Well, 2024 was a very interesting year.

As I wrote in the 2024 New Year article, rates came down a bit, but not as much as forecasted.

Meanwhile, home prices continued to rise, despite many predictions that they would decline.

With a new President starting this month, let’s talk about what 2025 will bring.

Housing Market: Will Home Prices Finally Drop?

“Jeff, now REALLY, home prices have to come down!”

A quick reminder: 74% of Americans own homes, and homes are an asset. No one wants home prices to decrease—just like you wouldn’t want the stock market to crash so you could buy cheap Bitcoin or Amazon stock.

Here’s what we saw in 2024:

• Home prices rose between 5.5% and 8% nationally—even with mortgage rates staying higher than expected.
• This was an increase on homes that were already at all-time highs.

What’s Coming in 2025?

• Home prices will continue to rise by 3.5% to 7%, depending on the region.
• More 30+ year olds will move out of their parents’ homes and into the market.
• Interest rates will gradually decline, allowing more buyers to enter the market and keeping prices stable and increasing.

Interest Rates: What to Expect

Interest rates will continue to come down, but not as quickly as we’d like.

• The Federal Reserve cut benchmark rates by 100 basis points since September 18th, but mortgage rates haven’t followed suit yet.
• Credit card interest rates remain historically high, unaffected by the Fed’s rate cuts.
• In 2025, another 100 basis point reduction is expected, but cuts may not begin until April.

What Influences Interest Rates?

Interest rates fluctuate daily based on:

• Jobs data
• Consumer confidence
• Inflation expectations
• The Bond and Mortgage-Backed Securities (MBS) market

Inflation: Will Prices Finally Drop?

There are strong signs that inflation will come down in 2025, due to:

• Declining new rental prices, which help stabilize inflation.
• Increased oil production in the U.S., leading to lower fuel prices.
• As fuel prices drop, the cost of goods and services also decrease.

With these factors in play, 2025 could bring relief from high inflation, making daily expenses more manageable.