Between stubbornly high mortgage rates and elevated prices, home buyers had a tough time navigating the housing market in 2024, but more changes could be coming next year, Zillow says.
In a recent outlook, the real estate listings site forecast a handful of developments for next year's housing market , which they noted is still in the process of normalizing since the pandemic.
There are signs that demand and inventory of existing homes are both rising. Existing home sales rose 2.9%% year-over-year in October, the first annual increase in three years, the National Association of Realtors said.
The average home value, meanwhile, climbed to $359,099 in October, up 2.6% annually, according to Zillow's Home Value Index. The rate on the 30-year fixed mortgage edged up to 6.84% last week, per Freddie Mac data.
"Zillow predicts a more active housing market and more buyers gaining the upper hand in 2025, but those hoping to buy — or even refinance — should buckle up for a bumpy ride and stay ready to move when conditions are right," Skylar Olsen, Zillow's chief economist, wrote in a note.
Here are four predictions Zillow has for next year's market.
1. Home sales will rise
The housing market is slowly becoming "unstuck," Olsen said, a trend that will continue as home prices edge up at a "modest" pace.
The firm predicts home prices will rise 2.6% in 2025, while existing home sales will notch 4.3 million, up from the expected 4 million sales expected this year.
"While affordability challenges will remain, buyers should expect more homes on the market, meaning more time to consider their options and more leverage in negotiations," Olsen added.
2. Mortgage rates will be choppy
Zillow predicted that mortgage rates will bounce up and down throughout next year.
The firm pointed to recent changes in the 30-year fixed mortgage rate, which fell earlier in the year before climbing to nearly 7% as markets adjusted their expectations for borrowing costs amid sticky inflation and a robust economy.
"More swings like this are expected in 2025, with refinancing sprints occurring during the dips, Olsen added.
3. The Southwest might be a buyers' market
Most "buyers' markets" in the US are currently located in the Southeast, Zillow data shows. However, there's a chance buyers could find more opportunities in the Southwest next year, the firm predicted, thanks to more inventory in the region becoming "unstuck" and attracting homebuyers.
"These buyers markets should have the greatest number of movers, while sellers will feel the heat of competition as buyers will have more homes to choose from," Olsen said.
But if mortgage rates were to fall more than expected, that could prevent buyers from moving West, she added, as higher lower borrowing costs stimulate demand and give sellers the upper hand.
4. Smaller homes
Small homes will continue to gain popularity, Zillow predicted. The word "cozy" appeared in 35% more Zillow listings this year compared to last year, the firm noted, a sign that buyers could be more interested in downsizing to smaller and more affordable abodes.
"Home values of small condos are finally stabilizing after remote work left downtowns more empty, even while home value appreciation of larger properties — though much stronger — continues to soften," Olsen added.
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