What Zillow’s 2025 Housing Market Report Means for You

The housing market is one of the most talked-about industries in America, and Zillow’s recently published 2025 Housing Market Report has added fuel to the conversation. 

According to Zillow, buying a house is expected to become easier in 2025, contradicting rival Redfin’s claim that the U.S. will transition into a “renter’s market.” Let’s break down Zillow’s predictions and what they could mean for buyers, renters, and investors in 2025.

Key Insights from Zillow’s 2025 Housing Market Report

Zillow identified three major trends shaping the 2025 housing market:

1. Home prices are expected to rise moderately by 2.6%.
2. Renting will become more expensive, making homeownership a more attractive option.
3. Smaller homes will gain popularity, reflecting shifting preferences among American buyers.

Let’s take a closer look at each of these trends.

1. Home Prices Will Increase by 2.6% in 2025

Zillow predicts that home prices will continue to rise modestly, with a 2.6% increase expected by the end of 2025. This growth will be fueled by increased inventory and a potential decline in mortgage rates, making it slightly easier for buyers to enter the market.

Why More Homes Could Hit the Market:

• Mortgage Rates May Drop: Many homeowners currently hold mortgages with rates under 5%. Selling has been unattractive due to current rates around 7%. Zillow suggests that as mortgage rates decline, more homeowners may feel comfortable listing their properties.
• Increased Sales Volume: Zillow forecasts a slight rise in the number of existing home sales, from 4 million in 2024 to 4.3 million in 2025. This uptick signals increased activity in the housing market.

2. Renting Will Become Less Affordable

Zillow predicts that renting will become more challenging in 2025. Here’s why:

• Decline in Rental Construction: In 2024, rental construction reached a 50-year high, giving renters more negotiating power. However, new multi-family construction is expected to drop by 21% in the first half of 2025, with further declines later in the year.
• Fewer Rental Incentives: With fewer rental units being built, landlords will have less incentive to offer concessions like free rent or discounts.

For those considering renting in 2025, rising costs could make buying a home a more attractive long-term investment.

3. Smaller Homes Will Be in High Demand

As Americans face rising home prices, preferences are shifting toward smaller, more affordable homes. Zillow noted that “cozy” is the word of the year when it comes to home buying in 2025.

Why Are Smaller Homes Trending?

• Affordability: Smaller homes come with lower sticker prices compared to larger properties, making them a popular choice for first-time buyers.
• Cost of Construction: While homes are shrinking in size, the cost to build them is still rising, which means these smaller homes may still carry a higher price tag than buyers expect.

Zillow vs. Redfin: A Tale of Two Markets

Zillow’s predictions are in direct contrast to Redfin’s outlook for 2025, which paints a much different picture:

• Redfin’s View: Redfin believes that home prices and high mortgage rates will make buying a house even less affordable, turning the U.S. into a renter’s market.
• Zillow’s Counterpoint: Zillow argues that the cost of renting will push more people toward homeownership, particularly as mortgage rates potentially decline and inventory rises.

Who’s right? The truth may lie somewhere in between, depending on regional factors and broader economic trends.

What Does This Mean for Buyers and Renters?

For Buyers:

• Take Advantage of Lower Mortgage Rates (If They Happen): While Zillow is optimistic that mortgage rates will fall, the Federal Reserve’s decisions and broader economic factors will ultimately dictate the direction of rates.
• Be Ready to Act: If inventory increases, buyers could have more options to choose from. However, competition in high-demand areas will likely remain fierce.
• Affordability First: Use the 75-15-10 budgeting rule to ensure your housing expenses stay within your means:
  • 75% of your income for necessities (including your mortgage).
  • 15% for investments.
  • 10% for savings.

For Renters:

• Prepare for Higher Costs: With rental concessions drying up and construction slowing, renters should budget for potential price increases.
• Consider Buying: If you can afford a down payment and monthly mortgage costs, 2025 might be the year to transition from renting to owning.

A Word of Caution: Timing the Market

Both Zillow and Redfin agree on one point: predicting the housing market is challenging. Instead of trying to time the market, focus on buying a home that fits your budget and lifestyle.

How to Prepare for 2025

If you’re considering buying or renting a home in 2025, here’s how to get ready:

1. Start Saving: Build a solid emergency fund and save for a down payment if you’re planning to buy.
2. Understand Your Budget: Use tools like Zillow’s affordability calculator to determine how much house you can afford.
3. Research Your Market: Stay informed about local housing trends in your area.
4. Plan for the Unexpected: Factor in additional costs like moving, furniture, and potential repairs.

Zillow’s 2025 Housing Market Report provides valuable insights, but remember: the key to success is preparation. Whether you’re buying, renting, or investing, staying informed and financially disciplined is the best way to achieve your goals.