Will Interest Rates Go Down in 2025?
Good news: Mortgage rates will likely continue going down in 2025! The Federal Reserve (aka the Fed) lowered the federal funds rate in November, and mortgage rates should continue going down in response to that cut.
And let’s not forget that mortgage rates have already fallen quite a bit. To be specific, the typical rate for a 30-year fixed-rate mortgage fell from 7.79% in October 2023 to 6.12% in October 2024. The rate for 15-year mortgages fell from 7.03% to 5.25% during the same time frame. You have to love that, right?
Now, 30-year and 15-year rates have both gone up a bit since September, but they’re still down a ton from the super high rates we saw in 2023—and they’ll probably keep going in that direction. Even though we may be a long way from rates returning to the 2–3% range we saw at the end of 2021, it’s still great to see things trending in the right direction.
Is Now a Good Time to Buy a House?
Like I said before, the market shouldn’t determine your decision to buy a house. If you’re prepared financially, then it’s a good time to buy a home—even if inventory is limited and interest rates are high. If you’re not financially prepared, it’s not a good time, even if there’s plenty of inventory and rates are down.
You’re ready to buy a house in 2025 if (and only if) you can check off these boxes:
You’re debt-free.
You have an emergency fund of 3–6 months of expenses.
Your monthly house payment on a 15-year fixed-rate mortgage will be 25% or less of your monthly take-home pay.
You have a down payment. A 20% down payment is ideal because you’ll avoid paying private mortgage insurance (PMI). But 5–10% is okay, too, if you’re a first-time home buyer. Just be prepared to pay PMI. And steer clear of FHA and VA loans—you’ll pay much more in fees with them.
You can pay the closing costs up front without stealing from your down payment.
If you don’t meet these qualifications, it doesn’t matter if the market is in your favor. Buying a home would be a curse instead of a blessing. Take your time to get in a better financial position so you can buy a house the right way.
What’s the Average House Price?
The average home sales price in the U.S. is $501,100, according to the most recent numbers from November 2024. But it’s typically more helpful to look at the median sales price, which is $420,400.
Why? Because a small group of super high- or low-priced houses can throw off the average and make regular homes seem more or less expensive than they really are (something to keep in mind as you watch the average house price fluctuate in 2025). The median price, on the other hand, is the number right in the middle of the lowest and highest prices.
Will the Housing Market Crash in 2025?
If you’re concerned about the housing market potentially crashing in 2025, you can put those worries to rest. Prices are not going to start drastically going down anytime soon. In fact, the Federal Home Loan Mortgage Corporation expects prices to grow in 2025.
The main thing to know about the housing market is that home prices are determined by inventory (also known as supply) and demand. Here’s what you can expect in each of those areas.
Housing Inventory
Housing inventory simply refers to the number of houses for sale. When fewer houses are available, buyers are willing to pay more, and sellers have more leverage to up their asking price. Simply put—low inventory leads to higher home prices. It’s a big reason why buying a home has gotten so expensive.
When it comes to housing inventory for 2025, things are currently looking up! October 2024 marked the 12th straight month of inventory growth. Even better news: The number of homes on the market in October 2024 was 29.2% higher than a year earlier.
Now, while inventory is increasing, it’s still nowhere close to pre-COVID levels. So you shouldn’t get your hopes up about seeing any kind of major price adjustment. But this is still a great sign because it means the market is getting healthier overall.
Buyer Demand
One way to gauge demand in the real estate market is by how many homes sell for more than their listing prices. In September 2024, that number was 28.6%.
Overall, buyer demand has stayed steady over the last two years. Since 2022, demand has gone up during the summer and down during the winter (rinse and repeat). We could see demand increase in 2025, though, if interest rates continue falling.
