Will the Housing Market Crash in 2025?

Let’s Dive Right In!

With home prices reaching record highs and continuing to climb in many areas, you might be worried that we’re in a bubble on the verge of bursting, similar to what happened during the 2008 financial crisis. However, as we look ahead to 2025, the chances of a housing market crash—where prices drop rapidly due to decreased demand—remain low.

According to Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a lender specializing in nonqualified mortgages, “The record low supply of houses on the market protects against a market crash.”

Experts also highlight that today’s homeowners are in a much stronger financial position than those affected by the 2008 crash, with many having built significant home equity. Additionally, a record number of homeowners now own their homes outright, without a mortgage.

YOUR CURRENT HOME VALUATION IS RIGHT HERE

How Much Will New Homeowners Pay for a Mortgage in 2025?

As of January 2025, the average home price was around $355,000, based on data from Zillow. A buyer who puts down 20% on a home at the prevailing 6.95% mortgage rate—the average 30-year fixed rate at the end of January—would have a monthly principal and interest payment of $1,879.

For comparison, buyers who purchased a typical home a year earlier, when the price was about $346,000 and the mortgage rate was 6.69%, are paying $1,784 per month.

Will the Housing Market Recover in 2025?

For a housing recovery to take place, at least two key factors need to improve:

More Homes Need to Be Available

Keith Gumbinger, vice president at online mortgage company HSH.com, told Forbes Advisor that “For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher.” More available homes would help ease upward pressure on prices, potentially stabilizing them or even bringing them down slightly from their peak levels.

Mortgage Rates Need to Drop

A decline in mortgage rates is also crucial for recovery. While rates have remained stubbornly high, experts are optimistic that they could improve over the next year.

However, Gumbinger warns that if rates drop too quickly, it could spark a surge in demand that erases any inventory gains, pushing prices up again. He suggests that a return to a more “normal” mortgage rate range—somewhere between the upper 4% and lower 5% range—would benefit the market, though it may take time to reach those levels.

When Will Housing Supply Be High Enough to Lower Prices?

Despite an increase in both resale and newly built homes, the number of homes for sale remains well below historical averages, according to multiple reports. Several challenges continue to fuel the inventory shortage, making a quick fix unlikely.

One major factor is that many homeowners are "locked in" with historically low mortgage rates and are hesitant to sell, knowing they’d have to take on a much higher rate in today’s expensive housing market. As a result, demand continues to outpace supply, and this trend is likely to persist until mortgage rates drop enough to ease this lock-in effect.

Rick Sharga, founder and CEO of the market intelligence and business advisory firm CJ Patrick Company, predicts that “a meaningful increase in the supply of existing homes for sale” won’t happen until mortgage rates fall back to the low 5% range.

‌‌‌‌‌‌YOUR CURRENT HOME VALUATION IS RIGHT HERE