Z Zillow Group Inc

Unpredictable mortgage rates will play a big role in shaping next year's housing market

• The housing market is expected to slowly become unstuck, but mortgage rates could be a spoilsport, with their unpredictability expected to make planning for a home purchase a challenge. 
• Buyers markets will spread to the Southwest unless rates fall dramatically.
• As the biggest multifamily construction boom in 50 years fizzles out, Zillow predicts fewer rent concessions in the second half of 2025.

SEATTLE, Nov. 25, 2024 /PRNewswire/ -- Mortgage rates are once again in the spotlight as 2025 approaches. 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.

"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 chief economist. "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. Many are also viewing renting as a longer-term lifestyle. A construction boom has eased pressure on rent prices, putting rent affordability on track to improve next year — that is, as long as wages continue to grow."

Housing market activity will pick up
Expect to see more sales and only modest home value growth in 2025 as the market slowly becomes unstuck.

Zillow forecasts 2.6% home value growth in 2025, a relatively slow pace that is similar to this year's growth. For existing home sales, Zillow forecasts 4.3 million in the coming year, up slightly from 4.1 million in 2023 and a projected 4 million in 2024.

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.

Mortgage rates will fall (then rise, then fall again)
Signs point to mortgage rates easing in 0225, but as we saw in 2024, mortgage rates rarely follow the expected path. What is more certain is that buyers should expect plenty of ups and downs throughout the year.

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%,¹ changing the affordability picture for home buyers. More swings like this are expected in 2025, with refinancing sprints occurring during the dips.

Home buyers should stay ready to move forward when the time is right. Zillow Home Loans' BuyAbility^SM tool can help by giving buyers a personalized estimate of the home price and monthly payment that fits within their budget at any given moment (based on current mortgage rates), and showing them homes they can afford.

Buyers markets will spread to the Southwest
Currently, 13 major metro areas are buyers markets — where buyers have the upper hand in negotiations, according to Zillow's market heat index — with most of those in the Southeast. Zillow predicts buyers markets will spread to the Southwest in 2025 as inventory continues to come unstuck in relatively affordable markets.

Sellers will feel the heat of competition as buyers will have more homes to choose from. It will be more important than in recent years to work with a great agent to help price and market a home listing well. Tools like Zillow Showcase, an immersive listing experience, can help drive more page views, saves and shares from buyers searching for homes with those attributes, compared to similar neighboring non-Showcase listings on Zillow.²

If mortgage rates fall more than expected, that dims the prospect that buyers markets will spread west. It is anticipated that a significant mortgage rate dip would bring more buyers than sellers back to the market, increasing competition and tilting negotiating power in favor of sellers.

Americans embrace small-home living
The pandemic-era need for more and more space is over. Home buyers will increasingly lean into smaller homes as a more sustainable, affordable and desirable way to live.

The term "cozy" is appearing in more listing descriptions — 35% more in 2024 compared to 2023 — reflecting current design trends that have shifted away from cavernous open floor plans, toward contained spaces that have their own style and purpose.

Last call for rent concessions
Apartment renters enjoyed a relatively friendly market this year, at least compared to the record rent growth seen in 2022. Rent growth has held steady at a reasonable pace, and the share of rental listings on Zillow offering a concession — such as free weeks of rent or free parking — is at a record high. Zillow expects renters will not have as much opportunity to negotiate for that free month of rent by the end of next year.

The multifamily-construction boom is the primary reason for the rise in concessions. More multifamily units are hitting the market than at any time in the past 50 years, pushing property managers to compete for renters. Those fireworks are predicted to fizzle in 2025, especially in the second half of the year.

Pet-friendliness will become nonnegotiable for property managers
Renters are getting older, and they are not putting off "adulting" milestones such as moving in together or getting a pet before they buy a home. The median age of a renter has risen to 42, and they are settling into the renter lifestyle — fewer renters considered buying this year, which is understandable given conditions that make renting the more affordable option in many markets.

With 58% of renters having a pet — up from 46% before the pandemic — it is no wonder that nearly half said they passed on a particular property because it was not pet-friendly. In today's more competitive rental landscape, not allowing pets may put property managers behind the eight ball.

About Zillow Group
Zillow Group, Inc. (Nasdaq: Z and ZG) is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, dedicated partners and agents, and easier buying, selling, financing, and renting experiences.

Zillow Group's affiliates, subsidiaries and brands include Zillow®, Zillow Premier Agent®, Zillow Home Loans℠, Zillow Rentals®, Trulia®, Out East®, StreetEasy®, HotPads®, ShowingTime+℠, Spruce®, and Follow Up Boss®.

All marks herein are owned by MFTB Holdco, Inc., a Zillow affiliate. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). © 2024 MFTB Holdco, Inc., a Zillow affiliate.

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SOURCE Zillow