• Zillow predicts that the US real estate market will continue to change in 2025.
• The real estate company says the average home value rose 2.6% annually in October.
• It says home buying activity is expected to pick up again after a long slump, despite volatility in mortgage rates.

With mortgage rates stubbornly high and prices rising, homebuyers in 2024 have struggled to navigate the real estate market. And Zillow says there could be more changes coming next year.

In a recent outlook, the real estate exchange predicted a handful of developments for the property market next year, which it said is still normalizing following the COVID-19 pandemic.

There are signs that demand and the inventory of existing properties are increasing. The National Association of Realtors said existing home sales rose 2.9% year over year in October, the first annual increase in three years.

The average home value, meanwhile, rose to $359,099 in October, an annual increase of 2.6%, Zillow said. And according to Freddie Mac, the interest rate on the 30-year fixed mortgage rose slightly last week to 6.84%.

“Zillow predicts a more active real estate market and more buyers will take over in 2025, but those looking to buy — or even refinance — should prepare for a bumpy ride and be ready to move when conditions are right,” Skylar Olsen, Zillow’s chief economist, wrote in a note.

Here are four predictions Zillow has for the market next year.

1. Increasing home sales

Olsen said the real estate market has begun to “stalle,” a trend that is expected to continue as home prices rise at a “modest” pace.

The company forecasts home prices will rise 2.6% in 2025, while sales of existing homes will reach 4.3 million, up from the 4 million sales expected this year.

“While affordability challenges remain, buyers should expect more homes on the market, which means more time to weigh their options and more leverage in negotiations,” Olsen said.

2. Fluctuating mortgage interest rates

Zillow predicted that mortgage rates would rise over the next year.

The company pointed to recent changes in the 30-year fixed mortgage rate, which fell this year before rising to nearly 7% as markets adjusted their expectations for borrowing costs amid ongoing inflation and a robust economy.

“More fluctuations like this are expected in 2025, with refinancing sprints occurring during downturns,” Olsen said.

3. A buyer’s market in the Southwest

Zillow data suggests that most “buyers’ markets” in the U.S. are in the Southeast. However, it says buyers in the South West could find more options next year as more inventory in the region becomes “unlocked” and attracts homebuyers.

“These buyers’ markets are likely to see the largest number of movers, while sellers will feel the heat of competition as buyers will have more homes to choose from,” Olsen said.

However, Olsen added that falling mortgage rates could deter buyers from moving west as lower borrowing costs spur demand and give sellers the upper hand.

4. Smaller houses

Zillow predicted that tiny homes would continue to grow in popularity. The company said the word “cozy” appeared in 35% more Zillow listings this year than last year, a sign that buyers may be more interested in downsizing into smaller, more affordable homes.

“Small condo property values ​​are finally stabilizing after remote work empties downtowns, even as property appreciation continues to slow — albeit at a much steeper rate — for larger properties,” Olsen said.