Why Buying a Home Could Be Easier in 2025 — Even if Home Prices Stay High

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Are you looking to buy a home, but are having trouble making the numbers work? Here’s why you might get a better chance in 2025. [[{“value”:”

Home prices remain near all-time highs, and there doesn’t seem to be much relief in sight. In fact, the average forecast calls for U.S. home prices to increase by 2.5% in 2025, according to ResiClub’s analysis.

However, there could still be good news for would-be home buyers. The United States is widely expected to enter a falling-rate environment in the very near future, and this could cause mortgage rates to decline. You might be surprised how much more affordable this can make homeownership, even if analysts are correct and prices continue to rise.

Will mortgage rates fall in 2025?

To be perfectly clear, nobody knows exactly what mortgage rates will do in 2025. With the Federal Reserve widely expected to gradually cut rates through at least the end of next year, the most likely scenario is that mortgage rates move lower. But there’s no way to know exactly how much they’ll decline, or if they’ll decline at all.

After all, when the average mortgage rate was about 3% at the start of 2022, how many experts were projecting that we’d see 7% or higher rates on 30-year mortgages before the end of that year?

Having said that, let’s assume for a moment that mortgage rates are going to continue to decline. As mentioned, we’ve already seen the average 30-year mortgage rate cool off from a high of 7.90% in late 2023 to 6.29% as of early September 2024. And while 2025 estimates depend on who you ask, I’d say that rates in the low 5% range for both home purchases and refinancing by the end of 2025 are quite possible.

Why this matters more than home prices

Let’s say that you’re in the market for a home, and the average of homes that meet your needs is about $500,000. You plan to put 20% down and finance the rest with a 30-year fixed-rate mortgage, and as of today, you can qualify for an interest rate of 6.25%. This would give you a monthly payment (principal and interest) of $2,463.

Here’s a hypothetical question: Let’s say I give you a choice between two options that will make your home purchase more affordable:

Home prices decline by 10% from current levels, so you could buy what you want for $450,000.Your mortgage rate declines to 5%, but the prices of the homes you are considering remain the same.

Which do you think would be the better option? The answer might surprise you.

Looking at the lower-price option, you’d now have to come up with a lower down payment and would only need to finance $360,000. With a 6.25% mortgage rate, your payment would fall to $2,217 per month — a savings of $246 per month.

On the other hand, if you still have to pay $500,000, but your mortgage rate is just 5%, this would give you a monthly payment of $2,147 per month — that’s $316 per month less than you’d pay with the higher rate.

In a nutshell, a steep decline in mortgage rates can be an even more important factor in home affordability than the price of the home itself.

The bottom line

Of course, there are a lot of moving parts here, and your home affordability depends on how much home prices in your desired market rise or fall, and how much the mortgage rates you qualify for change. But the point is that if we see serious relief on mortgage rates in 2025, it could make homeownership far more affordable for millions of Americans.

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