to be roughly a 10% boost of existing-home sales in 2025 and 2026.”
Yun also expects six to eight more interest rate cuts, including four in 2025, making a 6% mortgage rate the norm. “Are we going to go back to 4%? Per my forecast, unfortunately, we will not,” he said. “It’s more likely that we’ll go back to 6%. That will be the new normal, bouncing around 5.5%-6.5%.”
Record employment also portends well for the real estate industry, Yun said. “When more people work, they have the capacity or they’re in a better position to buy a home,” he said. “Home sales depend mainly on jobs and mortgage rates.”
"Zillow predicts a more active housing market and more buyers gaining the upper hand in 2025, but those hoping to buy — or even refinance — should buckle up for a bumpy ride and stay ready to move when conditions are right," Skylar Olsen, Zillow's chief economist, wrote in a note.
Here are a few things to look for in 2025
Rising home sales
In Western Washington the housing market is slowly becoming "unstuck," a trend that should continue as home prices rise at a "modest" pace.
We predict that home prices will rise by 4.6% in 2025, while existing-home sales will notch up by about 10% over the course of 2025.
While affordability challenges will remain, buyers should expect more homes on the market, meaning more time to consider their options and more leverage in negotiations.
Inventory going into the new year is already significantly higher than in 2024, meaning that if considering selling your home listing early in 2025 means less competition and “Best” opportunity for a higher sales price and possible bidding war.
What You Don’t Know About Hiring a Real Estate Agent Could Cost You.
Choppy mortgage rates
Mortgage rates could keep coming down, but don’t hold your breath for a freefall plunge. First-time homebuyers awaiting that big interest rate drop may be left very disappointed.
Mortgage rates are predicted to bounce throughout next year. Even after the first Fed rate cut of ½ a point in September of 2024 the 30-year fixed mortgage rate fell only slightly before climbing again to nearly 7% as markets adjusted their expectations for borrowing costs amid sticky inflation and a robust economy.
The new normal will be rates bouncing around 5.5%-6.5% with refinancing sprints occurring during the dips.
A slight buyer's market
As late spring and summer approach with increased inventory levels buyers will begin to get the upper hand in some areas and prices may begin to soften.
Buyers could find more opportunities next year as more inventory in the region becomes "unstuck" and attracts homebuyers. While sellers will feel the heat of competition as buyers will have more homes to choose from.
Fewer bidding wars.
The crazy bidding wars common have cooled off. Low inventory puts pressure on home prices, driving them up. We are already logging a considerable increase in available listings compared to this time last year when we approached historic lows. We predict that we will see continued increases in inventory levels throughout the area as more sellers take advantage of increased equity and feel comfortable leaving their pandemic induced 3% mortgage rates behind.
According to reports by the Federal Housing Finance Agency, house prices were up 5.7% over the last year. I’d say we’re going to see moderate price growth (maybe 3%-6% year-over-year), depending on the area.
Some areas could even see some home price corrections; prices will go down modestly in these locations.
Smaller homes
Small homes would continue to rise in popularity. Zillow released that the word "cozy" appeared in 35% more Zillow listings this year than last year, a sign that buyers could be more interested in downsizing to smaller and more affordable abodes.
Home values of small condos are finally stabilizing after remote work left downtowns more empty, even while home value appreciation of larger properties — though much stronger — continues to soften.
The final breakdown… 2025 is going to be bumpy for everyone.
The market is shifting from a strong seller market to one in which buyers and sellers have more balanced market power. As a result, sellers will need to price carefully to attract buyers, especially in markets where affordability is an issue.
We recommend flexible selling strategies, such as offering incentives to buyers, which could help sellers stand out in a more competitive market. It’s also going to become more important to have your home “Show-Ready” for when it goes live, to make sure the photography is top notch and for sellers to understand that it may take 30+ days to sell their home which entails keeping the home in ready shape for showings throughout the days on market.
While there’s potential for a favorable market for sellers, the overall landscape will depend largely on how economic conditions, interest rates, and housing supply evolve over the first few months of the year.
2025 home trend predictions: technology meets old-world charm
Homeowners and buyers will prioritize nostalgic, old-world design sensibilities juxtaposed with modern sustainability technologies next year, according to Zillow’s 2025 home trend predictions.
“Technology has enabled homeowners to live more sustainably and more affordably, which is a growing priority for prospective buyers,” Amanda Pendleton, Zillow’s home trends expert, said in a press release. Energy-efficient and climate-resilient home features are quickly gaining popularity as homeowners look to keep costs down, including insurance costs. At the same time, a home is not just a checklist of practical features, it’s a feeling. Homeowners and buyers today are looking to the past to create a sense of warmth, character and comfort in even the most high-tech environments.
Curious how this blend of old and new might look? Here are five of Zillow’s top forecasts, based on the rising popularity of certain keywords mentioned in for-sale listings this year.
Electric features
Zillow predicts that buyers in 2025 will seek out sustainability and environmental friendliness in the homes they purchase. For example, mentions of whole-home batteries — which store excess energy from solar panels, acting as generators during outages — have increased by 62% in Zillow listings this year. Mentions of solar panels, meanwhile, are up 18%.
Furthermore, listings that mention electric vehicle charging stations have increased by 34%.
Cozy vibes
Buyers are likely to ditch open floor plans in favor of smaller, cozier rooms that serve specific purposes — think dens and dedicated dining rooms, and vibrant colors over stark whites and grays. Listings that mention the word “cozy” increased 35% compared to 2023, indicating that the post-pandemic need for more space is waning.
Old-world style
Zillow thinks that design trends will “go full granny” in 2025, with antique furniture, patterned textiles and florals gaining public favor. Why? Listings mentioning nostalgia rose 14% in 2024, while the word “vintage” increased 9%.
Home libraries and book displays are also on the rise, jumping 22% in Zillow mentions, while sculleries (back kitchens that hide meal prep or clean up while entertaining) are up 8%.
Climate resiliency
It’s no shock that, in the wake of multiple hard-hitting climate disasters in 2024, buyers of the future will seek out homes that can offer a level of protection. In fact, Zillow says that 86% of recent buyers prefer homes that have at least one climate-resilient feature.
Such features include flood barriers, which increased in popularity by 22% compared to 2023; seismic retrofitting, up 20%; water catchment systems, up 19%; and drought-resistant turf lawns, up 14%.
Wet rooms
The latest bathroom trend is the wet room, which turns the entire space into a waterproof oasis with no barrier between the shower and the rest of the room. The design trend lends a “spa-like” feel, which aligns with homeowners’ growing need to prioritize wellness.
Mentions of wet rooms rose 19% in 2024, while mentions of general “wellness features” rose 16%.
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