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Data from Realtor.com shows that existing home sales may be picking up — the typical home for sale spent 66 days on the market in February 2025. This five days longer than this time last year but seven fewer days than in January.
It's still a far cry from the just-listed-to-pending trend seen during the housing market’s hot streak from 2021 to 2022. So you might be wondering: If the housing market is cooling, when will housing prices drop so I can get my slice of the homeownership pie?
Experts say that 2025 will likely not be the year that housing prices start their descent to pre-pandemic levels. But if you’re determined to buy or sell, here’s what you need to know about today’s residential real estate market and your options for moving forward.
In this article:
Learn more: Why are home prices so high?
Are house prices going down?
The answer to this question is more complicated than you might expect.
As of February, Realtor.com reported that year-over-year house prices were down 0.8%, putting the median sale price at $412,000. However, the median price per square foot increased by 1.2%.
Some reasons for the recent housing inventory shortage include homeowners reluctant to give up the ultra-low-rate mortgages they secured early on in the pandemic — especially as 30-year mortgage interest rates hover around 7%.
Home affordability also plays a role. Even if buyers are willing to give up those low mortgage rates to buy a new home, high home prices and high mortgage rates can make that decision costly.
It doesn't help that mortgage rates remain stubbornly high. The 30-year fixed mortgage rate is down just a little from this time last year — and economists don't expect them to plummet anytime soon. Homeowners may not be ready to give up their super-low rates just yet.
Dig deeper: Which is more important, a low interest rate or house price?
When will house prices go down?
While it’s a bummer of an answer, experts say it’s unlikely consumers will see house prices drop meaningfully during 2025 — though on the bright side, prices probably won’t spike. Home prices will drop when a mixture of economic factors favorably collide — primarily lower interest rates and increased housing supply.
The interest rate waiting game
Those looking for lower interest rates will need to play a game of patience. The Federal Reserve cut the federal funds rate three times in late 2024, but these decreases haven't pushed mortgage rates down. The Fed also kept the rate unchanged at its January and March meetings, indicating it will be conservative with rate cuts this year. This approach could keep rates relatively high.
Learn more: How the Federal Reserve rate decision affects mortgage rates
Amping up supply
Increasing the housing supply will involve two factors: current homeowners and home builders. These two demographics drive housing supply from different angles.
For current homeowners, leaving a 3% mortgage for one in the 6.75% range is a tough pill to swallow. Bob Smith, head of real estate at Advisor Credit Exchange, said via email that supply will naturally increase as homeowners upsize, downsize, or move to another metro. Lower interest rates would increase housing affordability across the board. As rates come down, sellers may feel inspired to sell while they can still capture gains from recent price hikes and score a lower rate on a new mortgage.
Builders also contribute to the housing supply. According to the U.S. Census Bureau, new home permits, construction, and completions were down in February 2025 from a year ago. Builders had significant inventory on hand when the pandemic hit and don’t want to repeat that error, especially with many prospective home buyers reluctant to buy due to interest rates.
So, if you think interest rates may play a significant role in supply, you’re right. Though rates aren’t the only factor driving housing costs, they are a bit like the key that could help increase supply and unlock a downward price trend.
Read more: Buying a new construction home — pros, cons, and how to finance it
Strategies for eager buyers
Despite the lack of hope for falling home values for 2025, those eager to buy aren’t left out in the cold. Here are a few strategies to consider if you see homeownership in your not-so-distant future.
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Buy with an eye on refinancing. You could get into the market today with a home in your price range and look to refinance down the line. While you might get less house for your budget, you can start building equity. When rates come down, you can refinance your mortgage to a lower rate or even a different type of mortgage loan altogether.
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Start small. While it might not be your dream home, you could find housing happiness in today’s market by purchasing a condo or buying a lot and putting a tiny house on it. Both home types can cost considerably less than a single-family home and help you build equity that translates to cash when you’re ready to upsize.
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Go modular. No, these aren’t mobile homes. Modular homes are those that look just like a single-family home when constructed. The only difference is that they’re built in modules off-site and assembled when they get to your lot. They can also cost 10% to 20% less than a traditionally built home.
Have questions about buying, owning, or selling a house? Submit your question to Yahoo's panel of Realtors using this Google form.
When will housing prices drop? FAQs
Will 2025 be a better time to buy a house?
It may be good to buy a house in 2025 because interest rates will probably gradually decrease, though the future of mortgage rates is hazy. Keep in mind that if rates drop, housing prices and competition will probably increase.
Will U.S. housing prices ever drop?
Typically, house prices will fall when supply exceeds demand, and sellers need to lower prices to entice buyers. As of February 2025, home supply was increasing, but not to the point where the number of homes for sale outnumbered those in the market to buy.
Is it smart to buy a house right now?
If your finances are in order and it’s the right stage of your life, it could be a smart time to buy a house. Interest rates have stubbornly remained elevated, but they aren’t at sky-high levels. Home prices are also increasing more gradually.
This article was edited by Laura Grace Tarpley.
