When will housing prices drop?

Data from Realtor.com shows that existing home sales may be cooling — the typical home for sale spent 62 days on the market in November 2024. That makes it the slowest November for home sales in five years, and it’s 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.

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Learn more: Why are home prices so high?

The answer to this question is more complicated than it has been in a while.

National house prices have been stabilizing and even trending downward when compared to 2023 figures. As of November this year, Realtor.com reported that year-over-year house prices were down 0.07%, putting the median sale price at $416,880. But the median price per square foot increased by 1.6%.

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 when mortgage interest rates were hovering in the 7% range.

Home affordability also plays a role. Even if buyers are willing to give up those low mortgage rates to buy a new home, rising home prices and high mortgage rates can make that decision costly.

It doesn’t help that mortgage rates remain stubbornly high. Yes, they are down from a year ago — but 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?

While it’s a bummer of an answer, experts say it’s unlikely consumers will see house prices drop meaningfully during 2024. Home prices will drop when a mixture of economic factors favorably collide — primarily lower interest rates and increased housing supply.

Those looking for lower interest rates will need to play a game of patience. The Federal Reserve has cut the federal funds rate three times in late 2024, but these decreases haven’t pushed mortgage rates down. At its December meeting, the central bank indicated it plans to lower the fed funds rate only two times in 2025. This conservative approach could keep mortgage rates high.

Read more: When will mortgage rates go down? A look at 2025.

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 7% 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 will 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. At present, new home starts are down slightly (0.6%) compared to 2023, said Sameer Samana, senior global market strategist with the Wells Fargo Investment Institute, via email. Builders had significant inventory on hand when the pandemic hit and don’t want to repeat that error, especially with some prospective home buyers reluctant to buy while they wait for rates to drop even more.

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

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.

• Buy with an eye on refinancing. Samana said buyers could get into the market today with a home in their 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.

• 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.

• 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.

Learn more: 12 popular types of houses for buyers

2025 may be a good time to buy a house 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.

It’s a good time to buy a house if you find one you can afford and feel emotionally and financially ready to take on the responsibility of homeownership. The best time to buy a house is when you have solid finances, a steady employment track record, and a credit history showing you responsibly handle your debts.

Typically, house prices will fall when supply exceeds demand, and sellers need to lower prices to entice buyers. As of Q4 2024, home supply is increasing, but not to the point where the number of homes for sale outnumber those in the market to buy.

This article was edited by Laura Grace Tarpley.