Like an island far away on the horizon, owning a home has never felt more out of reach. Year after year, home prices have climbed higher, leaving many buyers with a tailwind, wondering if they’ll ever catch a break.
In January, the S&P CoreLogic Case-Shiller index — a key measure of national home prices — jumped another 4.1% year-over-year. And February wasn’t any kinder, with the National Association of Realtors (NAR) reporting a 3.8% annual increase in the cost of existing homes.
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But could relief finally be on the way? Housing inventory appears to be on the rise, which could lead to lower home prices. Several major real estate organizations — including Fannie Mae, the Mortgage Bankers Association and the NAR — expect home price growth to slow in 2025.
This could benefit buyers, but it’s also something sellers should keep in mind.
Why homebuyers could see relief
One big reason home prices remain high is limited inventory. When supply is scarce, prices tend to rise.
In February, housing inventory climbed 5.1% from the previous month and 17% year over year, according to the NAR. This growing supply could help stabilize or even reduce home prices. Many homeowners have been reluctant to sell in recent years due to high mortgage rates.
During and shortly after the pandemic, many homeowners locked in historically low mortgage rates by either purchasing a home or refinancing. As a result, they have been hesitant to trade their affordable loans for costlier ones.
However, mortgage rates have fallen modestly in recent months. If this trend continues, more homeowners may decide to list their properties, further increasing supply and cooling the housing market.
Home prices could decline more noticeably in regions with abundant supply, such as Texas and Florida. In January’s Case-Shiller report, which tracks prices in 20 major U.S. cities, Tampa was the only market to show a year-over-year drop.
Meanwhile, as more companies implement return-to-office policies, large metropolitan areas like New York City may experience stronger home price growth due to increased demand. New York, Boston and Chicago saw the largest price gains in January’s Case-Shiller reading.
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How homeowners can prepare
While U.S. home prices are unlikely to plummet, inventory is gradually normalizing.
Some experts worry that factors such as tariff policies could fuel an economic recession, potentially dampening homebuyer demand and pushing home values downward. Some markets — particularly major job hubs — may be more insulated from these effects. However, all homeowners should be prepared.
As of the third quarter of 2024, the average U.S. homeowner had approximately $311,000 in home equity, according to CoreLogic.
If you’re a homeowner, you may want to capitalize on the equity you have now — and protect yourself against a potential recession — by applying for a home equity loan or line of credit (HELOC) sooner rather than later.
A HELOC could be a more flexible option than a home equity loan since it doesn’t require immediate installment payments. Instead, homeowners can access funds as needed.
Unfortunately, now is not a particularly good time to refinance a mortgage, as rates are still elevated. Many homeowners would be looking at higher rates than they currently have.
However, refinancing — particularly through a cash-out refinance — could still be worth looking at, as it allows homeowners to tap into their home equity.
Should you sell now?
The answer depends on your situation.
Selling before prices drop could allow you to lock in a higher sale price. However, if you plan to buy another home at the same time, you’ll likely pay more for your new property — potentially at a higher mortgage rate.
That said, now could be a good time to sell if you’re downsizing, especially if you won’t need to take out a mortgage on a smaller or less expensive home.
Ultimately, no one has a crystal ball to foresee when the right time to sell will be based on current market conditions. But another factor to consider is the possibility of a recession.
A recent Deutsche Bank survey puts the probability of a U.S. recession within the next 12 months at 43%. If you can afford your current home, it may be wise to sit tight rather than take on the financial burden of a more expensive home amid uncertain economic conditions.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
