By: Aaron Eller
April 10, 2025
Is the Real Estate Market going to Crash?
Whether the Real Estate Market will crash this year is a broad question and topic. There are many important factors that determine housing prices and the overall economy. While there’s always a possibility of a crash in real estate, stocks, bonds, and any other asset groups, the likelihood of a total crash is slim. What is more likely to happen if the conditions occur to hurt the economy or home prices is a downturn or a slight decrease in prices. A recession occurs when the economy declines significantly lasting more than a few months. Something we haven’t seen in a while.
In 2022 when the economy pulled back it still recovered hitting all time highs shortly after making many economists saying it wasn’t a true recession. In this article we will go over what the Real Estate Market predictions look like for the year and the important pieces to be aware of that could cause a crash or decline.
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Understanding the Real Estate Market Cycle
The real estate market stripped down has only two factors, supply and demand. What makes the real estate market more tricky is there are many other influencers that affect the supply and demand. We will go in depth into each supply and demand, but understanding just these two, you can understand how the home prices move.
When supply is lower and demand remains the same, then the prices have to go up. This is what we have seen the past couple years, the demand hasn’t gone down and the supply has been lower than a healthy average of 2 months of inventory on market. When demand increases, then prices increase unless supply also increases and if they remain relatively proportionate then the prices won’t have any big shifts. Knowing that a real estate crash this year is unlikely. There is already a shortage of supply, so for there to be a crash the demand would have to fall way down. This is unlikely to happen because rates are already high and they are not planning to make them go higher which would decrease demand.
So if supply is already at a lower level and demand is not going to go lower because interest rates are either going to stay the same or get lower throughout the year according to the federal reserve’s plan, this would mean that prices shouldn’t have much room to decrease unless something major changes the supply and demand which is always possible.
What Affects The Real Estate Demand?
Real Estate Markets demand is primarily made up of home buyers, meaning the demand of people wanting to buy a house. The main factors that affect the demand for home buyers is the mortgage rate and home prices. People want to be able to buy a house that they can afford monthly with their mortgage payment and afford with a down payment. In places like California and New York where home prices are way higher than the nation’s average, these factors might not have the same effect.
In Missouri if a person buys a house for $200,000 with a 20% down payment and their mortgage rate is 8%, their average monthly payment for their mortgage is $1,372, but if their interest rate is 4% their monthly mortgage payment goes down to $962, which is a lot more affordable to lower and middle income households. This is where lower interest rates will most likely make the demand increase. The only caveat is the home price, if the home prices go up substantially then a lower interest rate won’t help you because the payment will still be more for a higher principal amount on what you are paying for the home.
In 2025 the Federal Reserve has planned to cut interest rates, this should increase the real estate demand.
What Affects The Real Estate Supply?
Supply is the amount of homes for sale. This is generally made up of 2 categories, one being existing homes for sale on the market and the other being new construction homes for sale. While they are both for sale, the new builds supply changes with factors like materials cost, land cost, and amount of builders. In 2025 the amount of new home construction is still at a lower level than the previous 20-30 years. This has led to a shortage of supply which is why home prices have stayed at higher prices even when interest rates were in the 8% ‘s.
The amount of supply most likely won’t be affected by interest rates because it takes time to increase supply with getting land, planes, permits, workers and time to build the new homes. This means the supply of new home construction will not be increasing substantially any time soon. The existing home supply could increase with lower interest rates because homeowners who have a lower interest rate currently might be more inclined to move if they can keep a lower interest rate.
New Home Construction Factors
New home construction has a couple key factors that determine prices and in 2025 this could be a big change. The main costs are land, labor, and materials. Here in America the price of land most likely won’t be increasing rapidly and same for labor, but that is not the case for materials. The ongoing trade wars and tariffs could rapidly increase the cost of lumber, which is a key piece to building new homes in today’s age. All the materials within the homes plumbing, wires, and the raw materials like aluminum, plastic, steel all are made and sourced overseas. These prices could increase new home construction which would make new home prices for homeowners more expensive. With the availability of existing homes for sale, this could either drive up all prices or just hurt the builders. If the home builders and developers are really hurt with new trade wars that could further hinder the amount of supply and further create prices to go up.
So will the Real Estate Market Crash in 2025?
The chance of the real estate market crashing in 2025 is very slim, most factors point that if anything prices could really increase. There are a few exceptions where black swan events can of course crash the market. If the United States and the rest of the world get into a global trade war that could put America into a recession and have the possibility of a market crash in 2025, although this is unlikely. Global tensions with Russia, Ukraine, and the Middle East could also crash the market if a major escalation were to happen where the US would enter the war and could create WW3. If that happens, it would be hard to say what the real estate market would do. I think we would all have bigger issues at that point.
In general I do not believe the real estate market will crash in 2025 assuming no substantial crises or black swan event takes place. There could be a minor pull back in the market as well as a healthy increase in the market depending on prices and interest rates.
Common Questions Homeowners Ask
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