Real Estate Market Predictions 2025: Will Prices Go Up or Down?

I spent the better part of 2024 fielding the same question from clients, colleagues, and anyone who learned what I do for a living: "So, is the housing market finally going to crash next year?"

Now that we're sitting in January 2026, I can tell you definitively what happened—and it wasn't what most people expected. The answer to whether prices went up or down in 2025 is frustratingly nuanced: they did both, depending entirely on where you were looking.

Let me walk you through the data, the surprises, and what it actually means if you're trying to make a housing decision right now.

The National Picture: Prices Rose, But Barely

Here's the headline number that matters most: The median national home price for 2025 rose 1.7% to $414,400, according to the National Association of Realtors. That's real appreciation, yes—but it's a far cry from the double-digit gains we saw during the pandemic frenzy.

Cotality data shows that the average price gain was only 1.8% for the year, which is significantly under the rate of inflation. When you adjust for inflation, homeowners actually lost purchasing power on their properties in 2025. Real home prices, measured against what your dollars can actually buy, declined.

The deceleration was obvious to anyone paying attention. According to Homes.com data, annual price growth slowed to 2.4% by November, down from much larger gains in prior years. Median home prices remained in a relatively narrow range between $375,000 and $395,000 for much of the year.

This wasn't the crash that doomsayers predicted. It also wasn't the continued rocket ship that homeowners hoped for. It was something more mundane: a market slowly grinding toward equilibrium.

The Sales Volume Story: Stuck at 30-Year Lows

Price is only half the equation. The other half—transaction volume—painted an even more sobering picture.

Sales of previously occupied U.S. homes totaled 4.06 million last year, essentially flat versus 2024 when sales sank to the lowest level since 1995. Let that sink in: we just experienced the fourth consecutive year of declining annual sales, with volume stuck near levels we haven't seen since Bill Clinton's first term.

Sales have been stuck close to a 4-million annual pace now going back to 2023. That's well short of the 5.2-million annual pace that's historically been the norm.

Why? The answer lies in what economists call the "lock-in effect"—and it dominated the 2025 housing market more than any other single factor.

The Lock-In Effect: Why Nobody Wanted to Sell

During 2020 and 2021, millions of Americans refinanced their mortgages or bought homes at historically low interest rates. Now they're trapped—not literally, but financially.

About 81% of U.S. mortgages have interest rates below 6%, while current rates hover around 6.5-7%. Selling a home means giving up a 3% mortgage for a 7% mortgage—potentially adding hundreds of dollars to your monthly payment even if you buy a similar or smaller house.

About half of current U.S. mortgage borrowers are still enjoying sub-4% rates, and about 80% are paying under 6%, creating a "locked-in" effect—there's little incentive to sell and take on a higher payment, keeping existing home inventory at historic lows.

The human impact of this dynamic is profound. A Bankrate survey found 54% of homeowners wouldn't feel comfortable selling at any rate in 2025. More than half of American homeowners said no mortgage rate—not 5%, not 4%, not even 3%—would convince them to list their property.

This created a bizarre market dynamic: prices stayed elevated not because of strong demand, but because of severely constrained supply. If there are too few homes for sale, they don't have to be affordable to everyone, they only have to be affordable to a few people.

Regional Divergence: Two Housing Markets in One Country

The national numbers obscure what might be the most actionable insight from 2025: regional performance varied by nearly 10 percentage points.

The Winners: Northeast and Parts of the Midwest

Wyoming led all states with a 7.27% gain. Connecticut (6.17%), New Jersey (5.28%), Illinois (4.73%), and Nebraska (4.67%) rounded out the top five.

Where homes remain scarce—such as much of the Northeast—values still have upward momentum. These markets weren't reliant on pandemic-era migration from high-cost cities. They had fewer new construction projects in the pipeline. And when mortgage rates spiked, their inventory stayed tight while Sun Belt markets flooded with listings.

The Losers: Sun Belt Correction Finally Arrived

Eight states/districts decreased yearly, with Florida falling furthest (-2.5%). Above that came Texas (-1.71%), Arizona (-0.89%), Colorado (-0.85%), and Hawaii (-0.82%).

The pandemic boomtowns finally faced their reckoning. When pandemic-fueled migration slowed and mortgage rates spiked, markets like Sarasota, Florida, and Austin, Texas, faced challenges as they had to rely on local incomes to sustain frothy home prices.

Austin led the correction among major metros. Austin's housing market showed the sharpest shift toward buyers among Texas' major metros, with 53.4% of active listings taking price cuts as of November 2025. The Austin-Round Rock-San Marcos metro's median list price dropped to $499,000 from $525,231 a year earlier.

Florida faced its own challenges beyond just price pressure. In Florida, higher mortgage rates, rising insurance costs, property taxes and elevated home prices dampened housing demand during the 2025 survey period. Insurance premiums in disaster-prone states became a second mortgage payment for many homeowners.

Mortgage Rates: The Engine That Wouldn't Quit

Coming into 2025, the consensus forecast called for rates to decline meaningfully. The Federal Reserve had already cut rates three times in 2024. Relief seemed imminent.

Reality proved more stubborn. In its general downtrend throughout 2025, the average 30-year fixed rate moved between 6.17% and 7.04%. By year-end, rates had settled into the low 6% range—better than the 7%+ peaks of 2023, but nowhere near the 3-4% levels that would meaningfully unlock pent-up demand.

The average rate on a 30-year U.S. mortgage fell to its lowest level of 2025 this week, a boost for prospective home buyers. The average long-term mortgage rate dipped to 6.15%. That's where we ended the year—better, but far from transformative.

Mortgage rates are forecast to end 2025 and 2026 at 6.4 percent and 5.9 percent, respectively, according to the September 2025 Economic and Housing Outlook from Fannie Mae. The prospect of sub-6% rates in 2026 exists, but even that modest improvement may not be enough to fundamentally alter market dynamics.

Inventory: The Silent Shift

Here's where the 2025 story gets interesting—and where it sets up 2026.

Forecasts at the start of 2025 anticipated a modest rise in housing inventory. What occurred was a significantly stronger expansion, with active listings climbing sharply year-over-year. By November 2025, total active listings—including single-family homes, townhouses, and condominiums—reached approximately 1.3 million.

October 2025 marked the 24th straight month of year-over-year inventory growth. Even better news: The number of homes on the market in October was 15% higher than a year earlier.

At the end of July 2025, 12 states were above pre-pandemic 2019 active inventory levels: Arizona, Colorado, Florida, Idaho, Hawaii, Nebraska, Oklahoma, Oregon, Tennessee. The inventory shortage that defined the early 2020s is ending in significant portions of the country.

But context matters. The U.S. is short approximately 4.7 million homes as of July 2025, according to Zillow's analysis of Census data. This is an all-time high. Even returning to 2019 inventory levels doesn't solve the underlying structural deficit that built up over a decade of underbuilding.

What the Lock-In Effect Fading Means for 2026

There's an emerging dynamic that could reshape the market in the year ahead.

As of 2024–2025, the share of mortgage holders below 3% is now roughly equal to the share above 6%. And by early 2026, more mortgage holders will likely carry a rate above 6% than below 3%.

This shift matters because time doesn't stop for anyone. The march of time still brings retirements, divorces, kids moving out, and other reasons to sell anyway. Life events will eventually force more homeowners to list regardless of their mortgage rate.

The era of 3% mortgages is ending. As the lock-in effect fades, for-sale inventory may surge in 2026 and put downward pressure on home prices—especially in markets with weakening rents.

Affordability: The Elephant in Every Room

Even with modest price appreciation and slightly lower rates, affordability remained the dominant challenge for would-be buyers in 2025.

Mortgage rates have more than doubled from 2.99% in June 2021 to 6.82% in June 2025. This rate increase significantly raises monthly payments. For example, on a $300,000 mortgage, the monthly cost has increased by around $580.

The math doesn't lie. Housing affordability has declined, as new home prices have increased by 49% (approximately $140,000) on average since the pandemic. Combine that with doubled mortgage rates and you have a market that has effectively priced out an entire generation of first-time buyers.

The median first-time buyer age hit 40 (record high), share dropped to 21% of market (record low). When the average first-time homebuyer is 40 years old, something has fundamentally broken in the housing ladder.

The 2026 Outlook: Modest Recovery, Not Revolution

2026 will bring the start of a slow recovery, with transactions stabilizing but ongoing pressure from insurance and tax hikes. Next year, we see real prices staying flat while investor activity grows.

The expert consensus for 2026 calls for gradual improvement, not dramatic shifts in either direction.

NAR projects a 14% nationwide increase in home sales in 2026, driven by job growth, increased inventory, and a modest decline in its mortgage rate forecast. That would bring us closer to normal transaction volumes, though still below the historical 5.2 million annual pace.

"In general, home price growth is projected to remain below the long-running average of 4% to 5%. However, mortgage rates will play a critical role in shaping the 2026 housing market."

A crash remains unlikely. The fundamentals simply don't support it: homeowner equity is at historic highs, foreclosure rates remain low, and the structural housing shortage persists. But meaningful price appreciation also seems unlikely unless rates drop significantly or inventory suddenly tightens again.

What This Means for Your Decision

If you're a buyer: 2025 demonstrated that waiting for a crash is a losing strategy, but so is overpaying in a softening market. Focus on regions where inventory has grown—particularly the Sun Belt and Mountain West—where you'll find more negotiating power. Active listings increased by 23.1% YoY and are up 44.9% compared to 2023. The seller-dominated bidding wars of 2021-2022 are largely over outside of the tightest Northeast markets.

If you're a seller: Pricing strategy matters more than at any point in recent memory. Price reductions became widespread across the region. Austin led with 53.4% of listings cutting prices, followed by Dallas-Fort Worth at 51.7%, San Antonio at 50.5%. Overpricing leads to stale listings and eventual capitulation. Price right from the start.

If you're an investor: Investor activity picked up in 2025, with this class of buyers now representing about one-third of all single-family home purchases. The buy-and-hold thesis remains intact in markets with strong rental demand, but the flip-and-profit model faces headwinds from slower appreciation and higher carrying costs.

The 2025 housing market didn't deliver the drama that headlines predicted. It delivered something arguably more important: a return toward normalcy, market balance, and sustainable fundamentals. For most Americans, that's probably the best outcome we could have hoped for.