By: Aaron Eller

March 11, 2025

Factors That Influence Housing Prices

Understanding whether home prices will rise or fall in 2025 starts with analyzing the key factors that influence real estate values. These include:

1. Interest Rates

Mortgage rates play a large role in the cost of a mortgage payment. Most people determine how much they can afford for a house by how much their mortgage company will approve for them. Mortgage companies determine loan amounts by your income. This is known as a debt to income ratio. We recommend staying under or around 30% ratio. Mortgage rates are determined by the Federal Funds rate, which is the rate the federal reserve sets. While the Federal Funds Rate helps determine mortgage rates, they are not the same. Mortgage companies will have their own rates but their rates are going to be determined by what price they can borrow money from the Federal Reserve which is the Federal Funds rate.

2. Inflation and the Economy

Inflation affects everything, including housing costs. Over the past several years we saw high inflation costs which impacted the cost of land and supplies which increases new build home prices. If the new build houses cost more this can increase all housing prices by a limited supply. In 2025 inflation looks like it has leveled off around a healthy rate which should keep the variable costs of building houses and rehabbing existing homes will remain level.

3. Housing Supply and Inventory Levels

One of the biggest reasons home prices have remained high in recent years is a lack of supply. The low supply of houses is comprised of a couple reasons. The first is the supply of new build houses, since the 2008 recession, the amount of new houses being built has been at lower levels. The second part of supply is the amount of existing homes going up for sale. This has been lower than the demand level. The lack of inventory can also be influenced by mortgage rates, with extremely low mortgage rates around 2020-2021 many people bought houses or refinances their mortgages into the lower rates, now with higher rates those people are less likely to want to move and get a higher mortgage payment.

4. Consumer Demand and Demographics

Millennials are now in their prime home-buying years, while baby boomers are downsizing. These demographic shifts affect housing demand. If demand remains strong, prices could stay high. If more people hold off on buying due to affordability concerns, we could see a drop in home prices.

5. Government Policies and Regulations

New government policies, tax incentives, or changes in lending regulations could impact the housing market. For instance, first-time homebuyer programs or relaxed lending requirements could drive demand, while stricter mortgage regulations could cool the market.

Will the Housing Market Crash in 2025?

A full-blown housing market crash, similar to 2008, is unlikely. The financial conditions today are vastly different, with more regulated lending practices and a stronger labor market. However, some regions may experience price corrections depending on local economic factors.

Reasons Prices Might Drop in 2025:

• Higher mortgage rates pricing out buyers
• Increased housing supply due to more new builds
• Economic recession leading to job losses and reduced home affordability
• Stricter lending policies reducing the number of qualified buyers

Reasons Prices Might Stay the Same or Rise in 2025:

• Continued housing shortages in major cities
• A potential decrease in interest rates stimulating demand
• Millennials driving homeownership demand
• Investors and institutional buyers keeping prices stable

Regional Differences in Housing Prices

Not all housing markets will behave the same way. Some areas may see price declines, while others remain strong. Here’s how different regions could be affected:

• Major Cities (New York, Los Angeles, Chicago): Prices may stabilize due to high demand, even if interest rates remain elevated.
• Sunbelt States (Texas, Florida, Arizona): Continued population growth could keep prices from dropping significantly.
• Rural and Small Towns: These areas might see price declines due to lower demand and affordability concerns.
• Tech Hubs (San Francisco, Seattle, Austin): Job market fluctuations in tech-heavy cities could cause larger swings in pricing.

What Should Home Sellers and Buyers Do in 2025?

If you’re planning to buy or sell a home in 2025, understanding the market trends can help you make informed decisions.

For Home Sellers:

• If prices are projected to drop, consider selling sooner rather than later.
• Price your home competitively to attract buyers.
• Consider selling to a cash buyer for a quick and hassle-free transaction.

For Home Buyers:

• If mortgage rates decline, it might be a good time to buy.
• Research local markets to find the best value.
• Be patient—there may be better deals if prices decrease.

Summary

Will housing prices drop in 2025? At Cash Offer Man we think housing prices will stay relatively flat unless the federal reserve drops rates. If Mortgage Rates drop a percent or more, we believe housing prices will increase. So for the answer of will housing prices drop, they most likely will not fall unless their is a more broaden recession which is possible with the on going conflict abroad and trade wars with multiple countries. If you’re looking to sell your house fast and avoid market uncertainty, Cash Offer Man provides cash offers with no commissions or hidden fees. Contact us today for a hassle-free home sale!

These findings apply across Missouri, including areas in and around Winchester, Bridgeton, Sunset Hills, Hillsboro, Riverview, and Oakland.

If you need further assistance, please get in touch with us at (314) 912-4939. visit our website, to learn more about our company.