With inventory expected to increase and home value growth predicted to remain modest, buyers may find themselves in a stronger negotiating position.
However, the unpredictability of mortgage rates will keep the market dynamic and challenging for both buyers and sellers.
“Buying a home in 2024 was surprisingly competitive given how high the affordability hurdle became. More inventory should shake loose in 2025, giving buyers a bit more room to breathe,” said Skylar Olsen, Zillow’s chief economist.
Zillow forecasts a 2.6% home value growth in 2025, similar to this year’s pace, along with 4.3 million home sales, up slightly from 2023’s 4.1 million.
The growing inventory will bring significant opportunities, particularly in the Southwest, where Zillow predicts more metro areas will transition to buyers’ markets. Currently, 13 major metro areas, most in the Southeast, are buyers’ markets. By 2025, this trend is expected to expand westward unless mortgage rates take an unexpectedly steep dive.
Mortgage rates are also predicted to ease in 2025 but remain unpredictable, oscillating between dips and spikes throughout the year. Buyers should prepare for refinancing opportunities during rate drops and be ready to act quickly when conditions align.
“Mortgage rates fell in September, briefly bringing the share of affordable listings to a 19-month high. They have since climbed back to nearly 7%, changing the affordability picture for home buyers,” reported Zillow.
Shifts in home preferences: cozy is In
As affordability challenges persist, buyers are embracing smaller homes as a practical and appealing choice. The term “cozy” is trending, with Zillow reporting a 35% increase in its use in listing descriptions in 2024 compared to 2023.
The shift away from expansive open floor plans reflects buyers’ desire for sustainable, efficient living spaces with distinct styles and purposes.
“The pandemic-era need for more and more space is over. Americans are adapting to sky-high costs by embracing coziness, a term that for so long has been a thinly veiled critique in real estate lingo,” Ms Olsen said.
Pet-friendly rentals is a must-have
As renting becomes a longer-term lifestyle choice for many, preferences are shifting. The median renter age has risen to 42, and 58% of renters now have pets, up from 46% before the pandemic.
Zillow’s research found that nearly half of renters passed on properties that were not pet-friendly, making pet accommodations increasingly essential for property managers.
Zillow reported that in today’s more competitive rental landscape, not allowing pets may put property managers behind the eight ball.
A bumpy but promising 2025
Zillow’s predictions highlight a complex yet promising 2025 for the housing market. Buyers will benefit from increased inventory and leverage, but mortgage rate fluctuations will demand agility.
Sellers will need strategic pricing and strong marketing, while renters should act quickly to secure favourable terms before the market shifts.
As Ms Olsen puts it, “Americans are adapting, finding new ways to navigate high costs and unpredictable conditions in a market that keeps evolving.”
