2025 housing market: Is it a good time to buy a house?

The Federal Reserve continues lowering short-term interest rates. At its latest meeting on Dec. 18, it once again lowered them by 0.25%. As a result, overall inflation has been cooling in the last two years. And the presidential election has passed.

It would seem that conditions are consolidating for a housing market rebound.

“We’ve seen after presidential elections — and it doesn’t matter who wins — that there’s usually a slight boost in home sales,” Lawrence Yun, chief economist of the National Association of Realtors, said at a recent forum. “It removes some uncertainty.”

But when you examine the 2025 housing market as a whole, including mortgage rates, rising home prices, and an undersupply of houses for sale — is it a good time to buy a house?

In this article:

Read more: Is it a buyer’s market or seller’s market? How to tell the difference.

A major piece of the puzzle? Mortgage rates. While easing lower over the past few weeks, a sub-6% level remains elusive.

In the past year, 30-year mortgage rates dipped to a low of 6.08% in late September but met resistance in breaking lower. According to Freddie Mac, the high-water mark over the same period has been 7.22%.

NAR’s Yun believes that if the government deficit continues, mortgage rates will not go down to the 4% range, as seen in Donald Trump’s first term as president.

“With a large budget deficit, there’s less mortgage money available. The government is borrowing so much of its money,” Yun said.

However, if the government curbs spending, homebuilder regulations are reduced as expected, and jobs continue to grow, “… mortgage rates could come down quickly,” he added. Yun; always the optimist.

Still, housing professionals predict 2025 mortgage rates will remain sticky.

NAR says “a new normal” will be established with rates remaining near 6% next year. Zillow and the Mortgage Bankers Association forecast rates to stay close 6.5%. Redfin expects rates near 7% by 2025’s end.

In other words, not much is expected to change.

Yet mortgage rates remain below their 52-year historical average. Based on data collected by Freddie Mac, the 30-year mortgage rate has averaged 7.72% since April 1971.

For context, the highest mortgage rate on record was 18.63% in October 1981.

Take action: Use a mortgage calculator to determine the monthly payment you can afford. You can then find the home price, down payment, credit score, type of home loan, and mortgage interest rate to get you to your home-buying goal.

Read more: How to get the lowest mortgage rates

The current housing shortage in the U.S. is estimated to be 1.5 million homes by the National Association of Home Builders. Freddie Mac says the home deficit is 3.7 million. Zillow’s latest numbers show we’re 4.5 million houses short. It almost sounds like they’re throwing a dart at board to come up with an estimate.

Whatever the number is, it’s big, and it will take years for home inventory to return to anything close to normal.

“It took us about a decade to get into this housing deficit, and it’s probably going to take us about a decade to get out,” said Rob Dietz, chief economist for the NAHB.

Freddie Mac estimates 5.8 million houses have been added to the market in the past four years. Unfortunately, demand has increased by an equal amount.

Take action: Consider expanding your search to more affordable areas close to your favorite neighborhood if it’s too pricey.

Homebuilder confidence is improving now that the election is over.

“With the elections now in the rearview mirror, builders are expressing increasing confidence that Republicans gaining all the levers of power in Washington will result in significant regulatory relief for the industry that will lead to the construction of more homes and apartments,” said Carl Harris, chairman of the National Association of Home Builders.

Realtor.com expects 1.1 million new homes to be built next year. That’s nearly a 14% increase over 2024 — with builders focusing on smaller, more affordable houses.

Take action: If you want to buy a house now, consider new construction. You may be able to choose some finishes or make an even better deal on a spec home that’s been on the market for a while.

Read more: How to buy a new construction home

The Freddie Mac House Price Index reported that home values were up 4.2% year over year through August, the latest data available.

“We expect house prices to continue to grow, although at a slower pace,” a Freddie Mac analysis said regarding 2025.

Higher home prices are a direct result of the lack of housing inventory.

However, even with all the headwinds, home sales are expected to grow, if only slightly, in 2025. The consensus among the experts is that some 4 million existing homes will be sold in 2025 — about the same as in 2024.

Take action: Look for homes with price reductions where you want to live. Some apps, like Realtor.com and Trulia, will trigger an alert for sales price adjustments on homes you’re interested in. Then, negotiate even harder.

Learn more: When will housing prices drop?

To answer the question of whether it’s a good time to buy a house for you personally, you must look beyond broad market forces. Buying a home is more than considering macroeconomic factors. It’s an important life decision based on your personal and financial situation.

Read more: Should you buy a house?

When you rent, the decision to move is broken down into six months, or a year or two at a time, as your lease renews. But every dollar-related detail makes a home purchase a medium- to long-term investment. Buying a house includes various costs: the down payment, closing costs, and financing fees, moving expenses, property taxes, and perhaps selling the house you’re in now.

Homeownership requires a long timeline. How you make a living, your friends, family, and even community amenities all come into play.

A primary consideration: your job. Will it require a location change anytime soon, or can you live where you please? Is your income steady and all but assured?

Read more: How much house can I afford?

One of the significant factors that will qualify you for a home loan is your credit score. It’s important to know it before applying for a mortgage.

For the most common loan, a conventional mortgage not backed by a government agency, you generally need a FICO score of 620 or better.

FHA loans can allow a credit score as low as 580 with 3.5% down. VA loans issued to qualified military service members and veterans don’t officially have a minimum credit score, though some lenders will require a FICO score of 620.

Of course, minimum scores are the entry-level to qualifying; the higher your score, the better the loan terms you’ll be offered. Most importantly, that can mean you’ll pay a lower annual percentage rate over the life of the loan. You may also have more room to negotiate on fees.

As a benchmark to where you stand, the median credit score on a new mortgage in the second quarter of 2024 was 772, according to the New York Federal Reserve.

Read more: The credit score needed to buy a house in 2025

A primary financial metric lenders will use to determine your creditworthiness is your debt-to-income ratio.

Fannie Mae, a government-sponsored entity that provides liquidity to the home loan market, looks for a maximum total DTI ratio of 36% of “the borrower’s stable monthly income.” Exceptions can allow for total DTIs up to 50%, but it’s usually best to avoid working on the edges of qualification if you can.

You can calculate your DTI by dividing your total recurring monthly debt by your gross (before taxes and other deductions) monthly income.

Include debt such as monthly mortgage payments (or rent), real estate taxes, and homeowner’s insurance. Also, add any car payments, student loans, and the monthly minimum due on credit cards. Remember any personal loan payments and child support or alimony.

Do not include debt such as monthly utilities — like electricity, water, garbage, or gas bills — or car insurance, television streaming subscriptions, or cell phone bills. You can also exclude health insurance costs and miscellaneous expenses such as groceries or entertainment.

Having a cash cushion in the form of emergency savings shows lenders that you are prepared for the unexpected. Of course, that savings account should also include …

A large chunk of your savings account should be dedicated to the down payment. A minimum of 3% down is required in order to qualify for a conventional loan targeted to first-time home buyers — or ideally, 20% to avoid private mortgage insurance. Yes, zero-down options exist if you are eligible for a VA- or USDA-backed loan.

According to Realtor.com, the median down payment in the third quarter of 2024 was 14.5% — about $30,300.

Buy smart and shop a lot. Relentlessly shop interest rates and mortgage lenders for the best loan offers and justified fees. Get a written preapproval from your lender, then shop for a house you can love and can afford. Your home buying competition is.

According to Zillow, when it comes to first-time buyers versus repeat buyers, first-timers are more likely to reach out to at least three lenders and three real estate agents.

Mortgage rates tend to fall during economic downturns, so a recession would definitely qualify as a time when rates would likely drop. However, lower rates generally increase demand as more buyers enter the market, so house prices would likely rise. Buying a house at a time when both mortgage rates and home prices are favorable is a challenge. You probably shouldn’t try to time the housing market by waiting for a recession. Buy when it makes sense for you personally.

“Buy now” advocates might say that if you find the right house at the right price — and you’re financially set — you should purchase the home now and look to refinance later. But what if mortgage rates don’t drop substantially enough to justify a refinance in a few years? Only buy a house when you are comfortable with the terms you can get on closing day.

Locking in a mortgage rate is a short-term decision, generally lasting only 30 to 60 days — sometimes up to six months. There’s little reason to agonize over it. Be comfortable with the rate on your Loan Estimate and start packing boxes.

Homes become more affordable as your income and savings grow. Ask any homeowner: Buying that first house was a stretch. The monthly payment loomed large. As months and years go by, it becomes less of an issue. Then, as home prices continue to rise, you’re on the right side of the equation: The growing equity builds your net worth.

This article was edited by Laura Grace Tarpley.