Zillow, Fannie Mae diverge on 2025 housing market predictions

“Dramatic” mortgage rate movements are destined to play a major role in the coming year, according to Zillow‘s newest forecast, which also calls for declining mortgage rates to be a catalyst for home-sales growth and home-price appreciation in 2025.

“There’s a strong sense of déjà vu on tap for 2025. We are once again expecting mortgage rates to get better gradually, and opportunities for buyers should follow, but be prepared for plenty of bumps on that path,” Zillow chief economist Skylar Olsen said in a statement. “Those shopping this winter have plenty of time to choose and a relatively strong position in negotiations.” 

September’s dip in mortgage rates provided a tailwind to home sales in the second half of the year. Zillow says that 2024 will finish with 4.06 million sales — a number that Zillow expects to rise slightly to 4.16 million in 2025. 

Home values are forecast to tick up 2.2% in 2025, in line with the 2.3% annual appreciation observed in November, Zillow noted.

Zillow also reported that, after a tumultuous five years, many measures of the housing market are trending closer to historic norms. Notably, while the flow of new listings to the market is still nearly 14% lower than it was before the COVID-19 pandemic, it’s much improved to compared to the deficit of 25% in March 2024. For-sale inventory is now about 26% below the norms of 2018 and 2019, the smallest shortfall since September 2020.

Fannie Mae, on the other hand, suggests that it’s unlikely that the 2025 housing market will deviate from its current norms. Low levels of affordability and the ongoing “lock-in effect” are expected to keep activity muted.

“From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6%, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels,” Mark Palim, Fannie Mae’s senior vice president and chief economist, said in a statement.

“Still, heightened mortgage rate volatility may present opportunities for would-be homebuyers to take advantage of temporary lows, and we may see stretches where housing activity is boosted by lower rates — but, on average, we expect mortgage rates to remain elevated and a hindrance to activity.” 

Commentary from Fannie Mae’s Economic and Strategic Research (ESR) Group for December 2024 calls for the existing-home sales forecast to move only slightly higher. The ESR Group predicts that the broader economy will remain stable and expand at an above-trend pace through 2026 as it “navigates elevated core inflationary pressures and heightened policy uncertainty.”

As part of their newest outlook, Fannie Mae’s economists shared five predictions for the housing market in 2025. They expect:

Average mortgage rates will decline modestly but remain above 6%, with likely bouts of volatility.

Existing-home sales will remain near 30-year lows, but location matters.

New-home sales will remain a bright spot in the housing market, in places that they can be built more easily.

National home-price growth will decelerate.

Multifamily housing will remain in a holding pattern.