Redfin Forecast: U.S. Home Prices Will Dip 1% By the End of 2025

Redfin forecasts U.S. median home prices to fall 1% year-over-year by Q4, driven by rising inventory (up 16.7% YoY) and declining sales (down 1.1% YoY), while mortgage rates remain elevated near 7% due to tariffs and the rising U.S. budget deficit; despite modestly improving affordability due to wage growth, potential homebuyers are advised to negotiate now rather than waiting for further price declines.

Analysis

The U.S. housing market is signaling a notable inflection point, with Redfin economists projecting a 1% year-over-year decline in the national median home-sale price by the fourth quarter, reversing a decade-long trend of appreciation. This outlook is driven by a substantial 16.7% year-over-year surge in total housing inventory, reaching a five-year peak, coinciding with a 1.1% year-over-year decrease in existing home sales in April, which hit a six-month low, and an increase in the typical time a home spends on the market to 40 days. Persistently high mortgage rates, anticipated to remain near 7% for the rest of the year before potentially moderating to around 6.8% through 2025, continue to constrain affordability; these rates are influenced by macroeconomic factors such as tariffs and the U.S. budget deficit. Despite these headwinds, an expected 4% rise in wages may offer some relief to homebuyers. The market is increasingly favoring buyers, evidenced by nearly half of sellers offering concessions, suggesting that downward pressure on list prices will likely intensify, particularly for properties that have lingered on the market. While a national price decline is forecasted, regional variations are expected, with markets in the Midwest and Northeast potentially exhibiting more resilience.

Key Decisions for Investors

• Investors should closely monitor leading housing indicators such as inventory growth (currently +16.7% YoY), sales velocity (existing home sales -1.1% YoY in April), and seller concession rates to gauge the pace and depth of the market correction.
• Given the projected market slowdown and a specific negative sentiment signal for Redfin (RDFN: -0.6), investors should exercise caution with, or re-evaluate exposure to, real estate services companies whose revenues are sensitive to transaction volumes and home prices.
• Consider exploring tactical opportunities in a buyer's market, such as negotiating for properties with extended days on market or seeking concessions, as nearly half of sellers are currently providing them.
• Evaluate regional housing market performance distinctively, as locales like the Midwest and Northeast are forecasted to potentially resist the national trend of price declines, offering differentiated investment prospects.