When will housing prices drop? Outlook as home inventory rises.
Data from Realtor.com shows that existing home sales are slowing down — the typical home for sale spent 51 days on the market in May 2025. This is six more days than last May.
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?
If you look back a little farther, there's more to the story: Houses are now selling at roughly the same rate as before the COVID-19 pandemic. 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.
Learn more: The best mortgage lenders for first-time home buyers
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In this article:
Are house prices going down?
When will house prices go down?
Strategies for eager buyers
FAQs
The short answer: No, housing prices are not going down. However, they're increasing at a slower rate than in the last few years.
The longer answer: As of May, Realtor.com reported that year-over-year house prices are relatively steady, putting the median sale price at $440,000. The median price per square foot has increased by 0.6%. So, while the price per square foot is up, the incline is fairly small.
Housing inventory is increasing, which can be good for home buyers — more houses on the market means less competition, which typically keeps listing prices reasonable. However, inventory is still lower than before the pandemic. Some reasons for the housing inventory shortage include homeowners reluctant to give up the 3% mortgage rates they secured early on in the pandemic — especially as 30-year mortgage interest rates hover in the upper-6% range.
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 average national 30-year fixed mortgage rate has hardly moved since this time last year, and economists don't expect rates 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?
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.
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 has kept the rate unchanged at all of its 2025 meetings so far, 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
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 rate 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 downsize, upsize, 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, constructions, and completions were down in April 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
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. 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.
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.
Have questions about buying, owning, or selling a house? Submit your question to Yahoo's panel of Realtors using this Google form.
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.
Typically, house prices will fall when supply exceeds demand, and sellers need to lower prices to entice buyers. As of May 2025, home supply was increasing, but not to the point where the number of homes for sale had caught up to pre-pandemic numbers.
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.
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