In December 2024, we made two clear calls about the 2025 housing market:
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There would not be a housing crash, despite high mortgage rates and ugly headlines.
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Home prices would continue to rise, driven by structural supply shortages and demographic demand.
Those forecasts weren’t based on optimism. They were based on three inputs that historically control housing outcomes: Housing supply, cost of capital (mortgage rates), and household formation and demand.
Now that the year is over, we can evaluate those inputs against what actually happened. Let’s dive into what the data now shows about how 2025 really unfolded—and why it matters as we move into 2026.
1) Home Prices
What We Expected
We expected home prices to rise around 5% in 2025 because the U.S. was entering the year with a massive housing shortage, not a surplus.
Freddie Mac and Zillow were estimating that the country was short 3–5 million homes going into 2025 after more than a decade of underbuilding. At the same time, millennials were in their prime home-buying years and Gen Z was entering the market, meaning demand was structurally strong even with high interest rates.
We also believed lower mortgage rates would pull sidelined buyers back in, putting upward pressure on prices in most markets.
What Actually Happened
National home prices did not rise by 5% in 2025, but they also did not fall. Most national indexes finished the year showing roughly 1–2% appreciation, with wide variation by region.
Prices slowed because mortgage rates stayed higher than we expected, which kept monthly payments high and capped how far buyers could stretch. That created an affordability ceiling. In markets with strong job growth and limited supply, prices still rose. In pandemic-boom markets where inventory grew faster, prices flattened. But because the U.S. still does not have enough housing overall, prices never collapsed.
2) Mortgage Rates
What We Expected
We expected mortgage rates to fall meaningfully in 2025 as inflation cooled and economic growth slowed. Mortgage rates track the 10-year Treasury yield, and we expected that yield to move toward ~3.6%, which would have pushed mortgage rates toward ~5.85% and meaningfully improved affordability.
What Actually Happened
Mortgage rates did fall from their 2024 highs, but they never reached the high-5% range we expected. Most of 2025, 30-year fixed rates stayed in the low-to-mid 6% range, finishing the year around 6.15%.
That happened because inflation came down more slowly than anticipated, the labor market stayed stronger, and the U.S. government continued issuing large amounts of debt. Bond investors demanded higher yields to hold Treasuries, which kept the 10-year Treasury near 4% instead of falling toward 3.6%. Since mortgage rates follow the 10-year, they stayed elevated too, which kept monthly payments high and limited how much buyers could borrow.
3) Homebuyer Demand
What We Expected
We expected buyer demand to surge once rates came down because millions of households were waiting on the sidelines. Millennials are the largest home-buying generation in U.S. history, and Gen Z is just beginning to enter the market. Those demographic forces don’t disappear just because rates are high.
We believed that once borrowing costs eased, buyers would re-enter in large numbers.
What Actually Happened
Demand stayed real, but it did not surge. Sales volumes remained subdued compared to pre-pandemic norms because monthly payments stayed expensive.
Buyers weren’t scared of homeownership — they were constrained by math. When rates stayed above 6%, many buyers simply could not afford the same price points they could have if rates had fallen into the 5s.
Instead of demand exploding, it stabilized and moved slowly, which kept prices supported but prevented another rapid run-up.
4) Housing Supply (Inventory)
What We Expected
We expected inventory to stay extremely tight because most homeowners were locked into very low mortgage rates. Roughly 80% of homeowners had rates below 5%, and moving would mean trading a 3% mortgage for a 6% mortgage.
We also knew new construction was running well below the ~1.7 million homes per year economists estimate are needed to keep up with population growth.
What Actually Happened
Inventory rose in 2025, even though the country is still short millions of homes. That happened because two things occurred at the same time: people moved anyway for life reasons, and buyers moved more slowly because payments were high. That caused homes to sit on the market longer, which made active listings grow.
By late 2025, more homeowners were carrying 6% mortgages than 3% mortgages, showing that the lock-in effect was fading as people accepted higher rates to make life moves. This loosened the market without creating a glut of homes.
5) Affordability
What We Expected
We believed falling mortgage rates would meaningfully improve affordability, making it easier for buyers to qualify and bid on homes.
What Actually Happened
Affordability barely improved because rates stayed elevated. Even though price growth slowed, monthly payments remained high relative to incomes in most markets. Without mortgage rates in the 5s, many buyers never got the relief they needed.
That’s why 2025 felt “stuck” to many households — not because housing was broken, but because financing was still expensive.
The Bottom Line
We were right about the big picture: the housing market did not crash because the U.S. is still structurally short millions of homes and demand from younger generations remains strong.
Where we were off was timing. Mortgage rates didn’t fall far enough or fast enough to unleash the demand we expected, so price growth came in lower and inventory loosened more than we thought.
That’s what 2025 really was — not a failure, not a boom, but a reset. A year where housing slowed down, stabilized, and became more balanced without breaking.
As we move through 2026, the next phase of opportunity is unfolding. Rates are drifting lower. Inventory remains elevated. And buyers who stayed prepared instead of fearful are now positioned to upgrade, refinance, and expand their real estate portfolios.
